Wood et al v. Nautilus Insurance Company

Filing 303

ORDERED that Defendant's motion for leave to file a reply (ECF No. 300 ) is denied. It is further ordered that Defendant' s objection (ECF No. 297 ) is sustained in part and overruled in part, as described herein. Signed by Chief Judge Miranda M. Du on 11/18/2021. (Copies have been distributed pursuant to the NEF - DRM)

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1 2 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF NEVADA 5 *** 6 ROBERT SONNY WOOD, et al., Plaintiffs, 7 Case No. 2:17-cv-02393-MMD-DJA ORDER v. 8 NAUTILUS INSURANCE COMPANY, 9 Defendant. 10 11 I. SUMMARY 12 This is an insurance coverage and bad faith case. Plaintiffs Robert Sonny Wood 13 and Access Medical LLC assert claims against Defendant Nautilus Insurance Company 14 for breach of contract, contractual and tortious breach of the implied covenant of good 15 faith and fair dealing, and violations of the Nevada Unfair Claims Practices Act. (ECF No. 16 73.) Before the Court is Defendant’s objection (ECF No. 297) to United States Magistrate 17 Judge Daniel J. Albregts’ oral ruling (ECF No. 293) granting Plaintiffs’ motion to compel 18 (ECF No. 286).1 Defendant also seeks leave to file a reply in support of its objection. (ECF 19 No. 300.) As further explained below, the Court will deny Defendant’s motion for leave to 20 file a reply and will overrule the objection. 21 II. BACKGROUND 22 Plaintiffs moved to compel production of their claim file on May 28, 2021. (ECF No. 23 286 at 6-7.) Defendant initially had objected to the production of the claim file, arguing 24 that the file included information protected by the attorney-client privilege and work 25 product doctrine, its contents were not relevant to the subject matter of the action, and 26 the term “claim” was vague and ambiguous. (Id.) Following the 30(b)(6) deposition of 27 28 1Also before the Court is Defendants’ motion for summary judgment (ECF No. 265) and Plaintiffs’ motion for partial summary judgment (ECF No. 301), which is not yet ripe. The Court will address those motions in a separate order. 1 Brenda Philips, Plaintiffs requested a privilege log from Defendant. (Id. at 7.) Defendant 2 produced a privilege log on February 2, 2021. (Id. at 8.) Plaintiffs disputed that all 3 materials covered by the privilege log were actually privileged, and requested the Court 4 compel production of the non-privileged material. (Id. at 16.) 5 Specifically, Plaintiffs sought documented communications between Defendant 6 and attorney Linda Wendell Hsu. (Id.) The requested documents pertained to Hsu’s 7 analysis of the evidence Plaintiffs submitted to Defendant which allegedly triggered 8 Defendant’s duty to defend Plaintiffs. (Id. at 8.) Plaintiffs asserted that Hsu’s evaluations 9 were conducted in the regular course of business and therefore not subject to the 10 attorney-client privilege or work-product doctrine. (Id. at 15-16.) Judge Albregts held a hearing on the motion to compel on July 14, 2021. 11 12 III. LEGAL STANDARD 13 Magistrate judges are authorized to resolve pretrial matters subject to district court 14 review under a “clearly erroneous or contrary to law” standard. 28 U.S.C. § 636(b)(1)(A); 15 Fed. R. Civ. P. 72(a) (a “district judge . . . must consider timely objections and modify or 16 set aside any part of the order that is clearly erroneous or is contrary to law”); see also 17 LR IB 3-1(a) (“A district judge may reconsider any pretrial matter referred to a magistrate 18 judge in a civil or criminal case under LB IB 1-3, when it has been shown the magistrate 19 judge’s order is clearly erroneous or contrary to law.”). A magistrate judge’s order is 20 “clearly erroneous” if the court has a “definite and firm conviction that a mistake has been 21 committed.” See United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). “An order 22 is contrary to law when it fails to apply or misapplies relevant statutes, case law, or rules 23 of procedure.” Jadwin v. County of Kern, 767 F. Supp. 2d 1069, 1110-11 (E.D. Cal. 2011) 24 (quoting DeFazio v. Wallis, 459 F. Supp. 2d 159, 163 (E.D.N.Y. 2006)). When reviewing 25 the order, however, the magistrate judge “is afforded broad discretion, which will be 26 overruled only if abused.” Columbia Pictures, Inc. v. Bunnell, 245 F.R.D. 443, 446 (C.D. 27 Cal. 2007). The district judge “may not simply substitute its judgment” for that of the 28 2 1 magistrate judge. Grimes v. City & County of San Francisco, 951 F.2d 236, 241 (9th Cir. 2 1991) (citing United States v. BNS, Inc., 858 F.2d 456, 464 (9th Cir. 1988)). 