OneBeacon Insurance Company v. T. Wade Welch & Associates et al
Filing
209
ORDER - The court finds that attorney-client communications providinglegal advice and documents prepared in anticipation of litigation on or after the date of the DISH letter are protected from discovery.(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny, 4)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ONE BEACON INSURANCE COMPANY ,
Plaintiff,
v.
T. WADE WELCH & ASSOCIATES, et al.,
Defendants.
§
§
§
§
§
§
§
CIVIL ACTION H-11-3061
O RDER
This order relates to a discovery dispute plaintiff OneBeacon Insurance Company
(“OneBeacon”) and defendants T. Wade Welch & Associates (the “Welch Firm”) and T. Wade
Welch (collectively, the “Welch Litigants”) are having about OneBeacon’s assertion that its claims
notes on or after December 22, 2010, are protected by either the attorney-client privilege or the workproduct doctrine. The Welch Litigants submitted a letter brief to the court relating to the dispute on
September 30, 2013, pursuant to paragraph 6.C of the court’s procedures. Dkt. 202, Ex. A.
Intervenor DISH Network Corporation joined the Welch Litigants’ letter. See Dkt. 202. OneBeacon
submitted a response in which it argued that the attorney-client privilege extends the
communications with attorneys who are investigating claims related to the rendition of legal services.
The court set a hearing on October 8, 2013, at 11:00 a.m. See Dkts. 199, 200. During the hearing,
the court ordered the parties to brief the issue of when OneBeacon reasonably anticipated litigation.
Dkt. 200. DISH and the Welch Litigants filed a joint brief, OneBeacon filed a brief, and the parties
then responded to each others’ briefs. Dkts. 202–04, 206–07. After considering the briefs and
applicable law, the court is of the opinion that OneBeacon may appropriately assert that it anticipated
litigation as of December 22, 2010.
I. BACKGROUND
OneBeacon filed its original complaint on August 22, 2011, seeking a declaratory judgment
that two insurance policies that it issued to the Welch Firm were void ab initio or provided no
coverage for claims made against the Welch Firm by DISH, and that OneBeacon had no obligations
under these policies for DISH’s claim. Dkt. 1. The amended complaint, filed January 19, 2012,
seeks essentially the same relief. Dkt. 52. OneBeacon asserts (1) that the policies are void because
the Welch Firm answered a question on the applications for the insurance policies about whether any
member of the firm had been reprimanded or sanctioned by a court in the negative even though a
member of the firm had been reprimanded or sanctioned; and (2) that there is no coverage because
the exclusion in the policy for wrongful acts occurring prior to the policy period applies. Id. The
reprimand or sanctions at issue and alleged wrongful acts occurred while the Welch Firm was
representing DISH in a lawsuit styled Russian Media Group, LLC v. EchoStar Communications
Corporation & Kelly Broadcasting Systems, Inc. (the “Russian Media Group Litigation”). Id. The
Welch Litigants filed counterclaims for breach of the policies issued by OneBeacon, breach of the
common law duty of good faith and fair dealing, unfair insurance practices in violation of the Texas
Insurance Code, non-compliance with the prompt payment of claims portion of the Texas Insurance
Code, negligence, gross negligence, and violations of the Texas Deceptive Trade Practices Act.
Dkt. 193-1.
During discovery, the Welch Litigants requested production of OneBeacon’s claims file
based on the DISH claim. Dkt. 202-1. OneBeacon produced a redacted version of its claims file;
it asserted that the redactions were based on attorney-client privilege or the work-product doctrine.
Id. OneBeacon also withheld certain documents in the file, asserting that they were privileged due
to the attorney-client privilege or the work-product doctrine. Id.
