Cardinal Aluminum Company v. Continental Casualty Company et al

Filing 31

OPINION & ORDER granting in part and denying in part 17 Motion to Quash. Signed by Magistrate Judge Lanny King on 7/22/2015. cc: Counsel(KJA)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
CASE NO. 3:14-CV-857-TBR-LLK
CARDINAL ALUMINUM COMPANY

PLAINTIFF

v.

CONTINENTAL CASUALTY COMPANY

DEFENDANT

OPINION AND ORDER
Defendant filed a notice to subpoena documents from a non-party. (Docket # 16).
Plaintiff moved to quash the proposed subpoena on privilege and relevance grounds. (Docket #
17). The parties fully briefed the motion. The issue is now ripe for the Court’s review.
The Court treats Plaintiff’s motion as a motion for protective order and grants the motion
in part and denies it in part. The Court finds that the proposed subpoena exceeds the scope of
discovery, based on the subject matter of the case and the current procedural posture, and that
Plaintiff did not meet its burden to demonstrate that the subpoena seeks privileged documents.
Defendant may seek limited discovery from the non-party. Plaintiff may assert privilege over
specific documents the non-party otherwise intends to produce to Defendant.
Background
Plaintiff filed its complaint in Jefferson Circuit Court alleging claims for breach of
contract, violation of Kentucky’s Unfair Claims Settlement Practices Act, and common-law bad
faith as well as seeking declaratory relief. (Docket # 1-5). The claims asserted insurance
coverage for a crack that formed in a large piece of industrial equipment. Id. Defendant1

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Initially, CNA Insurance Company was a co-defendant in this case. Plaintiff voluntarily
dismissed its claims against the co-defendant three days after the removal. (Docket # 5).

removed the case to federal court on diversity of jurisdiction grounds. (Docket # 1). Plaintiff
amended its complaint and Defendant answered shortly after the removal. (Docket ## 6, 7).
District Judge Russell issued a Scheduling Order that bifurcated the bad-faith claims and
set a fact-discovery deadline of July 1, 2015, which was later extended to July 15, 2015. (Docket
## 12, 21). On May 15, 2015, Defendant filed and served its Notice of Issuance of Subpoena
Duces Tecum on Arthur J. Gallagher & Co., Plaintiff’s insurance broker for the policy concerned
in this litigation. (Docket # 16). The proposed subpoena seeks: all documents related to the
insurance policy involved in the litigation; all opinions, reports, and examinations related to
equipment owned or operated by Plaintiff; and, all documents related to the instant case.
Plaintiff objected to the proposed subpoena duces tecum and filed its Cardinal Aluminum
Company’s Motion to Quash Subpoena Duces Tecum on May 27, 2015. (Docket # 17). Plaintiff
objected on the grounds of attorney-client privilege, the work-product doctrine, and relevance.
Id. After a telephonic status conference with the Magistrate Judge, the Court granted Plaintiff
retroactive leave to file its motion. (Docket # 20). Defendant responded to the motion and
Plaintiff filed its reply brief. (Docket ## 22, 27). The matter is now ripe.
Nature of the Motion
Plaintiff filed its motion as a motion to quash. (Docket # 17). The proposed subpoena
commands a non-party located in Frankfort, Kentucky, to produce documents at the offices of
Defendant’s counsel in Lexington, Kentucky. (Docket # 16-1). Both Frankfort and Lexington are
located in the Eastern District of Kentucky. A motion to quash is properly made to “the court for
the district where compliance is required.” Fed. R. Civ. P. 45(d)(3). That court is the Eastern
District of Kentucky, not this Court. See Fed. R. Civ. P. 45(c)(2) (describing the place of

