New Jersey Manufacturers Insurance Company v. Brady et al
Filing
43
MEMORANDUM (Order to follow as separate docket entry) re 18 MOTION for Partial Summary Judgment On Contribution Negligence Defenses Related to Bad Faith filed by New Jersey Manufacturers Insurance Company, 31 MOTION to Compel Production of Documents filed by J. Scott Brady, Brady & Grabowski, PC. Signed by Honorable A. Richard Caputo on 1/20/17. (jam)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
NEW JERSEY MANUFACTURERS
INSURANCE COMPANY,
CIVIL ACTION NO. 3:15-CV-02236
Plaintiff,
(JUDGE CAPUTO)
v.
J. SCOTT BRADY, Individually, and
BRADY & GRABOWSKI, P.C.
Defendants.
MEMORANDUM
Presently before the Court is a Motion for Partial Summary Judgment (Doc. 18) filed
by Plaintiff New Jersey Manufacturers Insurance Company (“NJM”), and a Motion to Compel
Production of Documents (Doc. 31) filed by Defendants J. Scott Brady, Esquire (“Brady”) and
Brady & Grabowski, P.C. (collectively, “Defendants”). NJM’s Complaint (Doc. 1) alleges that
Brady committed legal malpractice when he represented NJM with respect to an
Underinsured Motorist (UIM) claim brought by nonparty Gary Wells (“Wells”) against his
insurer, NJM (the “Wells claim”). Defendants’ Answer (Doc. 10) raises multiple affirmative
defenses, including a contributory negligence defense based on NJM’s alleged bad faith
handling of the Wells claim. In response, NJM filed the instant Motion for Partial Summary
Judgment, seeking to strike this affirmative defense and preclude further discovery related
to its alleged bad faith handling of the Wells claim. Defendants subsequently filed the instant
Motion to Compel, seeking production of documents and communications related to the
Wells claim that NJM contends are privileged. NJM’s Motion for Partial Summary Judgment
will be granted in part and denied in part. Because the Court finds that NJM’s exposure to
bad faith liability is relevant to the issue of damages, NJM will not be precluded from
pursuing discovery on NJM’s bad faith handling of the Wells claim. However, as explained
below, the Court will strike Defendants’ contributory negligence defense only to the extent
that the defense is based on conduct that is not causally related to the arbitration award.
Additionally, after conducting an in camera review of the NJM file, the Court finds that, with
the few exceptions noted below, the documents are properly withheld from discovery on the
basis of the privilege claimed. Moreover, the Court finds that NJM has not waived its
attorney-client privilege or work-product protection with respect to the withheld documents
in the NJM file. However, NJM’s privilege log entries for the Curtin & Heefner file are
insufficiently detailed for the Court to determine whether the documents withheld on the
basis of attorney-client privilege and/or work-product protection are actually privileged from
discovery. NJM therefore must supplement its privilege log as detailed below. Defendants’
Motion to Compel thus will be granted in part and denied in part.
I. Relevant Factual Background
The facts presented in the record, viewed in the light most favorable to Defendants,
are as follows1:
Plaintiff NJM is a New Jersey corporation authorized to issue automobile insurance
policies in Pennsylvania. (Compl. ¶ 1, Doc. 1.) Defendant J. Scott Brady is a licensed
Pennsylvania attorney who practiced at the law firm Defendant Brady & Grabowski, P.C.
when he represented NJM. (Id. ¶¶ 2-3.) The instant dispute arises out of Brady's
representation of NJM with respect to a UIM claim brought by one of its insureds, Gary
Wells. Specifically, NJM contends that Brady negligently handled the arbitration between
NJM and Wells (the "Wells arbitration") and continued to act negligently in the steps he took
1
Local Rule 56.1 requires the nonmoving party's statement of facts to respond to
the numbered paragraphs set forth in the moving party's statement. L.R. 56.1. The
responsive statement “shall include references to the parts of the record that
support the statements.” Id. Defendants’ counterstatement of facts contains
denials that are unsupported by adequate citations to the record. (See Doc. 24.)
Therefore, the Court will adopt Plaintiff’s statement of facts that are supported by
sufficient citations to the record, except for those facts clearly disputed by
Defendants with adequate record references. See L.R. 56.1 (“All material facts set
forth in the statement required to be served by the moving party will be deemed to
be admitted unless controverted by the statement required to be served by the
opposing party.”). See generally United States ex rel. Paranich v. Sorgnard, 286
F. Supp. 2d 445, 448 n.3 (M.D. Pa. 2003)
2
after the arbitration panel issued its award. (See id. ¶¶ 61-63, 74-76.) NJM also claims that
Brady breached his fiduciary duties in his handling of the Wells claim, including his handling
of the Wells arbitration. (Id. Count II.)
Nonparty Gary Wells was injured in a car accident on February 20, 2012. (Pl.'s
Statement of Undisputed Facts ("PSUF") ¶ 1, Doc. 19.) NJM provided automobile insurance
to Mr. Wells, including Underinsured Motorist (UIM) coverage. (Id. ¶ 2.) Under the policy,
UIM coverage was limited to $2 million. (Id. ¶ 3.) Mr. Wells was represented by the law
offices of Lenahan & Dempsey, who submitted a claim on behalf of Mr. Wells to NJM under
the UIM provisions of his policy. (Id. ¶ 5.) On March 11, 2014, Defendant J. Scott Brady and
his firm, Defendant Brady & Grabowski, P.C., were retained to represent NJM with respect
to the Wells claim. (Id. ¶ 7.) The parties agreed to a common law arbitration before a
three-person arbitration panel. (Id. ¶ 8; see Ex. F, at 4:2-6, Doc. 19.) The arbitration was
scheduled to take place on August 19, 2014 in Lackawanna County, Pennsylvania. (PSUF
¶ 8.) On August 14, 2014, John Lenahan, Mr. Wells’s attorney, sent Brady a letter that
stated: "Enclosed you will find a submission I propose we give the arbitrators in a sealed
envelope, to be opened after their deliberations have been completed." (Ex. G, Doc. 19.) The
letter further stated that Lenahan was "including the UIM policy limit disclosure” in the
proposed sealed envelope “without waiving [plaintiffs’] argument that the arbitrators should
be advised of the UIM limits in advance of the arbitration proceedings. . . ." (Id.) However,
the arbitrators were not made aware of the UIM policy limits prior to issuing their decision.
(PSUF ¶ 13.)
For purposes of the arbitration, NJM stipulated that the driver who caused Wells's
injuries was negligent. (PSUF ¶ 10.) The only issues before the arbitration panel were the
scope and extent of Wells's injuries. (Id. ¶ 11.) The issue of NJM's alleged bad faith handling
of Wells's UIM claim was not at issue in the arbitration. (Id. ¶ 12.) Brady never requested the
arbitration panel to mold an award in excess of the $2 million policy limit to match that limit.
(Id. ¶ 14.) On August 20, 2014, the arbitration panel issued an award in favor of Mr. Wells
for $5,921,117. (Id. ¶ 15; Ex. J, Doc. 19.) This award was for compensatory damages only,
3
and exceeded the $2 million policy limit by $3,921,117. 2 (PSUF ¶ 16.) The award did not
encompass extra-contractual damages, including damages related to any bad faith on the
part of NJM. (Id.)
On September 2, 2014, Brady filed a Petition with the arbitration panel seeking
reconsideration, correction, modification, and/or clarification of the award pursuant to 42 Pa.
Cons. Stat. Ann. § 7311. (Id. ¶ 17; see Ex. K, Doc. 19.) The Petition sought to modify the
award, arguing that the amount was arbitrary. (PSUF ¶ 17.) The Petition did not provide the
UIM policy limits or expressly request the arbitration panel to mold the award to the policy
limits. (See Ex. K, Doc. 19.) On September 15, 2014, Brady sent a letter to NJM in which he
opined that, because he had “no doubt” that a court would interpret Wells’s policy language
as calling for a common law arbitration rather than a statutory arbitration, NJM had very
narrow grounds on which to appeal the arbitration award, none of which he believed applied
to the Wells arbitration. (Ex. V, Doc. 25-1.) Brady thereafter withdrew the Petition on
September 16, 2014 (Ex. L, Doc. 19) and filed an appeal of the award in the Court of
Common Pleas of Monroe County, Pennsylvania on September 19, 2014. (PSUF ¶¶ 19-20.)
