Siltronic Corporation v. Employers Insurance Company of Wausau et al

Filing 477

ORDER: Adopting Findings and Recommendation 418 . The Court ADOPTS in part and DECLINES TO ADOPT in part the Magistrate Judge's F&R (# 418 ) andGRANTS Siltronic's Motion (# 329 ) for Partial Summary Judgment. IT IS SO ORDERED. See attached order. Signed on 5/31/18 by Judge Anna J. Brown. (jy)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
SILTRONIC CORPORATION, a
Delaware corporation,
Plaintiff,

3:11-cv-01493-BR
ORDER

v.

EMPLOYERS INSURANCE COMPANY OF
WAUSAU, a Wisconsin
corporation, and GRANITE STATE
INSURANCE COMPANY, a
Pennsylvania corporation,
Defendants.

BROWN, Senior Judge.

Magistrate Judge Youlee Yim You issued Findings and
Recommendation (F&R)

(#418) in this case on January 3, 2018,

in which she recommends the Court grant Plaintiff Siltronic
Corporation's Motion (#329) for Partial Summary Judgment.
On January 24, 2018, Defendant Employers Insurance Company
of Wausau filed Objections (#429) to the F&R.

On January 24,

2018, Granite State Insurance Company also filed Partial
Objections (#428) to the F&R.

On February 6, 2018, Siltronic

filed a Response to the Objections of Wausau and Granite State.
The Court heard oral argument on April 25, 2018, and thereafter
sent to counsel a draft version of this Order to provide to the
parties a final opportunity to submit any additional input on the
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Court's tentative analysis.

The parties responded with various

comments on May 30, 2018.
When any party objects to any portion of the Magistrate
Judge's F&R, the district court must make a de novo determination
of that portion of the Magistrate Judge's report.
§

63 6 (b) ( 1) .

28 U.S.C.

See also Dawson v. Marshall, 5 61 F. 3d 930, 932

(9th

Cir. 2009); United States v. Reyna-Tapia, 328 F.3d 1114, 1121
(9th Cir. 2003) (en bane).
The Court has completed a full consideration of the
challenges to the Magistrate Judge's F&R and now issues this
final Order.

For the reasons that follow, the Court ADOPTS in

part and DECLINES TO ADOPT in part the Magistrate Judge's F&R

(#418).

I.

Wausau's Objections

Wausau primarily objects to the Magistrate Judge's finding
that the parties' course of dealing and the procedural posture in
this case require Wausau to provide both "independent counsel"
and separate "defense counsel" to Siltronic under a Cumis-like
scheme 1 even though Oregon Revised Statute

1

§

465.483 only

As the Magistrate Judge explained, under the Cumis scheme
two sets of counsel represent the insured:
"Cumis counsel" who
represents only the insured and "defense counsel" who represents
both the insurer and the insured.
Under the Cumis scheme the
"Cumis counsel" and the "defense counsel" cooperate in the
defense of the insured.
See F&R (#418) at 5 (citing San Diego
Navy Fed. Cred. Union v. Cumis Ins. Soc'y, Inc., 162 Cal. App. 3d
358, 361 (1984)).
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requires Wausau to provide "independent counsel."

In particular,

Wausau contends § 465.483 only requires Wausau to provide one set
of counsel to Siltronic, and, therefore, the Magistrate Judge
erred when she found§ 465.483 required Wausau to provide two
sets of counsel to Siltronic under the Cumis scheme.

Moreover,

Wausau contends its retention of Davis Rothwell and the later
participation of Foley & Mansfield satisfied Wausau's obligation
to provide "independent counsel."

In any event, even if Wausau

has not fulfilled its obligations under its duty to defend to
date, Wausau argues it has not breached its duty to defend
Siltronic because Siltronic has not suffered any damages.
Although at times in its briefing Siltronic appears to
contend it was entitled to both "independent counsel" and
"defense counsel" consistent with the Cumis scheme, at oral
argument Siltronic's counsel agreed Wausau could satisfy its
obligations under its duty to defend if it provided only
"independent counsel" to Siltronic, and counsel for Wausau
acknowledged that such appointed independent counsel necessarily
owed fiduciary and loyalty obligations solely to Siltronic.

In

any event, Siltronic contends the only counsel involved in
defending Siltronic to date in the underlying Portland Harbor
matters who qualifies as "independent counsel" is counsel from
the law firm Jordan Ramis.
The Court agrees with the parties' now-uncontested position

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that Wausau is only required to provide Siltronic with
"independent counsel" that solely represents Siltronic (and not
Wausau) in all underlying matters as long as Wausau's duty to
defend continues; that is, until the Wausau policies are
horizontally exhausted.

Nevertheless, in addition to independent

counsel, Wausau may (but is not required to) provide "defense
counsel" who cooperates with the representation of Siltronic and
who also represents the insurer.

