Peerless Indemnity Insurance Company v. Sushi Avenue, Inc.
MEMORANDUM OPINION AND ORDER Sustaining in Part and Overruling in Part 53 Plaintiff's APPEAL/OBJECTION OF MAGISTRATE JUDGE DECISION to District Judge re 52 Order on Motion to Compel (Written Opinion). Signed by Judge Ann D. Montgomery on 2/15/2017. (TLU)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Peerless Indemnity Insurance Company,
Civil No. 15-4112 ADM/LIB
Sushi Avenue, Inc.,
Daniel W. Berglund, Esq., and Meghan M. Rodda, Esq., Grotefeld Hoffman Schleiter Gordon
Ochoa & Evinger LLP, Minneapolis, MN, on behalf of Plaintiff.
Blair A. Harrington, Esq., Jon R. Steckler, Esq., and Thomas P. Harlan, Esq., Madigan Dahl &
Harlon, PA, Minneapolis, MN, on behalf of Defendant.
This matter is before the undersigned United States District Judge for a ruling on Plaintiff
Peerless Indemnity Insurance Company’s (“Peerless”) Objection [Docket No. 53] to Magistrate
Judge Leo I. Brisbois’ January 4, 2017 Order [Docket No. 52] (“Order”). Peerless objects to the
portion of Judge Brisbois’ Order that concluded Peerless’ attorney-client privilege was not
maintained and that its Amended Redaction Log was insufficient. For the reasons stated below,
Peerless’ Objection is sustained in part and overruled in part.
A. The Underlying Dispute
Peerless was Sushi Avenue, Inc.’s (“Sushi”) workers compensation insurance carrier for
two policy periods. Order at 2. For the first policy period, March 19, 2013 through March 19,
2014, Peerless estimated the premium would be $39,630. Id. For the second period, March 19,
2014 through February 15, 2015, the premium was estimated to be $46,864. Id. The contract
provided that Peerless would determine the final premium at the end of each policy term, “using
the actual, not the estimated, premium basis and the proper classifications and rates that lawfully
apply to the business and work covered by the policy.” Id. Sushi was to pay Peerless the
difference between the estimated and final premium. Id.
Sushi is in the business of selling sushi and related products in kiosks located in
supermarkets in Minnesota and other states. Sushi contracts with individuals who operate the
kiosks. Id. at 1–2. That contract obligates the kiosk operators to carry workers compensation
insurance that is sufficient to protect both the kiosk operators and Sushi from potential claims.
Id. at 2. Sushi claims that the kiosk operators are independent contractors rather than employees
On April 2, 2014, Dawn Mathison (“Mathison”), a Senior Premium Auditor with Liberty
Mutual Insurance (“Liberty”), the parent company of Peerless, conducted an audit of the first
policy period. Id. After reviewing payroll, tax filings, and the contract between Peerless and
Sushi, Mathison concluded the kiosk operators were Sushi employees, not independent
contractors. As a result, the first policy premium was increased by $389,354. Id. at 2–3.
Peerless and Sushi could not resolve the additional audit premium for the first policy
period. Workers compensation coverage for the second policy period was cancelled effective
March 18, 2015. Id. at 4. In April 2015, Mathison began a cancellation audit for the second
policy period, eventually concluding that Sushi owed an additional premium of $357,640. Id.
The parties continue to disagree whether the kiosk operators are employees of Sushi or
On November 13, 2015, Peerless filed this breach of contract suit based on Sushi’s
failure to pay the additional premiums. Id. at 5. Peerless seeks a declaratory judgment that the
kiosk operators are employees of Sushi and should be included when calculating Sushi’s workers
compensation insurance premiums. Id.
During discovery, Sushi requested Peerless produce documents relating to Peerless’
assertion that the kiosk operators are Sushi employees rather than independent contractors. Id. at
6. In response to this request, Peerless produced documents in both redacted and unredacted
form, but also declined production of certain documents, citing attorney-client privilege or the
work product doctrine. Id. Peerless’ redaction log dated June 7, 2016, identified 37 documents
protected by privilege or work product doctrine. Id. On September 8, 2016, Sushi told Peerless
that its claims of privilege were improper because the documents referenced in the redaction log
did not identify an attorney as either a creator or recipient of the communication. Id. Sushi
requested that Peerless produce unredacted versions of documents identified on the redaction
log. Peerless declined and instead offered to provide an Amended Redaction Log to better
explain its assertions of privilege. Id. at 7.