The appeal did not explicitly use the term “molding” in its request for modification of the
Wells arbitration award. (See Ex. M, Doc. 19.) On September 23, 2014, Lenahan filed a
Petition to Confirm Common Law Arbitration Award and Enter Judgment in the Court of
Common Pleas of Lackawanna County–the same county where the arbitration took place.
(PSUF ¶ 22.) Around this time, NJM discharged Brady and retained new counsel, Curtin &
Heefner, to handle the challenge to the Wells arbitration award. (See Stein Aff. ¶ 3, Doc. 361.) On October 14, 2014, Curtin & Heefner on behalf of NJM filed an Amended Petition in
Monroe County requesting the award be molded to the $2 million policy limits, as well as a
Motion to Transfer Venue from Monroe County to Lackawanna County. (Ex. 7, p. 3598, Doc.
2
The arbitrators awarded Wells $ 2,646,117 in economic damages and $ 3,300,000
in noneconomic damages, including $300,000 for Mr. Wells’s wife for loss of
consortium. (Ex. J, Doc. 19.) The award was offset by $25,000 for a payment
made by the tortfeasor. (Id.)
4
23.)
Lenahan had also drafted a complaint that alleged NJM acted in bad faith in handling
the Wells claim. (PSUF ¶ 23; Ex. O, Doc. 19.) Lenahan sent the draft bad faith complaint to
Bonnie Stein of Curtin & Heefner on October 23, 2014. (Ex. 13, Doc. 23.) In this email,
Lenahan informed Stein that he was “likely” to file the complaint before the end of the
following day (October 24, 2014). (Id.) On October 26, 2014, Stein emailed Nathan Buurma
and Jeffrey Bartolino, members of NJM's in house legal team, a copy of the bad faith
complaint. (Ex. 3, Doc. 23.) In that email, Stein stated that she wanted to meet “ASAP" to
"speak about some significant developments" and "go over major concerns and the possible
benefits of this going [to] the October 30, 2014 Mediation." (Id.) Additionally, an email from
Buurma concerning the Wells claim sent on October 27, 2014 demonstrates that NJM's legal
team was actively strategizing over its ability to mold the arbitration panel's award to the
policy limits, as well as its potential exposure to bad faith liability. (Ex. 4, Doc. 23.) On
October 28, 2014, Buurma sent a notice to Brady informing him that NJM planned to file a
malpractice suit against him in connection with his handling of the Wells arbitration. (Ex. 5,
Doc. 23.) A mediation between NJM and Wells was scheduled for October 30, 2014. (Id.
Exs. 6-7.) Both parties' mediation memoranda dealt extensively with the issue of NJM's bad
faith handling of the Wells claim before and after the arbitration. (See id.)
On November 10, 2014, NJM and Wells executed a release and settlement
agreement. (Ex. P, Doc. 19.) NJM contends that it reasonably believed Brady's failure to
submit the policy limits to the arbitration panel or otherwise request a molding of the award
would have resulted in the full amount of the arbitration award being confirmed in court, and
that its pending motions seeking to reduce the award would have been futile. (See PSUF ¶
24.) NJM therefore agreed to pay Wells the full arbitration award plus interest in exchange
for the release of all claims against NJM relating to this matter, including any claims for bad
faith. (Ex. P ¶ 1, Doc. 19.) The agreement also states: "[T]he Payment referenced in this
Agreement is made by NJM solely for the purposes of avoiding the uncertainty, nuisance and
expense of litigation, and [] no part of the Payment is for bad faith or extra-contractual
5
liability." (Id. ¶ 5.)
NJM subsequently filed its malpractice suit on November 20, 2015. The Complaint
alleges that Brady handled the Wells arbitration negligently, and committed legal malpractice
by failing to present the arbitration panel with the UIM policy limits and failing to raise the
issue of molding the award to the policy limits before the arbitration panel or any subsequent
court. NJM seeks damages totaling the difference between its policy limits ($2 million) and
the Wells arbitration award ($5,921,117). Defendants filed their Answer on February 1, 2016,
in which they raised multiple affirmative defenses, including:
NJM acted in Bad Faith in violation of 42 Pa.C.S. section 8371
and knew that it had significant bad faith exposure for it’s [sic]
conduct, some of which is outlined in Lineman’s [sic] 125 page
draft Bad Faith Complaint submitted to NJM on October 26th
through NJM’s counsel before the mediation that settled the UIM
and Bad Faith cases on or about October 30, 2014. As
specifically outlined in the draft Bad Faith Complaint, NJM
repeatedly ignored demands for the policy limits before Brady
was retained, after Brady was retained (but prior to Arbitration)
and after Arbitration in spite of repeated demands that the policy
limit and only the policy limit be paid.
(Answer ¶ 3; see also id. ¶ 1 (“The Plaintiff’s claims are barred by NJM’s fault or their
contributory negligence . . . .”).) NJM argues that a “bad faith contributory negligence
defense” should be stricken because NJM’s alleged bad faith “bears no causal nexus to the
claims and damages asserted by NJM against Brady. . . .” (See Pl.’s Br. in Supp. 7, Doc. 20.)
A hearing was held on December 22, 2016, and the motions are now ripe for disposition.
II. Legal Standards
A.
Motion for Partial Summary Judgment on an Affirmative Defense
Summary judgment shall be granted “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). As such, summary judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the moving party
6
is entitled to a judgment as a matter of law.” Wright v. Corning, 679 F.3d 101, 105 (3d Cir.
2012) (quoting Orsatti v. N.J. State Police, 71 F.3d 480, 482 (3d Cir. 1995)). A fact is
material if proof of its existence or nonexistence might affect the outcome of the suit under
the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
When there is no material fact in dispute, the moving party need only establish that
it is entitled to judgment as a matter of law. See Edelman v. Comm’r of Soc. Sec., 83 F.3d
68, 70 (3d Cir. 1996). Where, however, there is a disputed issue of material fact, summary
judgment is appropriate only if the factual dispute is not a genuine one. Anderson, 477 U.S.
at 247-48. An issue of material fact is genuine if “a reasonable jury could return a verdict for
the nonmoving party.” Id. at 248. Where there is a material fact in dispute, the moving party
has the initial burden of proving that: (1) there is no genuine issue of material fact; and (2)
the moving party is entitled to judgment as a matter of law. See Howard Hess Dental Labs.,
Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 251 (3d Cir. 2010). The moving party may present
its own evidence or, where the nonmoving party has the burden of proof, simply point out to
the court that “the nonmoving party has failed to make a sufficient showing on an essential
element of her case.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In deciding a
motion for summary judgment, the Court must view the evidence in the light most favorable
to the nonmoving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986).
Courts differ as to whether a motion for summary judgment under Rule 56 or a motion
to strike under Rule 12(f) “is the appropriate procedure by which to challenge an affirmative
defense.” Prof'l Buyer's Guild, LLC v. Ace Fire Underwriter Ins. Co., No. 06-2127 (GEB),
2007 WL 3227183, at *1 n.1 (D.N.J. Oct. 30, 2007). Here, because both parties refer to
matters outside of the pleadings, it is appropriate for the Court to treat NJM’s Motion as one
for partial summary judgment rather than a motion to strike. See United States v. Manzo, 182
7
F. Supp. 2d 385, 395 n.6 (D.N.J. 2000). “The effect of a grant of partial summary judgment
in this situation is that the affirmative defense[] [is] stricken.” Kantner v. Sears & Roebuck,
Inc., 5:15-CV-01039, 2016 W L 739187, at *2 (E.D. Pa. Feb. 25, 2016) (citation om itted).
B.