The Welch Litigants argue that none of the documents relating to the investigation and
evaluation of its claim are privileged, even if the investigation was conducted by attorneys, because
they were prepared in the ordinary course of OneBeacon’s business. Id. OneBeacon argues that
DISH made a request for OneBeacon to help fund, up to its policy limits, a settlement of the Russian
Media Group Litigation on December 22, 2010, and OneBeacon immediately anticipated litigation
2
due to the nature and size of the claim. Dkt. 204. OneBeacon retained Hermes Sargent Bates LLP
(“HSB”) as coverage counsel in January 2011, allegedly anticipating that litigation with the Welch
Firm would be imminent, and it retained Edwards Angel Palmer & Dodge LLP for supplemental
legal advice regarding coverage issues on May 18, 2011.
Id.
OneBeacon argues that its
communications with counsel and documents prepared by counsel after it received the demand letter
from DISH are privileged or subject to the work-product doctrine.
Despite receiving a demand letter from DISH in December of 2010 and retaining counsel in
January and May of 2011, OneBeacon did not send a letter to the Welch Litigants rescinding the
insurance policies until August 19, 2011. Id. The Welch Litigants argue that this rescission date is
the date that OneBeacon should be presumed to have anticipated litigation, as, until then, litigation
may have been conceivable, but the primary purpose of claim-related documents was to assist
OneBeacon in determining whether the claim was covered, which is purely an investigative function
and part and parcel of an insurer’s ordinary business. Dkt. 202. Thus, the Welch Litigants argue that
OneBeacon may not claim privilege over communications with counsel or documents prepared by
counsel dated prior to August 19, 2011. Id.
II. LEGAL STANDARD
A.
Attorney-Client Privilege
The bedrock of all the privileged communications doctrines, the attorney-client privilege
exists “to encourage full and frank communication between attorneys and their clients.” United
States v. El Paso Co., 682 F.2d 530, 538 (5th Cir. 1982). The Fifth Circuit has defined the attorneyclient privilege as follows: “(1) where legal advice of any kind is sought; (2) from a professional
legal advisor in his capacity as such; (3) the communications relating to that purpose; (4) made in
confidence; (5) by the client; (6) are at his instance permanently protected; (7) from disclosure by
himself or by the legal advisor; (8) except that the protection be waived.” Id. (citing 8 J. WIGMORE
EVIDENCE § 2292).
3
In a corporate setting, the privilege extends to any employee of the corporation who, on
instructions from a superior, communicates with counsel—inside or outside of the corporation.
Upjohn v. United States, 449 U.S. 383, 394–95, 101 S. Ct. 677 (1981). With a few exceptions, a
“‘document need not be authored or addressed to an attorney in order to be properly withheld on
attorney-client privilege grounds.’” SmithKline Beecham Corp. v. Apotex Corp., 232 F.R.D. 467,
477 (E.D.Pa. 2005) (quoting Santrade, Ltd. v. Gen. Elec. Co., 150 F.R.D. 539, 545 (E.D.N.C.1993)).
“In the case of a corporate client, privileged communications may be shared by non-attorney
employees in order to relay information requested by attorneys.” Id. (citing Cuno, Inc. v. Pall Corp.,
121 F.R.D. 198, 202-03 (E.D.N.Y.1988)). However, the attorney-client “privilege does not shield
documents merely because they were transferred to or routed through an attorney.” Resolution Trust
Corp. v. Diamond, 773 F.Supp. 597, 600 (S.D.N.Y.1991). “What would otherwise be routine,
non-privileged communications between corporate officers or employees transacting the general
business of the company do not attain privileged status solely because in-house or outside counsel
is ‘copied in’ on correspondence or memoranda.” Andritz Sprout-Bauer, Inc. v. Beazer E., Inc., 174
F.R.D. 609, 633 (M.D.Pa.1997) (citing United States Postal Serv. v. Phelps Dodge Refining Corp.,
852 F. Supp. 156, 163–64 (E.D.N.Y.1994)). The distinction is based on the purpose of the
communication. “[S]o long as the information is relayed for the purpose of obtaining legal counsel”
and it meets the other requirements for maintaining privilege, then even if an attorney does not
author or directly receive the communication it is still protected. Apotex, 232 F.R.D. at 479 (citing
Upjohn, 449 U.S. at 394–95).