Through depositions conducted on September 14 and 15, 2016, Sushi learned of other
unproduced communications it believed were responsive to its document requests. Id. After
receiving a September 16, 2016 deficiency letter, Peerless produced nearly 6,000 pages of
documents between September 16 and October 7, 2016. Id. One of the documents produced is a
September 3, 2014 email that Peerless now claims is privileged. Id. at 8.
On October 18, 2016, Peerless produced an Amended Redaction Log adding 258
additional documents Peerless claimed were protected by attorney-client privilege or the work
product doctrine. Id. The log, however, did not further explain why the documents did not need
to be produced. Id.
Sushi sent another deficiency letter on October 24, 2016. Id. In that letter, Sushi again
complained about the substance of Peerless’ Amended Redaction Log and additionally
demanded further document production. Id. In response, Peerless claimed the redacted
documents were properly withheld. Id. Peerless also stated that the September 3, 2014 email
was inadvertently produced and requested it be returned. Id. Sushi responded that the email was
not privileged and, even if it was, privilege had been waived. Id.
On November 14, 2016, Sushi filed a Motion to Compel [Docket No. 33], requesting
production of unredacted versions of 123 documents Peerless claims are privileged. Id. at 9. In
the alternative, Sushi requested Magistrate Judge Brisbois view the documents in camera to
determine if they were properly withheld. Id. Additionally, Sushi sought a determination that
the September 3, 2014 email was either not privileged or any privilege had been waived. Id.
B. Judge Brisbois’ Order
Judge Brisbois granted in part and denied in part Sushi’s Motion to Compel. In granting
Sushi’s motion in part, Judge Brisbois noted that many of the documents in dispute were
disseminated to individuals who held corporate roles that Peerless did not explain. Id. at 21–28.
Without this information, Judge Brisbois determined that he was unable to properly assess
whether the communication had been disseminated only to people who, because of the corporate
structure, needed to know its contents, which is an element Peerless had the burden of carrying
to support its privilege claim. See id. Accordingly, Judge Brisbois concluded that Peerless
failed to carry its burden that seven of the 12 “batches” of documents were protected by
attorney-client privilege.1 Id. at 27. For the same reason, attorney-client privilege also did not
apply to the September 3, 2014 email, as it was disseminated to an individual whose identify
Peerless did not explain. Id. at 28.
C. Peerless’ Objection
Peerless objects to Judge Brisbois’ conclusion that it failed to carry its burden in
establishing attorney-client privilege. Peerless argues that Judge Brisbois’ Order improperly
based its conclusions on issues that were not briefed or argued. Peerless requests either that
Judge Brisbois’ Order be overruled, or that this matter be remanded for proper briefing on the
identities and roles of the unknown individuals cited in the Order.
A. Standard of Review
The standard of review applicable to an appeal of a magistrate judge’s order on a
nondispositive issue is extremely deferential. See Reko v. Creative Promotions, Inc., 70 F.
Supp. 2d 1005, 1007 (D. Minn. 1999). The district court must affirm a decision by a magistrate
judge on a nondispositive issue unless the decision is “clearly erroneous or contrary to law.”
Fed. R. Civ. P. 72(a). A decision is “‘clearly erroneous’ when, although there is evidence to
support it, the reviewing court on the entire evidence is left with the definite and firm conviction
that a mistake has been committed.” Chakales v. Comm’r of Internal Revenue, 79 F.3d 726, 728
(8th Cir. 1996). “A decision is ‘contrary to the law’ when it ‘fails to apply or misapplies relevant
As to the five other “batches,” Judge Brisbois denied Sushi’s motion with respect to
batch one, and struck from consideration the other four batches because the contents were either
wholly contained within other batches of documents or outside the dates of disputed documents
the parties had agreed upon at the November 28, 2016 motion hearing.
statutes, case law or rules of procedure.”’ Knutson v. Blue Cross & Blue Shield of Minn., 254
F.R.D. 553, 556 (D. Minn. 2008) (quoting Transamerica Life Ins. Co. v. Lincoln Nat’l Life Ins.
Co., 592 F. Supp. 2d 1087, 1093 (N.D. Iowa 2008)).