Legal Malpractice Claim
“A legal malpractice lawsuit arising out of the conduct of underlying litigation involves
a ‘case within a case.’” Scaramuzza v. Sciolla, No. Civ.A.04-1270, 2006 WL 557716, at *7
(E.D. Pa. Mar. 3, 2006). Under Pennsylvania law,3 “an allegedly aggrieved client must
establish three elements in order to recover for legal malpractice”: (1) the employment of the
attorney or other basis for duty; (2) the failure of the attorney to exercise ordinary skill and
knowledge; and (3) the attorney’s negligence was the proximate cause of damage to the
plaintiff. Rizzo v. Haines, 555 A.2d 58, 65 (Pa. 1989). This requires "proof of actual loss
rather than a breach of a professional duty causing only nominal damages, speculative harm
or the threat of future harm." Kituskie v. Corbman, 714 A.2d 1027, 1030 (Pa. 1998). Stated
differently, a plaintiff may recover as damages only the actual losses he suffered as a result
of the attorney’s misconduct. Duke & Co. v. Anderson, 418 A.2d 613, 617 (Pa. Super. Ct.
1980); see Ammon v. McCloskey, 655 A.2d 549, 552 (Pa. Super. Ct. 1995) (“Hence, until
the client suffers appreciable harm as a consequence of his attorney's negligence, the client
cannot establish a cause of action for malpractice.”) (citation omitted). “Damages are
speculative only if the uncertainty concerns the fact of damages rather than the amount.”
Liberty Bank v. Ruder, 587 A.2d 761, 765 (Pa. Super. Ct. 1991) (citation omitted) (emphasis
in original); see Ammon, 655 A.2d at 553 (holding that the entry of a negligently-obtained
judgment constitutes an actual loss giving rise to a cognizable malpractice claim, even if
execution of the judgment does not occur, so long as the aggrieved client is able to
demonstrate it incurred other actual damages).
3
Pennsylvania substantive law applies to this diversity action. See Nat’l Grange
Mut. Ins. Co. v. Goldstein, Heslop, Steel, Clapper, Oswalt & Stoehr, 142 Fed.
Appx. 117, 120 (3d Cir. 2005).
8
In a legal malpractice case in which the underlying action involved litigation, actual
losses are usually “measured by the judgment the plaintiff lost in the underlying action[,] and
the attorney who negligently handled the underlying action is the party held responsible for
the lost judgment.” Kituskie, 714 A.2d at 1030. However, it is inequitable for an aggrieved
client to obtain a judgment against his attorney for an amount that is greater than what the
client could have obtained from the third party in the underlying action. Id. Such a scenario
would allow the client to “receiv[e] a windfall at the attorney’s expense.” Id. (citation omitted).
The plaintiff bears the burden of proving damages and establishing that it would have
succeeded on its defense in the underlying action but for its attorney’s negligence. Duke, 418
A.2d at 618.
C.
Contributory Negligence in Legal Malpractice Cases
“[T]he negligence of a client may be raised as an affirmative defense by an attorney
in a legal malpractice action that is based on a theory of negligence.” Gorski v. Smith, 812
A.2d 683, 700 (Pa. Super. Ct. 2002). Because legal malpractice actions “do not involve
bodily injury or damage to property,” they fall outside the scope of Pennsylvania’s
Comparative Negligence Act, and the doctrine of contributory negligence therefore applies.
Id. at 702. “Contributory negligence is conduct on the part of a plaintiff which falls below the
standard [of care] to which he should conform for his own protection and which is a legally
contributing cause, cooperating with the negligence of the defendant, in bringing about the
plaintiff's harm.” Id. at 703 (citation omitted). Under the doctrine of contributory negligence,
“[i]t does not matter how slight the evidence of plaintiffs’ contributory negligence is. . . . Any
contributory negligence by the plaintiffs would be a complete bar to recovery.” Rizzo v.
Michener, 584 A.2d 973, 978 (Pa. Super. Ct. 1990). However, a plaintiff “may not be found
contributorily negligent unless it appears that he engaged in conduct that was both negligent
and a legal cause of his injury.” Fahringer v. Rinehimer, 423 A.2d 731, 733 (Pa. Super. Ct.
1980); see Angelo v. Diamontoni, 871 A.2d 1276, 1280 (Pa. Super. Ct. 2005) (“[T]he burden
to establish the plaintiff's conduct as a contributing factor in his injury rests with the
defendant, who must show both the negligence of the conduct alleged and the causal
9
relationship of that conduct to the injuries for which damages are sought.”).
III. Discussion
A.
NJM’s Motion for Partial Summary Judgment
NJM’s Motion for Partial Summary Judgment is premised on the notion that there is
no causal relationship between NJM’s purported contributorily negligent conduct–NJM’s bad
faith handling of the Wells claim–and the damages that NJM seeks from the Defendants–the
delta between the arbitration award and the policy limits. (See Pl.’s Br. in Supp. 9-10, Doc.
20.) The reasoning underlying NJM’s position proceeds as follows: First, NJM correctly
argues that the arbitration award issued in favor of Wells was for compensatory damages
only and in no way predicated on NJM’s bad faith conduct. As such, NJM’s bad faith conduct
was not factored into the amount of the arbitration award. Second, NJM correctly advances
that the arbitration award exceeded the $2 million limit in Wells’s UIM policy by
approximately $3.9 million. Third, NJM argues that, at the time Lenahan filed the Petition to
Confirm the arbitration award in the court of common pleas, NJM had no legal recourse to
avoid paying the arbitration award in full. Thus, the entire arbitration award was going to be
confirmed by the court and on appeal as a matter of law. NJM therefore elected to settle with
Wells instead of engaging in a futile legal challenge. Furthermore, NJM specifically
enumerates a clause in the settlement agreement that states “no part of the Payment is for
bad faith or extra-contractual liability” as evidence that the settlement payment was
contemplated to extinguish NJM’s liability with respect to Wells’s UIM claim only. (See Pl.’s
Br. in Supp. 10-11, Doc. 20.) Fourth, NJM contends that it now simply seeks liquidated
damages–the difference between the arbitration award that it was bound to pay in full and
the policy limits. Based on this foundation, NJM posits that the Court will ultimately have to
decide whether NJM would have lost its challenge to the Petition to Confirm the arbitration
award and on any subsequent appeal, and therefore have been bound to pay the full amount
of the award as a matter of law due to Brady’s negligence. (Pl.’s Reply Br. 3, Doc. 25.)
Because NJM’s bad faith handling of the Wells claim does not affect this inquiry, NJM argues
that partial summary judgment on this affirmative defense is warranted.
10
The Court concludes that NJM’s exposure to bad faith liability is relevant to the issue
of the damages it seeks in this case. As such, for the reasons that follow, the Court will not
preclude discovery on NJM’s bad faith conduct. However, NJM’s Motion for Partial Summary
Judgment will be granted in part, and the Court will strike Defendants’ bad faith contributory
negligence defense only to the extent that this defense is based on NJM’s conduct that is
not causally related to the arbitration award.
1.
NJM’s Exposure to Bad Faith Liability is Relevant to the Issue of
Damages
In reaching this conclusion, the Court notes first and most significantly that NJM never
paid the Wells arbitration award. Instead, NJM elected to satisfy its obligation on the Wells
UIM claim by settling with its insured. Stated differently, even if Brady is found to have been
negligent, and even if that negligence would have caused NJM to be bound to pay the entire
arbitration award after review in court, NJM never in fact paid this award. Accordingly, NJM
cannot directly claim that its damages are the difference between the arbitration award and
its policy limits because NJM never suffered an actual loss as a result of paying that award.
See Duke & Co. v. Anderson, 418 A.2d 613, 617 (Pa. Super. Ct. 1980) (holding that proof
of actual loss is necessary in a legal malpractice cause of action); see also Kituskie v.
Corbman, 714 A.2d 1027, 1030 (Pa. 1998) (noting that a speculative harm does not
constitute cognizable damages in a malpractice action). NJM can, however, attempt to prove
that the settlement payment, or some portion of it, was made in lieu of direct satisfaction of
the arbitration award, assuming NJM first demonstrates that the award would have been
confirmed in court.