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compliance). A court may transfer a motion to quash to the issuing court under certain
circumstances not met for the instant motion. Fed. R. Civ. P. 45(f).
Other courts have held that a party lacks standing to challenge a subpoena served on a
non-party absent the implication of a personal right or privilege related to the documents sought
by subpoena. See e.g., G.K. Las Vegas Ltd. P’ship v. Simon Prop. Grp., Inc., No. 2:04-CV01199-DAE-GWF, 2007 WL 119148, at * 3 (D. Nev. Jan. 9, 2007). That a party lacks standing
to assert a relevance objection when seeking to quash a subpoena to a non-party follows as a
conclusion of this rule. See id.
For these reasons, the Court will treat Plaintiff’s motion as a motion for protective order
under Rule 26. See Washington v. Thurgood Marshall Acad., 230 F.R.D. 18, 22 (D.D.C. 2005)
(treating a party’s motion to quash as a motion for protective order and evaluating the motion
under Rule 26 because the party could not have the relief she sought under Rule 45).
Privileges
I. Attorney-Client Privilege
Plaintiff asserted that attorney-client privilege protects the documents sought by
Defendant’s subpoena. (Docket # 17-1, p. 4). Privileged documents fall outside the scope of
discovery. Fed. R. Civ. P. 26(b)(1). The burden of establishing that a privilege exists to shield a
document from discovery rests on the party asserting privilege—Plaintiff for the instant motion.
In re Grand Jury Investigation No. 83-2-35, 723 F.2d 447, 450 (6th Cir. 1983); Collins v.
Braden, 384 S.W.3d 154, 161 (Ky. 2012).
Plaintiff pled four counts in the instant case: breach of contract, violation of the Kentucky
Unfair Claims Settlement Practices Act, common-law bad faith, and declaratory relief. (Docket #

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6).2 For questions of attorney-client privilege, the Court must apply state law if “state law
supplies the rule of decision” for the claim. Fed. R. Evid. 501. State law applies the rules of
decision for all of the claims in the instant case.3 Therefore, this Court must apply Kentucky law
regarding attorney-client privilege. Jewell v. Holzer Hosp. Found., Inc., 899 F.2d 1507, 1513
(6th Cir. 1990) (“In a civil case involving claims based on state law, the existence of a privilege
is to be determined in accordance with state, not federal, law.”).
Rule 503 of the Kentucky Rules of Evidence establishes attorney-client privilege for
claims under Kentucky law. Haney v. Yates, 40 S.W.3d 352, 354 (Ky. 2000). The Supreme Court
of Kentucky recognized “three salient principals” regarding attorney-client privilege: broad
discovery exists for non-privileged matters,4 “the party asserting a privilege must prove its
applicability,” and the courts should strictly construe privileges because they constrain the
public’s right to evidence. Id. at 355.
“For the privilege to attach, the statement must be a confidential communication made to
facilitate the client in his [or] her legal dilemma and made between two of the four parties listed
in the rule: the client, the client’s representatives, the lawyer, or the lawyer’s representatives.” Id.
at 354. The parties did not argue that Plaintiff’s insurance broker qualifies the client, lawyer, or
lawyer’s representative. (Docket # 27, p. 4). They confined the argument to whether the broker