B. Attorney-Client Privilege
While Minnesota has not explicitly adopted a test for the application of attorney-client
privilege in a corporate setting, three tests have been considered, including one adopted by the
Eighth Circuit. The five-factored Diversified Industries test, which the parties also cite in this
Objection as the controlling test, provides that attorney-client privilege:
is applicable to an employee’s communication if (1) the communication was made
for the purpose of securing legal advice; (2) the employee making the
communication did so at the direction of his [or her] corporate superior; (3) the
superior made the request so that the corporation could secure legal advice; (4) the
subject matter of the communication is within the scope of the employee’s corporate
duties; and (5) the communication is not disseminated beyond those persons who,
because of the corporate structure, need to know its contents.
Leer v. Chi. Milwaukee, St. Paul & Pac. Ry. Co., 308 N.W.2d 305, 309 (Minn. 1981) (quoting
Diversified Indus. Inc. v. Meredith, 572 F.2d 596, 609 (8th Cir. 1977) (en banc)). Peerless, as
the party asserting privilege, bears the burden of establishing its applicability. United States v.
Williams, 720 F.3d 674, 686 (8th Cir. 2013).
According to Peerless, Sushi argued in its Motion to Compel that the attorney-client
privilege did not protect against disclosure either because Peerless’ counsel was not acting as
legal counsel but participating in the audit process as an ordinary businessman, or because
Liberty auditor Mathison ignored legal advice from her in-house counsel thereby putting the
advice at issue. Peerless argues that Sushi did not assert that the communications at issue were
distributed beyond those corporate representatives who needed to know of their contents, the
basis of Judge Brisbois’ conclusion that privilege had been waived.
Sushi responds that Peerless did address the identities of the individuals in its opposition
memorandum, but failed to satisfy its burden of showing that those individuals were corporate
representatives who needed to know the contents of the communications. Sushi argues that
because Peerless’ Objection impermissibly relies upon new evidence that was not presented to
Judge Brisbois, it should be overruled.
1. Disseminated to Individuals Other than Those Needing to Know
Peerless’ argument that Judge Brisbois’ ruling was based on a theory that was not briefed
or argued is unpersuasive. In its Memorandum in Opposition [Docket No. 42], Peerless recited
the Diversified Industries test and advanced its reasoning as to why each factor had been
established. In order to satisfy the second element, Peerless provided the names and roles of four
individuals who communicated with in-house counsel. Judge Brisbois determined this was
sufficient to establish the second factor. See Order at 16, 22. With respect to the fifth element,
But Defendant has produced no legal support for its argument that a corporate client
cannot disseminate legal advice to others within the corporate structure that need to
know of the attorney’s advice. Indeed, the communications were only shared among
the employees requesting legal advice and those employees directly involved in the
audit either from the collections, underwriting/sales, or audit departments. As such,
the confidentiality of the legal advice was maintained and the attorney-client
privilege applies to the enclosed communications.
Pl.’s Mem. Opp’n Mot. Compel at 13 (emphasis in original). Peerless thus recognized that in
establishing privilege, it had the burden to convince Judge Brisbois that the communications at
issue were not disseminated beyond those persons who needed to know their contents. Peerless
did not explain the corporate role of any individuals other than the four identified for purposes of
the second element, electing instead to broadly assert the conclusion that the communications
were not shared beyond those who needed to know their contents.
In viewing the disputed communications in camera, Judge Brisbois discovered that many
of the communications were copied to individuals whose identity and role Peerless did not
explain. Judge Brisbois’ citation to Ewald v. Royal Norwegian Embassy, No. 11-2116, 2014
WL 1309095, at *10 (D. Minn. Apr. 1, 2014), informed his ultimate conclusion:
Without this information, this Court cannot determine whether these groups needed
to know legal advice. Therefore, under the federal common law, the Embassy has
failed to show that the attorney-client privilege attaches to communications between
employees, and has failed to meet its burden to show that the privilege was not
waived when RNE 363 was distributed to third parties.
Peerless’ failure to identify Ann Fitzpatrick, Stacie Graham, Anita Pierce, James Slaski, Collin
Becker, and Laura Abraham, proved fatal to Peerless’ assertion of attorney-client privilege.
Judge Brisbois’ conclusion that a required element of establishing attorney-client
privilege was lacking is not clearly erroneous or contrary to law. In its Motion to Compel, Sushi
argued that the attorney-client privilege did not apply to the disputed documents. Although
Sushi’s challenges to Peerless’ claim of privilege did not focus on element five of the Diversified
Industries test, Peerless ignores that Sushi placed the assertion of attorney-client privilege
squarely at issue. Thus, Peerless had a burden to demonstrate that privilege applied, a burden
that Judge Brisbois’ concluded was not satisfied.