3 IV. DISCUSSION 4 As a preliminary matter, the Court will deny Defendant’s motion for leave to file a 5 reply. The proffered reasons Defendant claims justifies a reply brief—that Plaintiffs 6 confuse the standard of review and improperly generalize Nevada law—are not 7 compelling reasons to supplement, as Defendant had the opportunity to explain its 8 arguments in the objection. Moreover, because the Court does not find Defendant’s 9 objection untimely, Defendant does not require the opportunity to respond to Plaintiffs’ 10 timeliness argument. 11 Defendant raises four objections: (1) Plaintiffs’ motion to compel was untimely and 12 should not have been granted (ECF No. 297 at 14-20); (2) the requested documents were 13 covered by attorney-client privilege which had not been waived and therefore were not 14 subject to disclosure (id. at 20-27); (3) the work product doctrine had not been subsumed 15 by the attorney-client privilege (id. at 27-29); and (4) Judge Albregts improperly denied 16 Defendant’s request for sanctions, costs, and fees (id. at 29-30). The Court is satisfied 17 that Judge Albregts did not clearly err or rule contrary to law. 18 1. Timeliness of the Motion to Compel 19 First, the timeliness of motions to compel are not dictated by “bright-line rules,” but 20 are committed to the magistrate judge’s sound discretion. See Williams v. Las Vegas 21 Metropolitan Police Dep’t, 2015 WL 3489553, at *1 (D. Nev. Jun. 3, 2015). While there 22 are indeed many guideposts which the Court may use to control oversight of the discovery 23 process, see Garcia v. Serv. Emps. Int’l Union, 332 F.R.D. 351, 354 (D. Nev. 2019), a 24 magistrate judge’s reasoned determination to depart from those guidelines is not clear 25 error or contrary to law. Here, Judge Albregts considered the applicable law, heard 26 argument from the parties, and ultimately determined that timeliness was not a dispositive 27 issue. He then found it was reasonable that Plaintiffs would not have been alerted those 28 certain materials were not privileged until after Philip’s deposition, and further reasoned 3 1 that part of the delay in resolving this issue was attributable to Defendant’s own delay in 2 supplying the privilege log. (ECF No. 291 at 23-24.) The Court finds that Judge Albregts’ 3 reasoning is not contrary to law because the discovery deadlines are committed to the 4 discretion of the court, and that his conclusion was not clearly erroneous. 2. 5 Attorney-Client Privilege 6 The Court is likewise persuaded that Judge Albregts’ decision to permit discovery 7 into the email communications between Defendant and Hsu was not contrary to law. 8 Judge Albregts applied the three-part test derived from Hearn v. Rhay, 68 F.R.D. 574 9 (E.D. Wash. 1975), and adopted by Spargo v. State Farm Fire & Casualty Company, 10 Case No. 2:16-cv-030306-APG-GWF, 2017 WL 2695292 (D. Nev. Jun. 22, 2017), to 11 determine whether Defendant had impliedly waived the attorney-client privilege. (ECF No. 12 291 at 27-28.) The attorney-client privilege may be impliedly waived in bad faith cases 13 because the insurer’s assertion that it did not act in bad faith makes the insurer’s coverage 14 advice dispositively important. See Spargo, 2017 WL 2694292 at *4 (“Even if the insurer 15 does not expressly assert advice of counsel as a defense to bad faith liability, a majority 16 of courts hold that the plaintiff may still be entitled to discover the mental impressions or 17 opinions of the insurer's coverage attorney because they are directly relevant to the issue 18 of bad faith.”). Although the Nevada Supreme Court has not definitely ruled on when an 19 insurer impliedly waives the attorney-client privilege in the bad faith context, this Court 20 predicted in Spargo that the Nevada Supreme Court would adopt the Hearn approach. 21 See id. at *7. 22 Hearn held that the privilege is impliedly waved “when (1) the assertion of the 23 privilege was a result of some affirmative act, such as filing suit; (2) through this affirmative 24 act, the asserting party puts the privileged information at issue; and (3) allowing the 25 privilege would deny the opposing party access to information vital to its defense.” 68 26 F.R.D. at 581. The plaintiff must also make “a substantial showing of merit,” which 27 protects insurers from waiving the privilege merely by denying a frivolous claim. Id. at 28 582. 4 1 Defendant first argues that Spargo does not control because the Nevada Supreme 2 Court has not spoken to this issue. (ECF No. 297 at 22.) But that is precisely the purpose 3 of the holding in Spargo—a federal district court sitting in diversity must attempt to predict 4 how the state supreme court would rule when it has not yet done so. See High Country 5 Paving, Inc. v. United Fire & Cas. Co., 14 F.4th 976, 978 (9th Cir. 2021) (“If the state's 6 highest appellate court has not decided the question presented, then we must predict 7 how the state's highest court would decide the question.”). The Court has predicted the 8 Hearn test will apply to implied waiver of the attorney-client privilege in bad-faith insurance 9 actions, and will apply the Hearn test absent clearer guidance from the Nevada Supreme 10 Court. Accordingly, Defendant’s reliance on Phillips v. C.R. Bard, Inc., 290 F.R.D. 615 (D. 11 Nev. 2013) is misplaced. Phillips was not a bad faith action, and did not raise the same 12 issues of implied waiver through denial of bad faith. Spargo instead controls. 