7 Mile & Keystone, LLC a Michigan Limited Liability Corporation v. Travelers Casualty Insurance Company of America, a Connecticut Corporation

Filing 33

Memorandum and Order Denying Defendant's 29 Motion for Protective Order Relating to Privileged Redacted Documents. Signed by District Judge Avern Cohn. (SSro)

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION 7 MILE & KEYSTONE, LLC, a Michigan Limited Liability Corporation, Plaintiff, vs. Case No. 11-12930 TRAVELERS CASUALTY INSURANCE COMPANY OF AMERICA, a Connecticut Corporation, HON. AVERN COHN Defendant. ______________________________________/ MEMORANDUM AND ORDER DENYING DEFENDANT’S MOTION FOR PROTECTIVE ORDER RELATING TO PRIVILEGED REDACTED DOCUMENTS (Doc. 29) I. INTRODUCTION This is an insurance coverage dispute. Plaintiff, 7 Mile & Keystone, LLC (plaintiff), submitted an insurance claim to defendant, Travelers Casualty Insurance Company of America (defendant), after plaintiff’s property was destroyed in a fire. After an investigation, defendant denied the claim and accused the plaintiff of arson. In discovery, the parties are having difficulty agreeing on the nature and scope of the disclosure of certain emails. Now before the Court is defendant’s motion for protective order relating to privileged redacted emails (Doc. 29). For the reasons that follow, the motion will be denied. II. BACKGROUND On April 6, 2010, defendant issued plaintiff a commercial policy of insurance for the property located at 5125-5135 East Seven Mile Road in Detroit. On June 29, 2010, the property was completely destroyed by a fire. On or about October 22, 2010, plaintiff submitted to defendant proof of claim number EFW5532 in the amount of $1,012,011.38. Defendant initiated an investigation. The investigation was headed by defendant’s general adjuster, Joe Zack (Zack), who was in charge of making claim decisions. As part of Zack’s investigation, he communicated with Jim Thomas (Thomas), a fire cause and origin investigator, and Michelle Kloss (Kloss), defendant’s special investigative unit investigator. After the investigation commenced, defendant’s lawyer became involved in the investigation and actively communicated through email with the investigators. On May 17, 2011, defendant denied the claim. In its denial letter, defendant stated, Our investigation has revealed that the fire was deliberately set and originated at numerous separate and unconnected points of origin. After the fire, a strong odor of gasoline emitted from the property and at least ten hits of gasoline were discovered throughout the property. Our investigation has further revealed that you were the only one with keys to the property prior to the fire. The Company’s investigation has determined that the fire occurred as the result of arson and was set or procured to be set by you and/or persons acting in privity with you or with your knowledge and consent. Based upon your claim presentation, statements, Sworn Statement in Proof of Loss, Examinations Under Oaths, the documents and records submitted as part of your claim and our investigation, we have also determined that you have made material misrepresentations of fact, committed fraud and sworn falsely. . . . .... You also have made material misrepresentations by providing documents to us created after the fire which misrepresent your personal financial condition on the date of the loss and you have provided documents with inflated values that overstated your personal net worth, misrepresents the value of your assets and which falsely create the appearance that you had significant additional assets prior to the fire. 2 (Doc. 29-4, p. 1). Plaintiff filed suit on July 7, 2011 (Doc. 1). On May 10, 2012, plaintiff took Thomas’s deposition. During the deposition, Thomas referenced pre-suit investigative emails that were not disclosed to plaintiff. Subsequently, defendant provided the emails to plaintiff; they were heavily redacted, with seventy-nine redactions. Defendant claimed the emails were protected by the lawyer-client privilege and work-product doctrine. The parties conferred to resolve their differences; they reached an impasse. Twenty-one redactions remain. The Court has reviewed each of the emails which contain redactions in camera. III. LEGAL STANDARD The scope of discovery is generally broad, as set forth in the Federal Rules of Civil Procedure: (1) Scope in General. Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense– including the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action. Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence. . . . Fed. R. Civ. P. 26(b)(1). Nevertheless, district courts have discretion to “limit the scope of discovery where the information sought is overly broad or would be unduly burdensome to produce.” Surles ex rel. Johnson v. Greyhound Lines, Inc., 474 F.3d 288, 305 (6th Cir. 2007). 3 Where good cause is shown, the district court can enter a protective order barring discovery “to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. . . .” Fed. R. Civ. P. 26(c)(1). “By its own terms, the rule contains a built-in limitation that protects from disclosure materials subject to an evidentiary privilege.” 