However, although courts accord the attorney-client privilege significant weight, it still
operates within defined parameters. “The attorney-client privilege does not protect against discovery
of underlying facts from their source merely because those facts have been communicated to an
attorney.” El Paso, 682 F.2d at 589.
Additionally, the privilege may be waived through
voluntary—and sometimes involuntary—disclosure to a third person lacking a common legal
4
interest. Id.; Hodges, 768 F.2d at 721. But see FED . R. CIV . P. 26(5)(B) (method through which a
party may retrieve inadvertently produced privileged materials and maintain privilege). Moreover,
“the privilege does not extend to communications between attorney and client where the client's
purpose is the furtherance of a future intended crime or fraud.” 1 MCCORMICK ON EVIDENCE § 95
(6th ed.). Finally, the “privilege may not be tossed as a blanket over an undifferentiated group of
documents.” El Paso, 682 F.2d at 539. “The privilege must be specifically asserted with respect to
particular documents.” Id.
B.
Work-Product Doctrine
Under Federal Rule of Civil Procedure 26(b)(3)(A),
[A] party may not discover 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). But, subject to Rule 26(b)(4)
[(expert discovery)], those materials may be discovered if:
(i)
They are otherwise discoverable under Rule 26(b)(1) [i.e. are
within the general scope of discovery]; and
(ii)
The party shows that it has substantial need for the materials
to prepare its case and cannot, without undue hardship obtain their
substantial equivalent by other means.
Fed. R. Civ. P. 26(b)(3)(A). “The burden of establishing that a document is work product is on the
party who asserts the claim, but the burden of showing that the materials that constitute work product
should nonetheless be disclosed is on the party who seeks their production.” Hodges, Grant &
Kaufmann v. U.S. Gov't, Dep't of the Treasury, 768 F.2d 719, 721 (5th Cir. 1985). “The work
product doctrine focuses only on materials assembled and brought into being in anticipation of
litigation. Excluded from work product materials . . . are ‘(m)aterials assembled in the ordinary
course of business, or pursuant to public requirements unrelated to litigation . . . .’” El Paso, 682
F.2d at 542 (quoting 48 F.R.D. at 501). Sometimes, “determining whether a document is prepared
in anticipation of litigation is a slippery task.” Id. But the general rule is that litigation “‘need not
be imminent . . . as long as the primary motivating purpose behind the creation of the document was
5
to aid in possible future litigation.’” Id. (quoting United States v. Davis, 636 F.2d 1028, 1040 (5th
Cir. 1981)).
“Factors that courts rely on to determine the primary motivation for the creation of a
document include the retention of counsel and his involvement in the generation of the document
and whether it was a routine practice to prepare that type of document or whether the document was
instead prepared in response to a particular circumstance. . . . If the document would have been
created regardless of whether litigation was expected to ensue, the document is deemed to have been
created in the ordinary course of business and not in anticipation of litigation.” Elec. Data Sys.
Corp. v. Steingraber, No. 4:02 CV 225, 2003 WL 21653414, at *5 (E.D. Tex. July 9, 2003) (citing
Piatkowski v. Abdon Callais Offshore, L.L.C., No. 99-3759, 2000 WL 1145825, at * 2 (E.D. La.
Aug. 11, 2000)). It is not, however, “dispositive that the documents were prepared by plaintiffs and
not by attorneys,” as the rule “protects documents prepared by or for a party, as long as they are
prepared in anticipation of litigation.” Id. (citing United States v. Nobles, 422 U.S. 225, 238-39
(1975)).