Second, when read in a light most favorable to Defendants, the record suggests that
the settlement payment was made in part to extinguish NJM’s exposure to bad faith liability.4
At the hearing on December 22, 2016, counsel for NJM acknowledged that NJM was
4
The Court does not decide whether a portion of the settlement payment was in fact
made to extinguish NJM’s bad faith liability at this time.
11
motivated by the desire to shield itself from bad faith liability when it entered into the
settlement agreement with Wells. The record also demonstrates this fact independently of
counsel’s statement to the Court. An email sent from Bonnie Stein of Curtin & Heefner to
NJM’s in-house counsel on October 26, 2014 evidences that Stein had recently received the
bad faith complaint from Wells’s attorney, who stated that he planned to file that complaint
“before the end of business tomorrow [October 24, 2014].” (Exs. 3, 13, Doc. 23.) The email
indicates that Stein believed the development involving the bad faith complaint needed to
be addressed “very quickly,” as there was only a “limited window of opportunity to go to [the
October 30, 2014] mediation.” (Ex. 3, Doc. 23.) A subsequent email sent on October 27,
2014 by Nathan Buurma, in-house counsel for NJM, demonstrates that NJM’s legal team
was strategizing over its exposure to bad faith liability right before the parties began the
October 30, 2014 mediation that culminated in the agreement to settle with Wells. (Ex. 4,
Doc. 23.) Furthermore, both parties’ mediation memoranda dealt extensively with the issue
of NJM’s bad faith liability right before the parties settled. (Exs. 6-7, Doc. 23.) And it is
undisputed that Wells released all claims against NJM under the settlement agreement,
including claims sounding in bad faith. (See Ex. P, Doc. 19.) Although NJM attempts to
elevate language in the agreement stating that “no part of the payment is for bad faith or
extra-contractual liability,” Defendants were not a party to that agreement and are not bound
by those terms.5 In sum, the record indicates that NJM settled with Wells in order to both
5
Settlement agreements are governed by ordinary principles of contract law. In re
Cendant Corp. Prides Litig., 233 F.3d 188, 193 (3d Cir. 2000). “In general, only
parties to a contract are bound by its terms.” Hornicek v. Cardworks Servicing,
LLC, No. 10-3641, 2011 WL 2623274, at *2 (E.D. Pa. June 29, 2011) (citing
AT&T Techs., Inc. v. Comm. Workers, 475 U.S. 643, 648 (1986)). It thus follows
that parties to a settlement agreement cannot impose the terms of the contract on
one who is a stranger to the agreement. FCM Grp., Inc. v. Miller, 17 A.3d 40, 54
(Conn. 2011); see Hartford Steam Boiler Inspection v. Int’l Glass Prods., LLC,
No. 2:08-cv-1564, 2016 WL 5468111, at *11 (W.D. Pa. Sept. 29, 2016) (noting
strangers to a contract generally are not bound by its terms under Pennsylvania
law); Kerrigan v. Phila. Bd. of Elec., No. 07-687, 2008 WL 250522, at *9 (E.D.
Pa. Jan. 29, 2008) (holding that nonparties to a settlement agreement were not
12
satisfy the Wells arbitration award and settle the looming bad faith lawsuit.
Third, because there is evidence that NJM settled with Wells in order to satisfy the
arbitration award and settle the looming bad faith claim, it logically follows that some portion
of the settlement payment compensated Wells for the release of his bad faith claim. In order
to ascertain damages properly, Defendants must be allowed to present evidence on the
extent of NJM’s bad faith liability as bearing on how much of the settlement payment, if any,
went to extinguish that distinct liability. See Fiorentino v. Rapoport, 693 A.2d 208, 218 (Pa.
Super. Ct. 1997) (noting that the amount of damages to be awarded in a legal malpractice
action is a question for the jury).
Fourth, NJM could be unjustly enriched if it were allowed to settle two sources of
liability and then turn around and have Defendants pay the costs of extinguishing one of
those sources that is unrelated to Defendants’ representation of NJM. See Kituskie, 714
A.2d at 1030 (noting that it would be inequitable to allow a client to obtain a windfall at his
attorney’s expense in a legal malpractice action). The record suggests that NJM settled both
the UIM claim and the looming bad faith lawsuit with Wells for approximately $5.9 million. It
now seeks $3.9 million from Brady for mishandling the UIM claim. If successful, NJM would
have effectively paid only the policy limits on the UIM claim ($2 million) in satisfaction of
potentially both the Wells arbitration award and a bad faith claim. NJM could receive a
bound by the terms). Moreover, the Third Circuit has made clear in the context of
tax litigation that district courts can look behind the allocation of damages in a
settlement agreement to ascertain the payor’s true intent. See Francisco v. United
States, 267 F.3d 303, 322 (3d Cir. 2001) (“It is thus well established that in cases
in which the settlement agreement's allocation of damages does not reflect the true
nature of the underlying award, the District Court has a duty to look behind the
agreement of the parties to discern the true nature of the ‘payor's intent’ in settling
claims.”); see also Peaco v. C.I.R., 48 Fed. Appx. 423, 425 (3d Cir. 2002) (noting
that district courts should look behind the parties’ allocation of damages in a
settlement agreement if it appears the allocation is “driven by tax considerations
and [does] not reflect the true value of settled claims” (quoting Francisco, 267
F.3d at 322)). Given the facts of this case, the Court concludes that it is
appropriate to look beyond the language of the settlement agreement to assess
NJM’s intent.
13
windfall at Defendants’ expense if it were permitted to settle two claims for the price of one.6
Thus, the Court finds the fact and extent of NJM’s bad faith handling of the Wells
claim and concomitant exposure to bad faith liability are directly relevant to the question of
the amount of damages it sustained due to Brady’s conduct. If NJM is successful on its
malpractice claim, it will have to prove actual losses that it suffered as a result of Defendants’
negligence. Because NJM did not pay the arbitration award directly, it cannot claim that the
excess award is the damages it now seeks. However, if NJM attempts to prove that the
settlement payment constitutes actual losses proximately caused by Defendants’ negligence,
it must also prove with reasonable certainty what portion of the settlement payment in excess
of its policy limits was paid to satisfy the arbitration award. Discovery on NJM’s exposure to
bad faith liability is therefore relevant to the scope of damages NJM alleges to have
sustained. And because NJM’s bad faith conduct affects the amount of damages sought, the
Court will not preclude Defendants from pursuing discovery on NJM’s bad faith.
2.
NJM’s Motion Will Be Granted in Part
Although evidence relating to NJM’s alleged bad faith handling of the Wells claim is
relevant to the question of damages, the Court concludes that Defendants’ affirmative
defense of contributory negligence based on NJM’s alleged bad faith conduct that is not
causally related to the arbitration award fails as a matter of law. Under Pennsylvania law, in
order to make out an affirmative defense of contributory negligence, the defendant must
show that the plaintiff acted negligently, and that this negligence was “a legally contributing
cause” in brining about the plaintiff’s complained-of injury. Gorski v. Smith, 812 A.2d 683,
703 (Pa. Super. Ct. 2002). In this case, the Court finds the mere fact that NJM allegedly
handled the Wells claim in bad faith cannot constitute contributory negligence as a matter
6
Stated differently, $2 million of the $5.9 million settlement agreement represents
the uncontested policy limits that NJM argues it would have paid Wells but for
Brady’s negligence. The question remains as to what portion of the remaining
$3.9 million settled Wells’s pending Petition to Confirm the arbitration award in
full, and what portion settled the looming bad faith lawsuit.
14
of law unless this conduct was a legally contributing cause of the arbitration award. NJM is
permitted to claim that the arbitration award entered in Wells’s favor is a cognizable injury
for the purposes of the instant malpractice action. See Ammon v. McCloskey, 655 A.2d 549,
553 (Pa. Super. Ct. 1995) (holding that entry of a negligently-obtained judgment, standing
alone, establishes a cognizable injury in a malpractice action). However, as explained above,
NJM elected to satisfy this award via a settlement payment that arguably encompassed two
separate sources of liability. Discovery on NJM’s alleged bad faith conduct therefore is
permitted to establish which portion of the settlement payment in excess of the policy limits
went to extinguish each respective source of liability, as NJM can recover only “actual
losses” in a malpractice action. Kituskie v. Corbman, 714 A.2d 1027, 1030 (Pa. 1998).