Accordingly, to the extent the

Magistrate Judge recommends this Court hold that Wausau was
required to provide both "independent counsel" and "defense
counsel" on a prospective basis, the Court declines to adopt that
portion of the F&R.
The Court, nonetheless, adopts the Magistrate Judge's legal
conclusion that Wausau is required to provide "independent
counsel" to Siltronic under the terms of

§

465.483.

The Court,

therefore, reaffirms its earlier Opinion and Order (#237) in
which the Court held Siltronic is entitled to "independent
counsel" selected by Siltronic.
The Court also adheres to its previous finding that counsel
from the law firm Jordan Ramis has been serving as "independent
counsel" in this case.

Opin. and Order (#237) at 32-33.

Although Wausau contends counsel from Foley & Mansfield is
capable of serving as "independent counsel," Wausau has failed to
establish that Foley & Mansfield has represented only Siltronic

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(and has not also represented Wausau) during the course of the
underlying matters.

It follows that Wausau's obligation to pay

the reasonable and necessary defense costs incurred by Siltronic
with Jordan Ramis as independent counsel in the underlying
Portland Harbor clean-up matters includes defense of Siltronic in
Confederated Tribes and Bands of the Yakama Nation v. Airgas USA,
LLC, 3:17-cv-00164-PK.

With respect to whether Wausau breached its duty to defend
Siltronic, the Court concludes the record is sufficiently
developed to find that Wausau breached the 1978-79 policy when it
declared its policies exhausted, prematurely terminated its
defense of Siltronic, and failed to pay some or all of the
independent counsel fees incurred to date.

The Court, however,

also agrees with the Magistrate Judge that the record is not
sufficiently developed to determine the extent of damages (if
any) suffered by Siltronic as a result of the breach and,
therefore, the Court cannot at this stage determine the extent to
which Wausau bears any consequences for breaching the 1978-79
policy in this respect.

II.

Granite State's Objections

Granite State makes two Objections to the F&R.

Siltronic

contests only the second of Granite State's objections.
First, Granite State contends the Magistrate Judge
erroneously noted Granite State retained Davis Rothwell to handle

5 - ORDER

Siltronic's defense.

In the F&R the Magistrate Judge states:

"Wausau, and later defendant Granite State .

. , retained the

law firm Davis Rothwell to handle Siltronic's defense and then
Foley & Mansfield when lead counsel moved to that firm."

F&R

(#418) at 9.
Granite State contends it did not retain David Rothwell.
Instead Granite State asserts Wausau retained Davis Rothwell, and
Granite State merely inherited the defense obligations from
Wausau after Wausau declared its policies were exhausted.
parties agree Granite State is correct.

All

Accordingly, the Court

declines to adopt that statement in the F&R and clarifies the
record to reflect Wausau rather than Granite State retained Davis
Rothwell.

Although the record does not contain sufficient

evidence to determine which party or parties formally retained
Foley & Mansfield, it is clear that Foley & Mansfield served as
the successor in the role that Davis Rothwell previously served
with respect to the representation of Siltronic in the underlying
Portland Harbor matters.
Second, Granite State contends the Magistrate Judge erred
when she observed:

"There is no evidence, however, that either

Davis Rothwell or Foley & Mansfield has operated independently of
the insurers, or that Siltronic has had the ability to control or
direct the litigation."

F&R (#418) at 9.

In particular, Granite

State contends a single communication between Siltronic and

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Granite State in which a Siltronic representative requests
transfer of the case files from Davis Rothwell to Foley &
Mansfield is evidence that Siltronic had the exclusive ability to
control and to direct the litigation.

Although the Court

acknowledges the Magistrate Judge's statement that there was "no
evidence" that Davis Rothwell and Foley & Mansfield acted
independently and that Siltronic controlled or directed the
litigation may be a minor overstatement, the Court also concludes
the single communication on which Granite State relies is
insufficient to establish that Davis Rothwell or Foley &
Mansfield acted as "independent counsel" and is insufficient to
change the Court's previous finding that Jordan Ramis is
Siltronic's "independent counsel."

Accordingly, although the

Court clarifies the state of the record as to whether Davis
Rothwell and Foley & Mansfield served as "independent counsel,"
the Court concludes the Magistrate Judge's characterization of
the record as to whether Davis Rothwell or Foley & Mansfield
served as "independent counsel" is not erroneous in any material
respect.
In summary, and notwithstanding these additional comments
regarding the parties' Objections to the F&R, the Court concludes
it is appropriate to find Wausau in breach of the 1978-79 policy
on the basis stated herein.

Accordingly, the Court adopts the

Magistrate Judge's ultimate recommendation that the Court grant

7 - ORDER

Siltronic's Motion (#329)

for Partial Summary Judgment.

CONCLUSION

For these reasons, the Court the Court ADOPTS in part and
DECLINES TO ADOPT in part the Magistrate Judge's F&R (#418) and
GRANTS Siltronic's Motion (#329)

for Partial Summary Judgment.

IT IS SO ORDERED.
DATED this 31st day of May, 2018.

ANNA J. BROWN
United States Senior District Judge

8 - ORDER