360 Const. Co., Inc. v. Atsalis Bros. Painting Co., 280 F.R.D. 347, 351 (E.D. Mich. 2012). IV. DISCUSSION Defendant asks the Court for a protective order declaring the twenty-one redactions privileged under either the (1) lawyer-client privilege or (2) work-product doctrine. A. Lawyer-Client Privilege The Supreme Court has long recognized that “[t]he attorney-client privilege is the oldest of privileges for confidential communications known to the common law.” Upjohn Co. v. United States, 449 U.S. 383, 389 (1981) (citing 8 J. Wigmore, Evidence § 2290 (McNaughton rev. 1961)). Federal Rule of Evidence 501 provides that “state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” Because this is a diversity case, Michigan law applies. In Michigan, “[t]he scope of the attorney-client privilege is narrow, attaching only to confidential communications by the client to his advisor that are made for the purpose of obtaining legal advice.” Leibel v. Gen. Motors Corp., 250 Mich. App. 229, 236 (2002) (citing Reed Dairy Farm v. Consumers Power Co., 227 Mich. App. 614, 618-19 (1998)). “The purpose of the attorney-client privilege is to permit a client to confide in the client’s counselor, knowing that the communications are safe from disclosure.” Co-Jo, Inc. v. Strand, 226 Mich. App. 108 (1997), superceded by statute on other grounds, (citations omitted). Where a lawyer acts 4 as a business advisor, his communications with a client are not privileged. See Ypsilanti Cmty. Utils. Auth. v. Meadwestvaco Air Sys. LLC, No. 07-CV-1528, 2010 WL 200836, at *1 (E.D. Mich. Jan. 15, 2010) (citing Fox v. Massey-Ferguson, Inc., 172 F.R.D. 653, 669 (E.D. Mich. 1995)). In the context of an insurance claim, “[c]ommunications by attorneys acting as insurance claims investigators, rather than as attorneys, are not protected by the attorney client privilege.” Flagstar Bank v. Fed. Ins. Co., No. 05-CV-70950-DT, 2006 WL 6651780, at *4 (E.D. Mich. Aug. 21, 2006) (citing Mich. First Credit Union v. Cumis Ins. Soc’y Co., No. 05-74423, 2006 WL 185018, at *2 (E.D. Mich. July 5, 2006)). This is so regardless of whether the claims handling work is done by in-house claims handling personnel or by outside counsel. See Flagstar Bank, 2006 WL 6651780, at *6. B. Work-Product Doctrine The work-product doctrine is a procedural rule of federal law governed by Fed. R. Civ. P. 26 in a diversity case. In re Professionals Direct Ins. Co., 578 F.3d 432, 438 (6th Cir. 2009) (citing In re Powerhouse Licensing, LLC, 441 F.3d 467, 472 (6th Cir. 2006)). “Rule 26(b)(3) protects (1) ‘documents and tangible things’; (2) ‘prepared in anticipation of litigation or for trial’; (3) ‘by or for another party or its representative.’” Id. (citation omitted). “To determine whether a document has been prepared ‘in anticipation of litigation,’ and is thus protected work product, we ask two questions (1) whether that document was prepared ‘because of’ a party’s subjective anticipation of litigation, as contrasted with ordinary business purpose; and (2) whether that subjective anticipation was objectively reasonable.” Id. at 439 (citing United States v. Roxworthy, 457 F.3d 590, 594 (6th Cir. 2006)). The work-product doctrine is broader than the lawyer-client privilege and is 5 designed to allow a lawyer to “assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference . . . to promote justice and to protect [his] clients’ interests.” Hickman v. Taylor, 329 U.S. 495, 510 (1947). C. The Disputed Emails Having reviewed the emails containing the redactions in camera, the Court finds that they fall into two categories: (1) pre-suit emails between defendant’s lawyer and defendant’s investigators prior to defendant’s denial of plaintiff’s claim and (2) pre-suit emails post-denial of plaintiff’s claim (a) between defendant’s lawyer and defendant’s investigators and (b) between defendant’s investigators not involving defendant’s lawyer. 1. Pre-denial Emails The unredacted emails between defendant’s lawyer and defendant’s investigators prior to the denial of plaintiff’s claim are not privileged. These emails reveal that defendant’s lawyer was acting in the capacity of an investigator, and not a lawyer. Defendant’s lawyer clarifies in some of these emails that the information relayed is in furtherance of the investigation. Defendant cannot simply delegate investigative work to a lawyer and claim it is protected by the lawyer-client privilege or work-product doctrine. Accordingly, the pre-denial emails must be disclosed to plaintiff. Defendant says a protective order is necessary because this case is like Leibel. In Leibel, the court of appeals considered whether to apply the lawyer-client privilege or workproduct doctrine to a legal memo prepared for General Motors (GM) by its in-house lawyer regarding ongoing product liability litigation. 