Accordingly, NJM’s relevant injury is the arbitration award, and a cognizable theory of
damages is the portion of the settlement payment in excess of the policy limits that went to
satisfy this outstanding arbitration award. Any contributory negligence defense therefore
must be related to the injury for which NJM complains. See Angelo v. Diamontoni, 871 A.2d
1276, 1280 (Pa. Super. Ct. 2005) (noting the burden is on defendant to show plaintiff’s
conduct bears “a causal relationship . . . to the injuries for which damages are sought”)
(emphasis added); Fahringer v. Rinehimer, 423 A.2d 731, 733 (Pa. Super. Ct. 1980).
Thus, the Court will grant NJM’s Motion for Partial Summary Judgment and strike
Defendants’ bad faith contributory negligence defense only to the extent that NJM’s bad faith
conduct is not causally related to the pertinent injury–the arbitration award. Defendants may
still pursue theories of contributory negligence, including theories based on NJM’s conduct
that could also be characterized as acting in bad faith, so long as that conduct bears a
causal relationship to the arbitration award.7
7
For example, if NJM refused to follow Brady’s instructions regarding how to
handle the Wells arbitration, such a refusal might be considered “bad faith
conduct,” but it also might be a cognizable contributory negligence defense if
such a refusal contributed to the arbitration award. See Gorski v. Smith, 812 A.2d
683, 703-04 (Pa. Super. Ct. 2002).
15
B.
Defendants’ Motion to Compel
Defendants seek to compel NJM to produce documents that it claims are subject to
the attorney-client privilege and/or work-product protection. (Doc. 31.) The withheld
documents, as identified in the privilege log (Doc. 31-4), fall into two broad categories: NJM
documents (NJM 3876 - NJM 4097) and documents in the Curtin & Heefner file (CH00001 CH16270). At the December 22, 2016 hearing, the parties agreed to the Court conducting
an in camera review of the NJM documents to assess whether they are in fact privileged.
The parties continue to dispute whether the privilege log entries for the Curtin &
Heefner file are sufficiently detailed and whether communications that relate to the resolution
of the Wells claim have been waived. After conducting an in camera review of the NJM file,
the Court concludes that documents NJM 4005-4006, 4013-4022, 4048-4050, 4051-4052,
and 4060 are discoverable, as they either do not qualify for the protection claimed or the
privilege has been waived. The rest of the documents in the NJM file are privileged from
disclosure and not subject to a waiver. With respect to the documents in the Curtin &
Heefner file, the Court concludes that the privilege log entries are insufficiently detailed
because the Attorney Client Communication entries do not contain specific sender and
recipient information, and the Attorney Work Product entries do not state the specific party
who created the work product. Additionally, the descriptions are too vague to permit the
Court to find that each element of the privilege claimed is satisfied. NJM therefore must
supplement its privilege log with this information in order for the Court to determine whether
the documents are in fact privileged.
1.
The Attorney-Client Privilege and Work-Product Doctrine
The attorney-client privilege and work-product doctrine are “exception[s] to the general
rule that relevant evidence is admissible.” Rhone–Poulenc Rorer, Inc. v. Home Indem. Co.,
32 F.3d 851, 862 (3rd Cir. 1994). The attorney-client privilege is established if the following
elements are satisfied: (1) a communication (2) is made between privileged persons (3) in
confidence (4) for the purpose of obtaining or providing legal assistance for the client. In re
16
Teleglobe Commc'ns Corp., 493 F.3d 345, 359 (3d Cir. 2007).8 “‘Privileged persons’ include
the client, the attorney(s), and any of their agents that help facilitate attorney-client
communications or the legal representation.” Id. The attorney-client privilege “operates in a
two-way fashion to protect confidential client-to-attorney or attorney-to-client communications
made for the purpose of obtaining or providing professional legal advice.” Gillard v. AIG Ins.
Co., 15 A.3d 44, 59 (Pa. 2011). The party claiming privilege bears the burden of proving that
the privilege applies. EMC Ins. Co. v. Zicolello, No. 4:13-cv-00825, 2014 WL 123687, at *2
(M.D. Pa. Jan. 14, 2014). However, once the party claiming privilege meets its burden, the
party challenging the privilege bears the burden of demonstrating that a waiver of the
attorney-client privilege has occurred. Id.
Separately, the work-product doctrine generally precludes a party from discovering
“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)(A). Materials prepared in the ordinary
course of business are not immune from discovery. Holmes v. Pension Plan of Bethlehem
Steel Corp., 213 F.3d 124, 138 (3d Cir. 2000). Unlike the attorney-client privilege, a valid
assertion of work-product protection can be overcome by the party seeking discovery if it can
show (1) a substantial need for the materials in order to prepare its case, and (2) it is unable
to obtain the substantial equivalent without undue hardship. Id. However, work product that
contains the “mental impressions, conclusions, opinion, or legal theories of an attorney or
other representative of a party concerning the litigation” is considered to be “core” work
product and is “afforded near absolute protection from discovery.” In re Cendant Corp. Sec.
Litig., 343 F.3d 658, 663 (3d Cir. 2003) (citation omitted). “[T]he doctrine requires only that
the material be prepared in anticipation of some litigation, not necessarily in anticipation of
8
By Pennsylvania statute, "[i]n a civil matter counsel shall not be competent or
permitted to testify to confidential communications made to him by his client, nor
shall the client be compelled to disclose the same, unless in either case this
privilege is waived upon the trial by the client." 42 Pa. Cons. Stat. Ann. § 5928.
17
the particular litigation in which it is being sought.” Cottillion v. United Refining Co., 279
F.R.D. 290, 302 (W.D. Pa. 2011) (emphasis in original). The party claiming work product
protection has the burden of establishing the elements of the doctrine. See Berry v. Ohio
Cas. Ins. Co., No. 3:14-1262, 2015 W L 4066683, at *4 (M.D. Pa. July 2, 2015).
2.
The NJM Documents
a. Claim Notes
NJM claims the redacted portions of its claim notes are privileged under both the
work-product doctrine and attorney-client privilege. After conducting an in camera review, the
Court concludes that NJM has properly identified portions of the Wells claim file subject to
the work-product protection and properly withheld them from discovery.
The redacted portions of the claim notes contain the mental impressions and
strategies of NJM’s attorneys and representatives, and were authored by an NJM attorney
or claim handler. See In re Cendant Corp. Sec. Litig., 343 F.3d at 663. Additionally, the claim
notes were made in anticipation of litigation. See Garvey v. Nat’l Grange Mut. Ins. Co., 167
F.R.D. 391, 393 (E.D. Pa. 1996) (“The general rule for determining whether a document was
prepared in anticipation of litigation is whether the document can fairly be said to have been
prepared or obtained because of the prospect of litigation.”). The parties’ state of mind
evidences a subjective anticipation of litigation, and this anticipation was “objectively
reasonable.” Berry, 2015 WL 4066683, at *5. The Court thus concludes that these
documents are protected under the work-product doctrine.
Because the Claim Notes in the NJM file are protected under the work-product
doctrine, Defendants may obtain discovery of these materials only if they demonstrate (1)
substantial need for the materials in order to prepare for their case, and (2) they are unable
to obtain the substantial equivalent by other means without suffering undue hardship.
Holmes, 213 F.3d at 138; see Fed. R. Civ. P. 26(b)(3). However, Defendants have not
specifically articulated either substantial need or undue hardship, instead focusing their
18
briefs on the relevancy of the information sought and theories of waiver.9 Moreover, much
of the redacted content concerns opinions and impressions, which are subject to even
greater work-product protection. Furthermore, Defendants have obtained deposition
testimony on the subject at issue from NJM representatives, which indicates they have the
ability to obtain the substantial equivalent of the work product they seek. See Garvey, 167
F.R.D. at 394. Therefore, Defendants are not entitled to discovery of the privileged Claim
Notes (NJM 3876-3893).
b.
