Harleysville Insurance Company v. Holding Funeral Home, Inc. et al

Filing 96

OPINION AND ORDER that an evidentiary hearing be set and directing the Clerk to schedule such hearing at the parties earliest convenience. Signed by Judge James P. Jones on 5/19/2017. (lml)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ABINGDON DIVISION
HARLEYSVILLE INSURANCE CO.,
Plaintiff,
v.
HOLDING FUNERAL HOME, INC.,
ET AL.,
Defendants.

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Case No. 1:15CV00057
OPINION AND ORDER
By: James P. Jones
United States District Judge

Robert T. Ross, David P. Abel, and Robert S. Reverski, Jr., Midkiff, Muncie
& Ross, P.C., Richmond, Virginia, and John L. Cooley, CooleySublettPearson
PLC, Roanoke, Virginia, for Plaintiff and Counter-Defendant Harleysville
Insurance Company; Glenn H. Silver, C. Thomas Brown, Erik B. Lawson, and
Caitlin M. Brown, Silver & Brown, Fairfax, Virginia, for Defendants and CounterClaimants Holding Funeral Home, Inc., Golden Rule Family Management, LLC,
and L.J. Horton Florist, Inc.
This is a diversity action arising out of a claim for fire insurance coverage.
Harleysville Insurance Company (“Harleysville”) seeks a declaration that it has no
duty to pay insurance benefits to Holding Funeral Home, Inc., Golden Rule Family
Management, LLC, and L.J. Horton Florist, Inc. (“Defendants”). The defendants
counterclaim for breach of contract.
Proceedings on the merits of this case have been stayed pending the
disposition of a related criminal prosecution. However, as a separate matter,

counsel for Harleysville (hereinafter “Plaintiff’s Counsel”) have filed a motion to
disqualify counsel for the defendants (hereinafter “Defendants’ Counsel”). For the
reasons that follow, I believe it is necessary to hold an additional evidentiary
hearing in this matter, and I so order.
I. PROCEDURAL HISTORY.
On December 21, 2016, Plaintiff’s Counsel filed a motion to disqualify
Defendants’ Counsel. ECF No. 52. The motion was referred to United States
Magistrate Judge Pamela Meade Sargent. In their motion, Plaintiff’s Counsel
asserted that Defendants’ Counsel improperly accessed and reviewed certain
privileged documents (hereinafter “Claims File”), that they concealed this access
from Plaintiff’s Counsel, and that they refused to destroy the Claims File when
asked to do so.

As relief, Plaintiff’s Counsel sought the disqualification of

Defendants’ Counsel.

Plaintiff’s Counsel also sought court orders directing

Defendants’ Counsel to destroy their copies of the Claims File, directing
Defendants’ Counsel not to disclose the Claims File, and barring the use of the
Claims File in this action. See generally Pl.’s Mem. Supp. Mot. to Disqualify,
ECF No. 53. Defendants’ Counsel contended in response that disqualification was
inappropriate, first on the ground that Plaintiff’s Counsel had failed to prove the
Claims File was privileged, and second on the ground that any privilege was

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waived when Harleysville posted the Claims File to a publicly-accessible folder on
the Internet. See generally Defs.’ Opp’n to Mot. to Disqualify, ECF No. 55.
Following full briefing by both parties, Magistrate Judge Sargent held an
evidentiary hearing on this matter on January 17, 2017. At the hearing, she invited
counsel to submit supplemental evidence and case law following the hearing. Both
Plaintiff’s Counsel and Defendants’ Counsel did so.

Defendants’ Counsel

subsequently objected to Plaintiff’s Counsel’s submission, arguing that the
evidence contained therein should properly have been presented via testimony at
the hearing, where the witnesses would have been subject to cross-examination and
evidentiary objections.

Defs.’ Obj. to Pl.’s Supplementation 5, ECF No. 66.

Magistrate Judge Sargent agreed and sustained Defendants’ Counsel’s objections,
a decision to which Plaintiff’s Counsel timely objected. Order, ECF No. 67; Pl.’s
Obj., ECF No. 73.
Magistrate Judge Sargent subsequently denied Plaintiff’s Counsel’s motion
to disqualify. Assuming without deciding that at least some portion of the Claims
File was privileged, she found that any privilege had been waived when
Harleysville uploaded the files to a publically-accessible, non-password-protected
website. Mem. Op. 9, 13, ECF No. 68. Because any privilege was waived, she
concluded, disqualification of Defendants’ Counsel was unwarranted, since
replacement counsel would be entitled to access the same information. Id. at 17.
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However, she also held that because Defendants’ Counsel knew or should have
known they had accessed potentially-privileged information, they should have
revealed this access to Plaintiff’s Counsel and should have asked the court to
decide the question of waiver before making use of the information. Id. at 16.
Because they did not do so, she said, their conduct “require[d] some sanction.” Id.
She accordingly imposed sanctions on Defendants’ Counsel in the form of
payment of attorneys’ fees.
Both Plaintiff’s and Defendants’ Counsel filed timely objections. Plaintiff’s
Counsel objected to Magistrate Judge Sargent’s finding that Harleysville had
waived any privilege and to her denial of their Motion to Disqualify. See generally
Pl.’s Obj., ECF No. 73.