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While Plaintiff initially pled declaratory relief pursuant to Kentucky law, in its Amended
Complaint, Plaintiff pled a count for declaratory relief pursuant to 28 U.S.C. § 2201. (Compare
Docket # 1-5, p. 7, with Docket # 6, pp. 6-7). Nonetheless, federal courts treat a removed
declaratory judgment action “as though it had been filed under the federal declaratory judgment
act.” Krauser v. BioHorizons, Inc., 903 F. Supp. 2d 1337, 1346 n.6 (S.D. Fla. 2012).
3
The Declaratory Judgment Act serves as a procedural device, not a grant of subject-matter
jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950); see also 903 F.
Supp. 2d at 1346 n.6. That is, the act creates a remedy, not a federal question. See 339 U.S. at
671. Because Plaintiff seeks a declaration related to its rights under the contract, Kentucky
contract law supplies the rule of decision.
4
Rule 26 provides the same result in the federal forum. Fed. R. Civ. P. 26(b)(1).
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qualifies as a representative of Plaintiff and if the communications were confidential and “made
for the purpose of facilitating the rendition of legal services.” (Docket # 17-1, p. 4-6; # 22, pp. 67; # 27, p. 4); see also Ky. R. Evid. 503.
Broadly, Plaintiff argued that its insurance broker, the target to the subpoena under
review, “shepherd[ed] [it] through the claims process.” (Docket # 17-1, p. 6). Plaintiff
specifically asserted that the broker served as its agent to secure coverage, including negotiating
the policy, and “assured that [its] legal interests would be protected.” Id. Moreover, Plaintiff
asserted that the broker answered its coverage and claims questions, advocated Plaintiff’s claim
to Defendant, and provided advice about legal claims against Defendant. Id.
Plaintiff’s chief financial officer submitted an affidavit related to this motion. (Docket #
17-2). In that affidavit, the CFO testified that Plaintiff “asked [its broker] to submit a claim to
[Defendant] seeking coverage for the cost to repair the machine.” Id. at para. 6. Moreover, the
broker negotiated on Plaintiff’s behalf and advised Plaintiff concerning the claims process. Id. at
para. 7. These specific actions do not amount to legal advice. Had an officer or employee of
Plaintiff done the same, the internal communications of Plaintiff would not become privileged
from discovery. The privilege only applies to communications seeking legal advice, not business
advice. Lexington Pub. Library v. Clark, 90 S.W.3d 53, 60 (Ky. 2002). The Supreme Court of
Kentucky held that, in contrast to the “uniquely personal nature” of the attorney-client
relationship, the “broker-insured relationship . . . arises simply from a commercial transaction for
the sale of insurance.” Assoc’d Ins. Serv., Inc. v. Garcia, 307 S.W.3d 58, 63 (Ky. 2010).
The Court finds that Plaintiff’s arguments failed to meet its burden of demonstrating the
existence of an attorney-client privilege protecting all of the documents sought by the subpoena.
For example, based on Plaintiff’s argument and affidavit, the broker’s communications regarding

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the negotiation of the policy were not undertaken to obtain legal advice, but rather to secure
insurance coverage. Plaintiff did not argue that its broker acted to effectuate legal representation
for Plaintiff. Ky. R. Evid. 503(a)(2)(B)(iii). Based on the record before it, the Court cannot
determine that the broker qualifies as a representative of Plaintiff for the purposes of Rule 503
for each or any document sought by the subpoena. Moreover, the Court cannot determine that all
the documents sought constitute communications, let alone confidential communications made to
facilitate professional legal services. Because Plaintiff failed to meet its burden, the Court must
deny the motion as it relates to attorney-client privilege.
II. Work-Product Doctrine
Federal law applies to determine the application of work-product–doctrine protections. In
re Powerhouse Licensing, LLC, 441 F.3d 467, 472 (6th Cir. 2006). As with attorney-client
privilege, the party seeking protection bears the burden of proving the documents constitute work
product. Id. at 473. “Ordinarily, a party may not discover documents and tangible things that are
prepared in anticipation of litigation or for trial by or for another party or its representative
(including the other party's attorney, consultant, surety, indemnitor, insurer, or agent).” Fed. R.
Civ. P. 26(b)(3).
Plaintiff’s argument admitted that not all documents sought from the broker constitute
work product. (Docket # 17-1, p. 7). Plaintiff did argue that the date Defendant advised the
broker that Defendant denied Plaintiff’s claim5 should serve as a bright-line division and all
documents concerning the claim prepared after that date come within the doctrine’s protection.