Brady’s Correspondence to NJM
Documents NJM 4048-4050 and NJM 4051-4052 are letters written by Brady to John
Basgil, an NJM representative, concerning post-arbitration strategy while Brady was still
representing NJM. NJM has waived its attorney-client privilege with respect to confidential
communications its representatives made to Brady by filing the instant malpractice suit. See
EMC Ins. Co., 2014 WL 123687, at *2 (citing Rhone–Poulenc Rorer, Inc., 32 F.3d at 862).
Additionally, because the documents at issue are the work-product of Brady, NJM cannot
claim privilege on this ground. See Rhone–Poulenc Rorer, Inc., 32 F.3d at 866 (“[T]he work
product doctrine belongs to the professional, rather than the client.”). No interest that the
work-product doctrine is designed to protect would be furthered by keeping an attorney’s own
work product privileged from his request for production. See Westinghouse Elec. Corp. v.
Republic of the Philippines, 951 F.2d 1414, 1428 (3d Cir.1991) (explaining that the
underlying rationale for the work-product doctrine is to promote the adversary system by
allowing attorneys to prepare their cases without fear that their own work product will be used
against them by their adversaries). For this reason, courts generally do not allow an attorney
to withhold work product from her own client. See, e.g., Gottlieb v. Wiles, 143 F.R.D. 241,
247 (D. Colo. 1992). Thus, to the extent that a client can claim to be an independent holder
of the work-product protection, such a claim is waived when the client files a malpractice suit
9
Defendants’ Brief in Support of its Motion to Compel (Doc. 32) also focuses on
Pennsylvania Rule of Civil Procedure 4003.3, which is inapplicable in this federal
diversity action. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
19
against the attorney that created the work product, and the work product relates to the
subject of the malpractice suit. Accordingly, these documents must be disclosed.
Additionally, NJM 4060 is an email correspondence between Brady and NJM
representatives regarding a petition drafted by Brady. As noted above, NJM waived its
attorney-client privilege by filing this suit against Brady. Therefore, this email communication
must be disclosed.
c.
Brady’s Draft Complaint
NJM 4013-4022 is a draft petition requesting the arbitration award be vacated and/or
modified. Brady’s law firm seal is affixed in the top left corner, along with Brady’s attorney
I.D. number. Additionally, Brady’s signature block is listed at the end of the petition. Although
there is some suggestion that Brady was not the author of this draft, NJM has not met its
burden of proving this document was created by someone representing NJM other than
Brady. As explained above, NJM cannot withhold Brady’s own work product from discovery
by raising the work-product protection. NJM 4013-4022 therefore must be disclosed.
d.
NJM 4005-4006
NJM 4005-4006 is a two-page document that was emailed by Buurma to Jeffrey
Bartolino, Mitch Livingston, and Daniel Toadvine, apparent members of NJM's in-house legal
and executive team. The purpose of the correspondence was to provide self-described
"background research," and to prepare the parties for an upcoming meeting. The Court
concludes that this document is protected by both the attorney-client privilege and the workproduct doctrine. However, NJM apparently disclosed this document to Defendants during
discovery. (See Def.’s Mot. to Compel Ex. D, at P3496-P3497, Doc. 31.) NJM does not claim
that this document was inadvertently disclosed, and the Court therefore concludes that it was
a voluntary disclosure constituting an express waiver. See Greater N.Y. Mut. Ins. Co. v.
Phila. Indem. Ins. Co., No. 1:11-CV-00451, 2014 WL 939454, at *5 (M.D. Pa. Mar. 11, 2014)
(citing Westinghouse Elec. Corp., 951 F.2d at 1424). This document is therefore
discoverable. But, for the reasons detailed infra Part III.B.2.e, this express waiver does not
constitute a complete subject matter waiver, and the waiver will be limited to this document
20
only.
In sum, after performing an in camera review of the entire NJM file, the Court finds
that only documents NJM 4005-4006, 4013-4022, 4048-4050, 4051-4052, and 4060 are
discoverable. These documents must be produced.
e.
The Attorney-Client Privilege Has Not Been Waived with Respect
to the Remaining Documents in the NJM File
Defendants argue that NJM waived its attorney-client privilege with respect to all
communications that pertain to the resolution of the Wells UIM claim because it voluntarily
disclosed an attorney-client communication during the depositions of two of NJM’s in-house
attorneys. (Defs.’ Reply Br. 5, Doc. 40.) Additionally, Defendants contend that
communications pertaining to the resolution of the Wells claim have been waived because
NJM asserted the advice of counsel (Curtin & Heefner) as the justification for why it decided
to settle with Wells, thereby placing its outside counsel’s advice at issue in the instant
litigation. (Defs.’ Br. in Supp. 5-7, Doc. 32.) NJM argues that it has not waived the attorneyclient privilege because it is the Defendants who seek to base their affirmative defenses on
NJM’s privileged communications. (Pl.’s Br. in Opp’n 5-8, Doc. 36.) The Court concludes that
NJM has not waived its attorney-client privilege with respect to the remaining documents in
the NJM file.
The first theory of waiver advanced by Defendants is direct or express waiver.
Defendants contend that the deposition testimony of Buurma and Bartolino, both in-house
attorneys for NJM, concerning a document that predominantly contains legal research
waived the privilege with respect to “all of the opinions and all documentation concerning the
opinions on this issue.” (Defs.’ Reply Br. 5.) In its privilege log, NJM claimed that this
document was protected under both the attorney-client privilege and the work-product
doctrine (see Doc. 31-4, at NJM 4005-4006), and does not offer an explanation for why this
document was disclosed to Defendants.
The relevant deposition testimony of Bartolino states:
Reliance on this document [NJM 4005-4006] and the
21
discussions we had with counsel, as painful as it was, we came
to the conclusion that th[e] arbitration award was going to be
binding. . . . we were not going to make frivolous arguments
despite the amount of money that was involved here. There was
no doubt in our minds that this award was etched in stone.
(Defs.’ Mot. to Compel Ex. D, 117:8-19, Doc. 31.) Additionally, when asked why NJM
believed the $5.9 million arbitration award was binding as a matter of law, Bartolino stated,
“A detailed analysis from our counsel, Curtin & Heefner, of the case law that applied to that
issue. . . .” (Id. 109:9-11.)
The relevant deposition testimony of Buurma states:
We relied upon the advice of Bonnie Stein [in deciding to
withdraw the pending motions challenging the arbitration award].
We . . . reached a consensus as to what the probable outcome
was–the likely outcome was of the pending pleadings and the
mediator[’]s analysis was also figured into it.
(Defs.’ Mot. to Compel Ex. C, 146:3-8, Doc. 31.)
The document referred to in Bartolino’s testimony (NJM 4005-4006) contains NJM’s
counsel’s research on molding arbitration awards and bad faith liability under Pennsylvania
law. The document consists of brief descriptions of relevant case law, the holdings of those
cases, and relevant statutory language. Furthermore, the document contains at least one
clear instance of an attorney’s opinion, which states: “Thus, in my opinion, if the arb. Award
is molded to $2 million, then we could still argue that Plaintiff [Wells] would not be entitled
to the remaining $4 million as compensatory damages for breach of contract.” It is unclear
from the document whose opinion this is, but all three authors are attorneys who were
representing NJM.