Defendants’ Counsel objected to Magistrate Judge

Sargent’s sua sponte imposition of sanctions, arguing that such sanctions were
both unwarranted and unjust. See generally Defs.’ Obj., ECF No. 70. These
objections are now before me for review.
II. STANDARD OF REVIEW.
The issues raised by both parties — namely, questions of privilege and
waiver along with sanctions — are “not dispositive of a party’s claim or defense.”
Fed. R. Civ. P. 72(a). I therefore must consider the parties’ objections and “modify
or set aside any part of the order that is clearly erroneous or is contrary to law.” Id.

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Findings of fact are reviewed under the Rule’s “clearly erroneous” standard.
Gairola v. Va. Dep’t of Gen. Servs., 753 F.2d 1281, 1288 (4th Cir. 1985); see also
Bruce v. Hartford, 21 F. Supp. 3d 590, 594 (E.D. Va. 2014); HSBC Bank USA,
Nat’l Ass’n v. Resh, No. 3:12-CV-00668, 2014 WL 317820, at *7 (S.D.W. Va. Jan.
28, 2014).

A court’s “finding is ‘clearly erroneous’ when although there is

evidence to support it, the reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been committed.” United States v.
U.S. Gypsum Co., 333 U.S. 364, 395 (1948); see also Harman v. Levin (In re
Robertson), 772 F.2d 1150, 1153 (4th Cir. 1985).
The magistrate judge’s decisions on questions of law, however, I review
under the Rule’s “contrary to law” standard. PowerShare, Inc. v. Syntel, Inc., 597
F.3d 10, 15 (1st Cir. 2010). In the context of Rule 72(a), this “contrary to law”
standard is equivalent to de novo review. Id. (holding that review of a question of
law “is plenary under the ‘contrary to law’ branch of the Rule 72(a) standard” and
that therefore, “[f]or questions of law, there is no practical difference between
review under Rule 72(a)’s ‘contrary to law’ standard and . . . [a] de novo standard”
(citations omitted)); Haines v. Liggett Grp. Inc., 975 F.2d 81, 91 (3d Cir. 1992)
(holding that while “[t]he district court is bound by the clearly erroneous rule in
findings of facts[,] the phrase ‘contrary to law’ indicates plenary review as to
matters of law”); Bruce, 21 F. Supp. 3d at 594; HSBC Bank USA, Nat’l Ass’n,
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2014 WL 317820, at *7; 12 Charles Allen Wright, et al., Federal Practice and
Procedure § 3069 (2d ed. 2017) (noting that “[r]egarding legal issues, the language
‘contrary to law’ appears to invite plenary review”).
III. ADDITIONAL EVIDENCE.
In conducting my review, it is within my discretion to receive and consider
additional evidence. United States v. Caro, 461 F. Supp. 2d 478, 480 n.2 (W.D.
Va. 2006), aff’d, 597 F.3d 608 (4th Cir. 2010); see also United States v. Frans, 697
F.2d 188, 191 n.3 (7th Cir. 1983) (noting that 72(a) “do[es] not necessarily restrict
district court review of a magistrate’s findings” and stating that the district court
may “receiv[e] additional evidence or conduct[ ] a full review”); 12 Charles Allen
Wright, et al., supra (noting that “a district judge should have at least the authority
to consider further evidence in reviewing rulings on nondispositive matters”).
In this case, I exercise my discretion to receive supplemental evidence. As I
note below, the record is lacking in evidence regarding certain important matters.
In addition, the issues presented here are unique. As Magistrate Judge Sargent
noted at the January 17 hearing, there appears to be little, if any, case law that is
directly on point, and this case may very well be one “of first impression with
regard to the discovery process.” Hr’g Tr. 20:18-20, Jan. 17, 2017, ECF No. 62.
In addition, because all other aspects of this litigation have been stayed, see ECF

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No. 95, any delay in resolution of the pending objections in order to supplement
the record is not a relevant concern.
By choosing to receive additional evidence, I do not intend to reopen all
evidence in the case, nor do I intend to repeat evidence already presented before
Magistrate Judge Sargent. Instead, I desire the parties to present the following at
an evidentiary hearing to be scheduled:
a. The documents disclosed that Plaintiff’s Counsel contends are
privileged, for in camera review;
b. Witness testimony as to the matters Plaintiff’s Counsel sought to
introduce by way of their supplemental briefing and declarations that
were excluded by Magistrate Judge Sargent, along with any rebuttal
evidence thereto by Defendants’ Counsel; and
c. Witness opinion testimony, if available, by the Virginia State Bar or
other knowledgeable expert, as to the propriety of Defendants’
Counsel’s conduct at issue.
For the foregoing reasons, an evidentiary hearing is hereby ORDERED, and
the court directs the Clerk to schedule such hearing at the parties’ earliest
convenience.
ENTER: May 19, 2017
/s/ James P. Jones
United States District Judge
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