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The Court notes that the parties disagreed in their briefing as to the date of this event, but the
Court need not settle that dispute to resolve the instant motion. (Docket # 27, p. 5-6). Compare
(Docket # 17-1, p. 7) (August 23, 2013), with (Docket # 22, p. 9) (June 18, 2014).
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Id. Plaintiff broadly argues that “[a]ny documents concerning [Plaintiff’s] claim that were
prepared after that date were prepared in anticipation of litigation.” Id.
The Court finds that Plaintiff did not met its burden of establishing that the broad classes
of documents sought by the subpoena were prepared in anticipation of litigation or for trial, even
if considering only those after the date of coverage denial. “[T]he theoretical anticipation of
litigation does not transform every subsequent document into work product.” Darby v. Gordon
Food Servs., Inc., No. 3:11-CV-646-S, 2013 WL 5354208, at *3 (W.D. Ky. Sept. 24, 2013).
Documents prepared as a part of the ordinary business functions of an insurance broker are not
prepared as a result of anticipated litigation. See id.; see also Black & Veatch Corp. v. Aspens
Ins. (UK) Ltd., 297 F.R.D. 611, 619 (D. Kan. 2014) (finding that an insurance broker does not
automatically and always act as the insured’s representative within the term’s meaning for Rule
26(b)(3)). Plaintiff failed to demonstrate that all documents prepared after the date of denial of
coverage were prepared “‘because of’ anticipated litigation” and therefore failed to carry its
burden of demonstrating that the work-product doctrine protects the documents sought by
Defendant. See Darby, 2013 WL 5354208, at *3; see also Bloodstock Servs. Ir., Ltd. v. United
States, 87 F.R.D. 732, 735 (E.D. Ky. 1980) (quoting Duplan Corp. v. Deering Milliken, Inc., 61
F.R.D. 127, 130 (D.S.C. 1973)) (holding that a mere “‘likelihood of bringing about litigation at
some point in the future is not a sufficient showing. The probability [of particularized litigation]
must be substantial and the commencement of litigation must be imminent.’”).
III. Conclusions as to privileges
The Court finds that Plaintiff failed to meet its burden of establishing any privilege
protects any class of documents sought by the subpoena. Nonetheless, the Court recognizes that a
privilege may protect some documents sought. While the Court cannot rule on the abstract

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question of if an insurance broker can ever serve as a client’s representative for the purpose of
Kentucky’s attorney-client privilege, it also recognizes that the privilege has been called,
“perhaps, the most sacred of all legally recognized privileges, and its preservation is essential to
the just and orderly operation of our legal system.” United States v. Bauer, 132 F.3d 504, 510
(9th Cir. 1997). For that reason, the Court recognizes that Plaintiff must have some mechanism
to assert specific claims of privilege concerning specific documents, which it cannot do if a nonparty possesses the document.
Without a privilege log before it, the Court cannot adequately address asserted privileges
that rely only on abstract theories related to the relationship between Plaintiff and its insurance
broker. Rule 501 promotes the determination of privilege on a case-by-case basis rather than a
wholesale determination that all insurance-broker–client communications either are or are not
protected by the privilege. See Upjohn Co. v. United States, 449 U.S. 383, 396-97 (1981); Fed.
R. Evid. 501 notes on committee on the Judiciary, S. Rep. No. 93-1277, as reprinted in 1974
U.S.C.C.A.N. 7051, 7059.
The Court possesses broad discretion to regulate discovery and must exercise that
discretion to balance the needs and rights of all parties. Scales v. J.C. Bradford & Co., 925 F.2d
901, 906 (6th Cir. 1991) (citing Trevino v. Celanese Corp., 701 F.2d 397, 406 (5th Cir. 1983)).
Because privilege may protect some of the documents sought, the Court will allow Plaintiff the
opportunity to review the responsive documents its broker will otherwise produce to Defendant
and develop a privilege log consistent with this opinion. In that way, any specific claims of
privilege may be litigated with a more thoroughly developed factual record without further
delaying the production of other records.

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Relevance
Plaintiff argued that Defendant’s subpoena is overly broad, both in relation to the subject
matter of the litigation and the procedural posture of the case. (Docket # 17-1, pp. 7-9). The
Court will address each issue in turn.
I. The Subpoena Seeks Irrelevant Documents
For the purposes of discovery, relevance includes evidence admissible at trial and
information “reasonably calculated to lead to the discovery of admissible evidence.” Fed. R. Civ.
P. 26(b)(1). Plaintiff argued that Defendant’s request for “[a]ll opinions, reports, [and]
examinations related to equipment owned [or] operated by” Plaintiff is overly broad. (Docket #
17-1, pp. 7-8). This litigation concerns insurance coverage for a specific piece of machinery (a
Sutton 1800-ton extrusion press) based on a narrow question (if the damage to the machine
constituted normal wear and tear, which the policy excluded from coverage). See (Docket # 6).
Defendant argued in response by simply stating that the documents related to all machines “are
relevant and not otherwise ‘unreasonable, oppressive, annoying, or embarrassing.’” (Docket #
22, p. 5).
The Court agrees that item number two of Defendant’s proposed subpoena seeks
information that is neither admissible nor reasonably calculated to lead to the discovery of
admissible evidence. The Court will limit item two of Defendant’s subpoena to documents
related to the Sutton 1800-ton extrusion press for which Defendant denied coverage.
II. The Subpoena Seeks Documents beyond the Scope of the Current Discovery Phase
The Court bifurcated this action, leaving the issues of bad faith for litigation after the
coverage issues. (Docket # 12). Plaintiff argued that Defendant’s subpoena seeks documents
relevant, if at all, only to the bad-faith claims. (Docket # 17-1, p. 8). Defendant responded that