III. ANALYSIS
Here, the main issue is whether OneBeacon’s communications with outside counsel relating
to coverage are privileged and protected or whether, instead, OneBeacon’s counsel was merely
performing the ordinary business functions of an insurance company. “To the extent [an] attorney
acted as a claims adjuster, claims process supervisor, or claim investigation monitor, and not as a
legal advisor, the attorney-client privilege would not apply.” Harper v. Auto-Owners Ins. Co., 138
F.R. D. 655, 671 (S.D. Ind. 1991). Similarly, “[d]ocuments created by an insurer or its representative
tend not to be protected by the work product doctrine if they were prepared as a ‘more or less routine
investigation of a possibly resistible claim.’” Kan. City S. Ry. Co. v. Nichols Constr. Co., L.L.C.,
Nos. 05-1182, 05-5220, 05-4653, 2007 WL 2461014, at *5 (E.D. La. Aug. 27, 2007) (quoting Tejada
6
Fashions Corp. v. Yasuda Fire & Marine Ins. Co. (U.K.), Ltd., No. 83 Civ. 5512 (RO), 1984 WL
500, at *3 (S.D.N.Y. June 18, 1984)). Thus, the key question is when did OneBeacon shift from
merely investigating the claim to anticipating litigation. The Fifth Circuit has noted that litigation
pertaining to coverage is appropriately anticipated from the date an insurer has a “solid basis to
question the . . . insurance claim.” Dunn v. State Farm Fire & Cas. Co., 927 F.2d 869, 875 (5th Cir.
1991).1
The Welch Litigants insist that the critical date for determining when the primary purpose
of the claims-related documents moved from investigation to anticipation of litigation is the date that
the insurer made its coverage determination to deny the claim. Dkt. 202. OneBeacon, on the other
hand, has submitted an affidavit in which its claims counsel states that OneBeacon began
anticipating litigation after it received a letter from DISH requesting that OneBeacon fund, up to its
policy limits, DISH’s settlement of the Russian Media Group Litigation. Dkt. 204-2. OneBeacon
asserts that this letter prompted it to anticipate litigation with the Welch Litigants concerning
coverage and that it formally retained counsel to provide coverage-related advice within a month of
receiving the letter. Dkt. 204.
While the court agrees that often the date an insurer anticipates litigation is the date that it
denies coverage, a bright-line rule is inappropriate. See Stout v. Ill. Farmers Ins. Co., 852 F. Supp.
704, 707 (S.D. Ind. 1994) (“Any bright-line rule would only encourage parties to manipulate the
privilege.”). The Welch Litigants rely heavily on Lanelogic, Inc. v. Great American Spirit Insurance
Company for their assertion that the date coverage was denied is the key date here. In Lanelogic,
1
In Dunn, the Fifth Circuit considered whether the work-product doctrine protected
documents prepared by State Farm’s attorneys, who were hired within a week of State Farm
receiving notice that the plaintiff had confessed to intentionally setting fire to his house. Dunn, 927
F.2d at 875. The plaintiff argued that the documents in question were prepared before State Farm
could reasonably have anticipated litigation. Id. The Fifth Circuit found, however, that the
confession “gave State Farm a solid basis to question the Dunns’ insurance claim” and that “from
the date they were hired, State Farm attorneys could anticipate litigation.” Id.
7
the federal district court in the Northern District of Texas considered whether the insurance company
defendant should be compelled to produce its claims documents. Lanelogic Inc. v. Great Am. Spirit
Ins. Co., No. 3-08-CV-1164-BD, 2010 WL 1839294 (N.D. Tex. May 6, 2010). The insurance
company argued that the documents were protected by the attorney-client privilege because they
were prepared by the insurance company’s outside counsel for the purpose of providing legal advice
regarding the insurance company’s obligations under the policy. Id. at *3. The plaintiff argued that
the documents were made for the ordinary business purpose of adjusting claims. Id. The court held
that the defendant’s blanket assertion of privilege was insufficient. Id. As far as work-product
protection, the court noted that courts “‘have routinely recognized that the investigation and
evaluation of claims is part of the regular, ordinary, and principal business of insurance companies’”
and that, in an insurance dispute, “the question of whether the documents are work product often
depends on whether the insurer can point to a definite shift from acting in its ordinary course of
business to acting in anticipation of litigation.” Id. at *5 (quoting Douga v. D&A Boat Rentals, Inc.,
No. Civ. A. 04-1642, 2007 WL 1428678, at *4 (W.D. La. May 10, 2007)). The court examined the
privilege log submitted by the defendants and determined that the documents at issue were created
to assist with the coverage determination, not for litigation. Id. at *6. The court allowed the
defendants to redact any documents revealing the opinions, evaluations, and other mental processes
of its attorneys bearing on litigation strategy (core work product), but it otherwise ordered the
defendants to produce all withheld documents. Id. at *6-*7.