Peerless’ Objection is accompanied by a Declaration [Docket No. 55] identifying the
position of each individual that Peerless had failed to identify earlier. The more appropriate time
to provide this information was in response to Sushi’s Motion to Compel. Submitting new
evidence as part of an Objection impermissibly seeks to expand the record and overturn a
Magistrate Judge’s ruling with evidence that was not provided to the Magistrate Judge. This is
not allowed. See e.g., Great Lakes Gas Transmission Ltd. P’ship v. Essar Steel Minn., LLC, No.
09-3037, 2011 WL 1486033, at *2 (D. Minn. Apr. 19, 2011) (“It is well settled that a district
court, on review of a magistrate judge’s order, may not consider new affidavits or arguments that
were not presented to the magistrate judge in the first instance.”) (citing Roberts v. Apfel, 222
F.3d 466, 470 (8th Cir. 2000)).
Judge Brisbois’ conclusion regarding the September 3, 2014 email is not clearly
erroneous. The email was sent to James Slaski, an individual Peerless did not identify and thus
failed to establish he was an individual who needed to know the contents of the email because of
his role and duty in the corporate structure. Thus, for the same reasons as those stated above,
Judge Brisbois properly concluded the email was not protected by the attorney-client privilege.
2. Ann Fitzpatrick
Ann Fitzpatrick is one of the individuals whose identity and role was not explained to
Judge Brisbois. In responding to Peerless’ Objection, Sushi does not contest Peerless’ assertion
that Fitzpatrick is a paralegal at Peerless’ counsels’ firm, and “agrees that [Peerless’] production
of emails containing Ms. Fitzpatrick’s name in the header does not constitute a waiver of the
attorney-client privilege.” Def.’s Resp. Pl.’s Obj. Magistrate’s Jan. 4, 2017 Order [Docket No.
56] at 5 n.3. Therefore, Sushi agrees with Peerless’ Objection that Judge Brisbois’ rulings that
the attorney-client privilege had been waived solely because Fitzpatrick was included on the
communication should be set aside. Accordingly, Peerless’ Objection is sustained with respect
to the communications that comprise batch 2, and subparts a, b, e, f, and g of batch 3.
C. Redactions Log
Peerless also objects that the sufficiency of its Amended Redaction Log was not a part of
Sushi’s Motion to Compel and therefore should not have been the subject of a ruling by Judge
Brisbois. Peerless requests the Court overrule Judge Brisbois’ ruling that Peerless produce those
communications in which he was unable to determine the affiliation of every individual on the
Amended Redaction Log. Sushi agrees that the sufficiency of the Amended Redaction Log was
not directly at issue, arguing that Judge Brisbois merely commented on the log’s completeness.
Sushi argues that the issue is either not properly before this Court or that any issue is moot
because the Order determined that nearly all of the communications were not privileged.
In footnote 3 of the Order, Judge Brisbois states:
The Amended Redaction Log is itself insufficient to satisfy the requirement of
Federal Rule of Civil Procedure 26(b)(5)(ii) that the privilege log “disclose the
nature of the documents, communication, or tangible things not produced or
disclosed—and do so in a manner that, without revealing information itself
privileged or protected, will enable other parties to assess the claim.” Plaintiff’s
Amended Redaction Log does not identify whether any of the individuals it names
are attorneys or give any information about the individual’s role within the
corporation, nor does it provide more than a boilerplate description of why the
Order at 17 n.3. Judge Brisbois does not order Peerless to further amend its redaction log. The
basis for ordering production of the communications at issue was that Peerless failed to carry its
burden of establishing the attorney-client privilege protected against disclosure. For the reasons
stated above, Peerless has not demonstrated that the part of Judge Brisbois’ Order compelling
production of certain documents that were disseminated to unknown individuals is clearly
erroneous or contrary to law. Peerless’ Objection on this issue is overruled.
Based upon the foregoing, and all of the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
Plaintiff Peerless Indemnity Insurance Company’s Objection [Docket No. 53] is
SUSTAINED IN PART and OVERRULED IN PART: Peerless’ Objection
with respect to the communications in batch 2 and subparts a, b, e, f, and g of
batch 3 is Sustained. In all other respects, the Objection is Overruled.
Judge Brisbois’ January 4, 2017 Order [Docket No. 52] is AFFIRMED IN
PART as set forth above.
BY THE COURT:
s/Ann D. Montgomery
ANN D. MONTGOMERY
U.S. DISTRICT JUDGE
Dated: February 15, 2017.
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