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the documents “would evidence [Plaintiff’s] understanding of the” insurance policy, knowledge
and investigation of the crack prior to reporting, and efforts to provide information to Defendant
after making its claim. (Docket # 22, p. 5). Plaintiff responded that Defendant previously argued
when requesting a protective order that Plaintiff not have other discovery at this stage of the
litigation. (Docket # 27, p. 2).
This Court already addressed discovery in light of the bifurcation based on Defendant’s
prior motion to compel. (See Docket # 26). The Court exercised its “broad discretion and
inherent power to stay discovery until preliminary questions that dispose of the case are
determined.” Id. (citing Hahn v. Star Bank, 190 F.3d 708, 719 (6th Cir. 1999). The Court will
impose the same restriction on Defendant’s discovery. Defendant must confine its discovery, at
this time, to the question of coverage, excepting discovery that assumes the insurance contract
ambiguous. As such documents related to Plaintiff’s understanding of the policy and efforts to
provide information to Defendant fall outside of the presently allowable discovery. Facts related
to the Plaintiff’s knowledge and investigation of the crack in the press may have relevance to the
coverage question.
III. Conclusions as to Relevance
The Court concludes that Defendant’s request for documents related to all machines is
overly broad. Defendant may seek documents related to the Sutton 1800-ton extrusion press.
While the Court finds press-related–documents relevant and any-machine–related documents
overly broad, some request between those two endpoints may be reasonably calculated to lead to
the discovery of admissible evidence. The Court finds only that the currently presented
subpoena’s request number two exceeds the scope of discovery.

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Likewise, the Court finds that the other subpoena requests exceed the currently allowed
scope of discovery, based on the procedural posture. Both parties must limit their discovery at
this stage in the litigation to evidence reasonably calculated to lead to the discovery of
admissible evidence related to the coverage issue, excluding any evidence related to an
ambiguous contract, which the Court previously stayed. (Docket # 26).
ORDER
IT IS HEREBY ORDERED that the Court evaluated Plaintiff’s Cardinal Aluminum
Company’s Motion to Quash Subpoena Duces Tecum as a motion for protective order. The
Court grants in part and denies in part the motion. (Docket # 17). The Court restricts the
currently presented request two of Defendants proposed subpoena to documents related to the
Sutton 1800-ton extrusion press, but grants Defendant leave to modify its request. The Court
finds requests one and three overly broad and prohibits Defendant to issue a subpoena containing
those requests. The Court grants Defendant leave to amend requests one and three to seek only
documents related to the coverage dispute, excluding questions only relevant assuming the
insurance contract is ambiguous. The Court grants Defendant leave to issue a subpoena to Arthur
J. Gallager & Co. after the fact-discovery deadline, but no later than 14 days after this order and
only after notice as required by Rule 45.
IT IS FURTHER ORDERED that the subpoena will allow Plaintiff a seven-day
inspection period for all documents the non-party will produce in response to the subpoena
before the non-party provides the documents to Defendant. Plaintiff may assert privilege over
any of the documents to otherwise be produced by producing a privilege log to Defendant and
the non-party. The non-party will produce the documents not entered on a privilege log by
Plaintiff after the expiration of the seven-day inspection period. If Defendant disputes any

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asserted privileges, it will contact the Court to schedule a teleconference so that the Court can
establish an expedited briefing schedule.

c:

July 22, 2015

Counsel

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