As explained by the Third Circuit in Westinghouse Electric Corp. v. Republic of the
Philippines, 951 F.2d 1414, 1424 (3d Cir.1991), “once a client has revealed privileged
information to a third party, the basic justification for the privilege no longer applies.” Thus,
under certain circumstances, courts have found that the “voluntary disclosure of a
communication protected by the attorney-client privilege may result in waiver of the privilege
for all communications pertaining to the same subject matter.” Greater N.Y. Mut. Ins. Co.,
2014 WL 939454, at *5 (emphasis in original); see Murray v. Gemplus Int’l, S.A., 217 F.R.D.
22
362, 366 (E.D. Pa. 2003). However, “the disclosure of confidential attorney-client
communications does not constitute a waiver of any other confidential communications
between a client and counsel where there is no apparent prejudice to the party seeking
further disclosure.” Murray, 217 F.R.D. at 366 (citation omitted). “Where one party attempts
to utilize the privilege as an offensive weapon, selectively disclosing communications in order
to help its case, that party should be deemed to have waived the protection otherwise
afforded it by the privilege it misused.” Id. at 367. In deciding whether the waiver of a
voluntarily disclosed communication also extends that waiver to any related but undisclosed
communications, the “touchstone is fairness.” In re Teleglobe Commn’cs Corp., 493 F.3d
345, 361 (3d Cir. 2007). Therefore, “when the disclosure does not create an unfair
advantage, courts typically limit the waiver to the communications actually disclosed.” Id.
With respect to the deposition testimony raised by Defendants as evidence of an
express waiver, nothing stated by either Bartolino or Buurma equates to the divulgence of
the content of confidential communications. See Greater N.Y. Mut. Ins. Co., 2014 WL
939454, at *5 (finding deponent did not divulge confidential information by testifying that she
discussed the company’s insurance policy limits with counsel); see also Astrazeneca LP v.
Breath Ltd., No. 08-1512 (RBK/AMD), 2010 WL 11428457, at *6 (D.N.J. Aug. 26, 2010)
(finding party’s testimony that she consulted with her attorney did not waive attorney-client
privilege). Accordingly, the Court finds no express waiver based on the content of the
deposition testimony itself. However, the disclosed document at issue appears to constitute
both an attorney-client communication and attorney work-product. NJM has admitted as
much by designating it on its privilege log under both forms of privilege. (Doc. 34-1, at NJM
4005-4006.) Because it has been voluntarily disclosed to Defendants, any such privilege has
been waived. See In re Teleglobe Commn’cs Corp., 493 F.3d at 361; Maldonado v. N.J. ex
rel. Admin. Office of Courts-Prob. Div., 225 F.R.D. 120, 131-32 (D.N.J. 2004) (citations
omitted) (noting that a voluntary disclosure to any third party generally waives attorney-client
privilege, and disclosure of work-product to an adversary can waive the work-product
protection). But although NJM waived its privilege with respect to this document, there is no
23
suggestion that NJM’s disclosure gives it an unfair advantage or is prejudicial to Defendants.
See Dalmatia Import Grp., Inc. v. FoodMatch, Inc., No. 16-2767, 2016 WL 5930900, at *4
(E.D. Pa. Oct. 12, 2016) (rejecting request for a complete subject matter waiver when moving
party failed to specify how the partial waiver had created an unfairness in the particular
circumstances of the lawsuit). In fact, NJM’s disclosure of this document may benefit
Defendants’ case, to the extent that it sheds any light on NJM’s exposure to bad faith liability.
Accordingly, the Court does not find that the disclosure of this document warrants extending
the waiver to any related yet undisclosed communications because no unfair advantage has
been created by virtue of the disclosure.
The second theory of waiver advanced by Defendants is an implied waiver due to
NJM placing its counsel’s advice at issue in the instant litigation. Defendants claim that
Bartolino and Buurma asserted the advice of counsel as a defense in their respective
deposition testimony, specifically, that NJM decided to withdraw its pending motions and
settle the case with Wells based on the advice of their attorneys at Curtin & Heefner. (Defs.’
Br. in Supp. 6, Doc. 32; Defs.’ Reply Br. 5, Doc. 40.) In addition to the testimony quoted
above, Defendants also cite to a portion of the Bartolino deposition in which he states that
a decision was made to withdraw the petitions challenging the arbitration award after a:
[F]airly lengthy meeting with Ms. Stein and Mr. Guarrieri [of
Curtin & Heefner], and the decision we came to and it didn’t
involve a lot of struggling, not based on case law that was cited
to us and discussed in detail, was that the entirety of that award
was going to be binding on NJM and our petition would
be–was–was unavailing.
(Defs.’ Mot. to Compel Ex. D, at 111:16-22, Doc. 31.) Citing this testimony, Defendants
contend that a party testifying that a decision was made based on an attorney-client
communication effectively discloses that communication. (Defs.’ Br. in Supp. 7, Doc. 32.)
Under the “at issue” waiver doctrine, “a party can waive the attorney-client privilege
by asserting claims or defenses that put his or her attorney's advice in issue in the litigation.”
Greater N.Y. Mut. Ins. Co., 2014 WL 939454, at *7 (citing Rhone–Poulenc Rorer, Inc., 32
F.3d at 863). However, an attorney’s “[a]dvice is not in issue merely because it is relevant,
24
and does not necessarily become in issue merely because the attorney's advice might affect
the client's state of mind in a relevant manner.” Rhone–Poulenc Rorer, Inc., 32 F.3d at 863.
Rather, “[t]he advice of counsel is placed in issue where the client asserts a claim or
defense, and attempts to prove that claim or defense by disclosing or describing an attorney
client communication.” Id.; see Piazza v. Cty. of Luzerne, No. 3:13-CV-1755, 2015 WL
6690090, at *3 (“Rhone–Poulenc identifies a two-step inquiry into whether the privilege has
been waived due to advice of counsel: ‘(1) the assertion of a claim or defense, and (2) an
attempt to prove that claim or defense by disclosing or describing an attorney client
communication’” (quoting Nesselrotte v. Allegheny Energy, Inc., No. 06-01390, 2008 WL
2858401, at *6 (W.D. Pa. July 22, 2008))); see also Astrazeneca LP, 2010 WL 11428457,
at *6 (quoting Rhone–Poulenc Rorer, Inc., 32 F.3d at 863) (declining to find an implied
waiver when a party has not asserted as an “essential element” of its defense that it relied
upon the advice of counsel). Thus, even if the client’s state of mind is in issue in the
litigation, and even if the communications sought are “vital, highly probative, directly relevant
or even go to the heart of the issue,” they cannot be disclosed if they are protected by the
attorney-client privilege unless the client takes an “affirmative step” that waives the privilege.
Rhone–Poulenc Rorer, Inc., 32 F.3d at 863, 864.
The Court concludes that NJM has not waived its privilege with respect to the
confidential communications in the NJM file by affirmatively placing its attorneys’ advice at
issue. First, NJM is not attempting to prove a claim or defense by disclosing or describing
an attorney-client communication. Rather, it is the Defendants who seek confidential
communications between NJM and Curtin & Heefner to ultimately support their own
defenses that (1) NJM would have successfully molded the arbitration award to the policy
limits had it not elected to settle, and (2) NJM was motivated to settle because of its
exposure to bad faith liability. See EMC Ins. Co. v. Zicolello, No. 4:13-cv-00825, 2014 WL
123687, at *5 (M.D. Pa. Jan. 14, 2014) (“Here, Defendants seek [plaintiffs’ attorney’s]
confidential advice to his clients regarding their chances of success, in order to prove that
the lost appeal was futile. In other words, it is Defendants, not Plaintiffs, who are attempting
25
to prove a defense by virtue of the confidential communication between Plaintiffs and [their
attorney]. This does not comport with the definition of ‘in issue’ provided by the Third Circuit
for purposes of waiving the privilege for advice from an attorney.”); see also Cottillion v.
United Refining Co., 279 F.R.D. 290, 302 (W.D. Pa. 2011) (finding no waiver when
defendant asserted reliance on the advice of counsel as the reason for attempting to alter
the benefits paid to plaintiffs because defendant was not attempting to prove a defense
based upon any communication it had with counsel); cf. Piazza, 2015 WL 6690090, at *3
(finding a waiver when defendant asserted he fired the plaintiff based on the advice of
counsel because the propriety of the termination was a defense to the plaintiff’s unlawful
termination claims). Because NJM has not taken an affirmative step to place the advice of
counsel in issue in order to prove an essential element of its malpractice claim or any
defense, the Court concludes it has not implicitly waived the attorney-client privilege with
respect to the confidential communications in the NJM file. See Robertson v. Allstate Ins.