Here, unlike in Lanelogic, OneBeacon has pinpointed a “definite shift from acting in its
ordinary course of business to acting in anticipation of litigation.” The Welch Defendants argue that
this court, like the Lanelogic court, should determine that any documents related to the investigation
that predate OneBeacon’s coverage determination cannot have been created in anticipation of
litigation and therefore were created in the course of OneBeacon’s ordinary business. Dkt. 202.
8
OneBeacon asserts it attorneys were giving legal advice relating to coverage and other issues because
litigation was reasonably anticipated after OneBeacon received the demand letter from DISH. Dkt.
204. The conclusory statement that OneBeacon anticipated litigation, standing alone, is not enough
to show that OneBeacon anticipated litigation and that the attorney-client privilege or work-product
doctrine should protect communications with attorneys about coverage or documents prepared by
OneBeacon’s attorneys after this date. See Lanelogic, 2010 WL 1839294, at *6 (considering the
insurance company’s statement that “the primary motivating purpose for the creation of such
documents was to aid in possible future litigation” to be “self-serving” and finding that “other
evidence suggests that litigation concerns were not the primary motivating purpose behind the
creation of the documents at issue”). However, when one couples the statement that the matter was
referred to outside counsel in anticipation of litigation with the contents of the letter received from
DISH on December 22, 2010, and considers this information in light of the claims at issue in this
litigation, it is entirely reasonable to believe that OneBeacon referred the matter to outside counsel
in anticipation of litigation.
HSB was hired within one month of OneBeacon’s receipt of the letter from DISH requesting
that OneBeacon fund, up to the policy limits, DISH’s settlement of the Russian Media Group
Litigation. The DISH letter advised that “OneBeacon’s failure to pay up to its policy limits, when
a settlement within those limits is attainable, potentially expose[d] OneBeacon to liability for any
judgment in excess of the policy limits.” Dkt. 204-3. This demand, known as a Stowers settlement
demand, put OneBeacon in the position of potentially facing a suit for damages in excess of its
policy limits and made OneBeacon’s anticipation of litigation reasonable. See Am. Physicians Ins.
Exchange v. Garcia, 876 S.W.2d 842, 848-49 (Tex. 1994) (discussing the Stowers duty).
Additionally, the letter contained information that could reasonably lead OneBeacon to determine
that the DISH claim may not be covered. The letter asserts that an attorney at the Welch Firm
9
committed numerous wrongful acts starting in 2006. Dkt. 204-3. The letter also states that a
member of the firm had been sanctioned on July 20, 2007. Id. The Welch Firm responded in the
negative to the question about sanctions in their application for insurance with OneBeacon on
December 6, 2007. See Dkt. 52. The court finds that OneBeacon had a “solid basis” to question
coverage when it received DISH’s letter and thus could reasonably anticipate litigation from the date
it received the letter.
IV. CONCLUSION
The Welch Litigants have not pointed to any specific documents in the privilege log that
should not qualify for protection. The court finds that attorney-client communications providing
legal advice and documents prepared in anticipation of litigation on or after the date of the DISH
letter are protected from discovery.
Signed at Houston, Texas on November 12, 2013.
___________________________________
Gray H. Miller
United States District Judge
10
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?