13 Judge Albregts determined that under the rule in Spargo, Hsu’s communications 14 were discoverable because the defense of the bad faith claim had impliedly waived the 15 privilege. The Court finds this determination was not clearly erroneous. As Hsu states in 16 her declaration (ECF No. 297-1 at 3), each of the four re-tenders she evaluated occurred 17 prior to the filing of this bad faith action, and Defendant’s decision to deny coverage 18 despite the newly discovered evidence formed the basis of this action. The 19 communications between Defendant and Hsu about whether those re-tenders triggered 20 a duty to defend are relevant, if not critical, to the outcome of the bad faith claim. The 21 authority Defendant cites to the contrary is inapposite in light of Sprago. Accordingly, 22 Defendant has failed to show that Judge Albregts’ decision was contrary to the recognized 23 law of this district. 24 3. Work-Product 25 The Court further finds that although Judge Albregts’ reasoning does not 26 accurately state the law of the work product doctrine, the communications are not 27 protected so the outcome is the same. Defendant argues that Judge Albregts’ reasoning 28 that the work product doctrine is “subsumed” by attorney-client privilege in this case was 5 1 contrary to law. (ECF No. 297 at 27.) At the hearing, Judge Albregts concluded that 2 characterizing the coverage determinations in a bad faith action as “work product” was 3 essentially improper. (ECF No. 291 at 25-26.) But the determinations of a coverage 4 attorney may indeed be covered by the work product doctrine in a bad faith action. See 5 Sprago, 2017 WL 2695292 at *2-3. Although the attorney-client privilege and the work 6 product doctrine at times overlap, they are separate inquiries. In order to discover opinion 7 work product, the party seeking that material “must show that the ‘mental impressions are 8 directly at issue in a case and the need for the materials is compelling.’” See id. at *3 9 (citation omitted). 10 Judge Albregts determined elsewhere that Hsu’s mental impressions are directly 11 at issue in this case. Accord Sprago, 2017 WL 2695292 at *3. Moreover, Defendant’s 12 reliance on Sprago for the proposition that the insured may not discover the “mental 13 impressions or legal theories of the insurer’s attorney” is misplaced and out of context— 14 indeed, that quote while material may be otherwise available under the work product 15 doctrine, discovery of an insurer’s attorney’s mental impressions requires waiver of the 16 attorney-client privilege. See id. As explained above, the privilege was impliedly waived. 17 Accordingly, even though Judge Albregts’ oral ruling may have incorrectly stated the work 18 product doctrine was “subsumed” by the attorney-client privilege, the ruling was not 19 contrary to law. Defendant’s objection is sustained in part, but the Court applies Judge 20 Albregts reasoning and finds that the motion to compel was properly granted. 21 4. Sanctions 22 Finally, Judge Albregts did not act contrary to law by denying discretionary 23 sanctions. Defendant’s request for mandatory sanctions under Federal Rule of Civil 24 Procedure 37(b)(2)(C) makes little sense. Defendant has made no showing that Plaintiffs 25 violated a court order. Similarly, Local Rule IA 11-8 vests judges with the authority to 26 award sanctions when a party “fails to comply with any order of this court.” Again, 27 Defendant has not shown Plaintiffs have violated this Court’s order, or explained how 28 Judge Albregts’ decision was contrary to law. 6 1 V. CONCLUSION 2 The Court notes that the parties made several arguments and cited to several 3 cases not discussed above. The Court has reviewed these arguments and cases and 4 determines that they do not warrant discussion as they do not affect the outcome of the 5 motions before the Court. 6 7 8 9 10 It is therefore ordered that Defendant’s motion for leave to file a reply (ECF No. 300) is denied. It is further ordered that Defendant’s objection (ECF No. 297) is sustained in part and overruled in part, as described herein. DATED THIS 18th Day of November 2021. 11 12 13 MIRANDA M. DU CHIEF UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7

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