Co., No. A. 98-4909, 1999 WL 179754, at *5 (E.D. Pa. Mar. 10, 1999) (finding no waiver
when client did not take an “affirmative step” to place the advice of in-house counsel at
issue); see also Fid. & Deposit Co. of Md. v. McCulloch, 168 F.R.D. 516, 520 (E.D. Pa. 1996)
(“[Plaintiff] asserts no claim or defense in its Complaint or in any of its Responses to
Defendants' Counterclaims that rests on the advice of counsel, nor does it attempt to prove
any claim or defense by disclosing such advice.”).
Second, just as the content of the deposition testimony of Bartolino and Buurma does
not constitute an express waiver, it also does not place the confidential communications
sought “at issue” in the litigation. No testimony cited by Defendants disclosed or described
the details of any confidential communication made between NJM and Curtin & Heefner. See
EMC Ins. Co., 2014 WL 123687, at *5. The mere fact that a party states that it relied on the
advice of counsel in making a decision, standing alone, does not show that the party took
an “affirmative step” to place that advice in issue. Rhone–Poulenc Rorer, Inc., 32 F.3d at
863; see Astrazeneca LP, 2010 WL 11428457, at *6 (concluding that a party stating in her
testimony that she had consulted with attorneys does not equate to placing the advice of
26
counsel in issue); Aull v. Cavalcade Pension Plan, 185 F.R.D. 618, 630 (D. Colo. 1998)
(finding defendant’s deposition testimony that she relied on advice of counsel in denying
plaintiff’s claim did not establish a waiver because that statement did not indicate that the
defendants took affirmative action to place the advice of counsel at issue). This is especially
true when the deposition testimony on which an alleged waiver is based was elicited in
response to questions posed by defense counsel. See Robertson, 1999 WL 179754, at *5
(noting it would defeat the purpose of the “at issue” exception if opposing counsel were
permitted to lure deponents into placing the advice of counsel at issue). Accordingly,
Defendants are not entitled to discovery of the documents in the NJM file designated as
“Attorney Client Communication” on the basis of waiver.
f.
The Work Product Protection Has Not Been Waived with Respect
to the Remaining Documents in the NJM File
Whether a client has or has not waived the attorney-client privilege does not
determine whether he also waived the protection of the work-product doctrine.
Rhone–Poulenc Rorer, Inc., 32 F.3d at 866. Defendants can overcome an assertion of workproduct protection only if they show substantial need and undue hardship in obtaining the
substantial equivalent. Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124, 138
(3d Cir. 2000); see Fed. R. Civ. P. 26(b)(3). However, even if Defendants were able to show
a substantial need, they do not advance a reason for why they are unable to obtain the
substantial equivalent without suffering undue hardship. Defendants are able to engage in
other forms of discovery related to NJM’s decision to settle with Wells and NJM’s bad faith
handling of the Wells claim as it relates to the damages NJM presently seeks.
3.
The Curtin & Heefner Documents
The Court has not conducted an in camera review of the voluminous Curtin & Heefner
file, and therefore must rely on NJM’s privilege log in order to assess its claims of privilege.
Defendants challenge the sufficiency of the privilege log and raise the same arguments for
waiver as detailed above. Because the Court finds the privilege log insufficient with respect
to the Curtin & Heefner documents, NJM will be ordered to supplement its log. Thereafter,
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the Court will provide Defendants another opportunity to raise a challenge to the sufficiency
of the log, if they so choose.
a.
A More Detailed Privilege Log Is Required
Under Federal Rule of Civil Procedure 26(b)(5), a party withholding information on the
ground that it is privileged must claim the privilege expressly and “describe the nature of the
documents, communications, 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.” Specific to a claim of attorney-client privilege, “the description
of each document and its contents must be sufficiently detailed to allow the court to
determine whether the elements of attorney-client privilege have been established.”
SmithKline Beecham Corp. v. Apotex Corp., 232 F.R.D. 467, 475 (E.D. Pa. 2005) (citation
omitted). In general, a privilege log typically must “identify each document and the individuals
who were parties to the communications, providing sufficient detail to permit a judgment as
to whether the document is at least potentially protected from disclosure.” Id. at 482 (citation
omitted). The party asserting the privilege has the burden of showing that the elements of
the privilege are met. Teltron, Inc. v. Alexander, 132 F.R.D. 394, 395 (E.D. Pa. 1990).
NJM’s privilege log contains the following details: the withheld document’s identifying
number; the relevant date for every Curtin & Heefner document; a brief description of the
withheld document; and the privilege designation (either “Attorney Client Communication”
and/or “Attorney Work Product”). (Doc. 31-4.) NJM supplemented its log with affidavits from
Bonnie Stein, Nathan Buurma, and Jeffrey Bartolino. (See Pl.’s Br. in Opp’n Exs. A-C, Doc.
36.) Stein’s Affidavit states that the Curtin & Heefner file contains numerous legal documents
and internal communications, many of which had never been produced to NJM during Curtin
& Heefner’s involvement with the Wells claim and arbitration. The Buurma and Bartolino
Affidavits both attest that their communications were made for the purpose of securing or
providing legal advice and not made “in the presence of strangers.”
The redacted emails in the NJM file were provided to Defendants and the Court. (See
Defs.’ Mot. to Compel Ex. B., Doc. 31.) These emails left the sender and recipient lines
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unredacted, allowing Defendants and the Court to view the specific parties to the
communication. However, the Court has not been presented with any redacted emails in the
Curtin & Heefner file which allow it to ascertain the specific sender and recipient. Instead,
the privilege log uses the general term “in-house counsel” or “client” to describe which NJM
representative(s) was a party to the email and does not state which member(s) of the Curtin
& Heefner team was a party to the correspondence. It is unclear if NJM has provided
Defendants with the specific sender and recipient information for the emails in the Curtin &
Heefner file. Similarly, the documents withheld on the ground of Attorney Work Product do
not specify the parties who created the work product being withheld.
NJM must supplement its log to include the specific sender and recipient information
for the emails listed in the Curtin & Heefner file, and the names and titles of the specific
person(s) who prepared the work product being withheld. See SmithKline Beecham Corp.,
232 F.R.D. at 477-78 (finding privilege log entries insufficient because they did not identify
a specific attorney with whom a confidential communication was made). Additionally, the
descriptions are too vague for the Court to find that NJM has met its burden of proving that
each element of the privilege is satisfied. NJM must provide more detailed descriptions
explaining the contents of the documents withheld in the Curtin & Heefner file. See Lady
Liberty Transp. Co., Inc. v. Phila. Parking Auth., No. 05-1322, 2007 WL 707372, at *2 (E.D.
Pa. Mar. 1, 2007). Only then will the Court be able to properly assess its claim of attorneyclient privilege and/or work-product protection.
IV. Conclusion
For the above stated reasons, NJM’s Motion for Partial Summary Judgment will be
GRANTED in part and DENIED in part. Defendants are not precluded from conducting
further discovery related to NJM’s bad faith handling of the Wells claim. However, any bad
faith contributory negligence defense that is not causally related to the arbitration award fails
as a matter of law. Defendants’ Motion to Compel will be GRANTED in part and DENIED in
part. NJM is hereby compelled to produce NJM documents 4005-4006, 4013-4022, 40484050, 4051-4052, and 4060. All other documents in the NJM file listed in the privilege log are
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privileged from discovery and not subject to waiver. Additionally, NJM is required to
supplement its privilege log within fourteen (14) days with the specific sender and recipient
information for all documents in the Curtin & Heefner file listed as an Attorney Client
Communication. NJM must also specify which attorney(s) prepared the documents listed as
Attorney Work Product in the privilege log. Additionally, NJM must provide more detailed
descriptions explaining the contents of the documents withheld in the Curtin & Heefner file
that allow the Court to determine whether each element of the privilege claimed is satisfied.
After the privilege log has been supplemented, the Court will provide Defendants another
opportunity to raise a challenge to the sufficiency of the log, if they so choose.
An appropriate order follows.
January 20, 2017
Date
/s/ A. Richard Caputo
A. Richard Caputo
United States District Judge
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