250 Mich. App. at 231. Addressing the lawyerclient privilege, the court of appeals stated: 6 The memorandum, drafted by Gary Toth, an attorney in GM’s legal department, contains Toth’s legal opinions and legal recommendations regarding GM’s analysis and documentation about seatback designs. Specifically, Toth assesses problems GM confronted in litigating seatback lawsuits and makes suggestions regarding the information needed to support GM’s position in seatback litigation. In his legal memorandum, Toth advises GM to obtain more information on seatback safety and recommends ways to overcome deficiencies in seatback design and performance testing. The Toth Memo further sets forth Toth’s legal advice about potential liability regarding seatback safety and how GM may protect itself against potential lawsuits. Id. at 238 (emphasis in original). Accordingly, the court of appeals concluded that “the Toth Memo represents precisely the kind of legal advice in-house counsel routinely provides to a corporate client,” and, therefore was protected by the lawyer-client privilege. Id. Here, as stated above, the communications are not the routine kind of legal advice a lawyer provides to a client. Rather, unlike Leibel, defendant’s lawyer was acting as an investigator, not as a lawyer. The advice given by defendant’s lawyer was that routinely provided by a claims investigator. The lawyer-client privilege, therefore, does not apply. In addition, the emails here were not made in anticipation of litigation, and, therefore are not protected by the work-product doctrine. The emails were part of a normal investigation to decide whether to approve an insurance claim. This is an ordinary business purpose. Thus, the emails were made in anticipation of making a claim decision as opposed to preparation for litigation. In a recent decision, the Court addressed the issues disputed here. See Barton Malow Co. v. Certain Underwriters at Lloyd’s of London Subscribing to Policy No. 509/QF004706, No. 10-10681 (E.D. Mich. Oct. 3, 2012). In Barton Malow, Barton Malow Company (Barton Malow) sued Certain Underwriters at Lloyd’s London (Underwriters) 7 claiming that Underwriters wrongfully denied them coverage. Id. at *1. Before the claim was filed, Underwriters obtained the law firm of McCollough, Campbell & Land, LLP (law firm). Id. Barton Malow sought to have three passages, communications between the law firm and Underwriters, declared non-privileged and not protected by the work product doctrine. Id. After reviewing the disputed passages, the Court reasoned that “it is clear that the passages communicate legal advice from Underwriter’s counsel regarding the extent, if any, to which Barton Malow’s claim was covered. They show counsel’s legal opinions regarding the scope of potential liability.” Id. at *2. Unlike Barton Malow, the emails here are not the lawyer’s opinion or legal advice regarding defendant’s potential liability, if any. Rather, the emails were the “work of an attorney performing a function that was part of the regular course of [defendant’s] insurance business.” Id. At oral argument, defendant’s lawyer suggested that the timing at which point she was hired– five months after an investigation had commenced– proves that she was acting in the capacity of a lawyer rather than an investigator. Even though defendant’s lawyer was hired after the investigation began, however, the emails reveal that she was just another claims investigator. She did nothing more than continue to investigate the claim. 2. Post-denial Emails The post-denial emails are more of the same. Defendant’s lawyer is not providing legal advice, nor were the emails created in anticipation of litigation. Rather, the emails were a continuance of the ongoing investigation. Similarly, the emails between defendant’s investigators were part of the investigation, not made in anticipation of litigation. Defendant says the emails were created in anticipation of litigation because plaintiff’s 8 lawyer threatened suit on April 22, 2011, before the claim was denied. In an email to defendant’s lawyer, plaintiff’s lawyer stated, Michelle Despite my numerous requests, we have not received a claims decision yet. Is Travelers going to make a claims decision anytime in the foreseeable future, or will it be necessary for me to simply file suit? (Doc. 29-7). However, this email does not mean that every subsequent email was in anticipation of litigation. All that this email shows is that plaintiff was pushing defendant to make a decision on the claim, whether it was to grant or deny the claim. Like the pre-denial emails, the emails made after April 22, 2011, and after the claim was eventually denied, are investigatory in nature and are not lawyer-client communications or covered by the work-product doctrine. V. CONCLUSION For the reasons stated above, defendant’s motion for a protective order is DENIED. The twenty-one disputed emails must be disclosed to plaintiff. Attached to this Memorandum and Order as Exhibit A is a representative sample of the disputed emails.1 SO ORDERED. Dated: December 14, 2012 S/Avern Cohn UNITED STATES DISTRICT JUDGE 1 This decision relates only to the disclosures. Admissibility at trial is to be decided separately if the case gets to trial and plaintiff moves for admission of an email. 9 Case No. 11-12930 7 Mile & Keystone v. Travelers Casualty Insurance I hereby certify that a copy of the foregoing document was mailed to the attorneys of record on this date, December 14, 2012, by electronic and/or ordinary mail. S/Sakne Chami Case Manager, (313) 234-5160 10

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