First American Title Insurance Co. v. Bowles Rice, L.L.P.
Filing
128
MEMORANDUM OPINION AND ORDER OVERRULING DEFENDANTS OBJECTIONS 103 . Signed by Senior Judge Irene M. Keeley on 12/11/17. (jss)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
FIRST AMERICAN TITLE INSURANCE CO.,
Plaintiff,
v.
CIVIL ACTION NO. 1:16cv219
(Judge Keeley)
BOWLES RICE, LLP,
Defendant.
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Now pending are objections filed by the defendant, Bowles
Rice, LLP (“Bowles Rice”), to the denial of two motions to compel
by the Honorable Michael J. Aloi, United States Magistrate Judge.
For the reasons stated on the record during the November 20, 2017,
status
conference,
as
well
as
those
that
follow,
the
Court
OVERRULES Bowles Rice’s objections (Dkt. No. 103).
I. BACKGROUND
A.
Factual Background1
This case is the most recent in a litany of litigation flowing
from the ill-fated construction of a $2 billion, 695-megawatt
supercritical
coal-fired
power
plant
by
Longview
Power,
LLC
(“Longview”), in Maidsville, West Virginia. Longview financed
construction of the plant, in part, by borrowing approximately $1.1
billion. The financing was secured by a Fee and Leasehold Credit
1
Because the basic underpinning of this case is not in
dispute, unless otherwise noted, the Court takes its recitation of
the foundational facts from the parties’ pleadings and briefing.
FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Line Deed of Trust, Security Agreement, and Assignment of Leases
and Rents and Fixture Filing (“Deed of Trust”), in favor of Union
Bank of California, N.A. (“Union Bank”), which was executed and
recorded in Monongalia County, West Virginia, on February 28, 2007.
To cover the Deed of Trust’s priority, Union Bank obtained a
$775 million lender’s policy of title insurance from the plaintiff,
First American Title Insurance Company (“First American”). The
policy has an effective date of March 9, 2007, and includes a
mechanic’s lien endorsement. Pursuant to its agency agreement with
First American, Bowles Rice actually underwrote, performed title
searches, and issued the title insurance policy on First American’s
behalf.2 First American reinsured portions of its liability under
the policy through agreements with Old Republic Title Insurance
Company
(“Old
Republic”)
and
Stewart
Title
Insurance
Company
(“Stewart”).
As subsequent events make clear, few parties involved with
construction of the power plant escaped the project unscathed.
First, Longview became entangled in various disputes with its
contractors during the course of construction, and the contractors
2
At this time, the parties dispute whether Bowles Rice was
acting pursuant to a 1994 agency agreement regarding policies
issued out of its office in Charleston, West Virginia, or a 2006
agency agreement regarding policies issued out of its office in
Morgantown, West Virginia.
2
FIRST AMERICAN V. BOWLES RICE
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
filed mechanic’s lien claims in excess of $335 million in February
2012. Because the mechanic’s liens claimed priority over its Deed
of Trust, Union Bank filed a claim with First American in April
2013. Longview subsequently filed for bankruptcy protection in the
District of Delaware in August 2013.
First American proceeded to litigate the issue of liability
under its insurance policy on several fronts. In May 2014, it
sought declaratory relief in California state court regarding its
obligations to Union Bank. Thereafter, Longview filed an adversary
proceeding against First American in the bankruptcy proceeding in
the
District
of
Delaware,
seeking
a
determination
regarding
coverage under the insurance policy. In June 2014, the Delaware
bankruptcy court approved the assignment of proceeds under the
policy from Union Bank to Longview, and it stayed First American’s
case in California. In September 2014, First American commenced its
own adversary proceeding in the District of Delaware, challenging
the priority of the mechanic’s liens over the Deed of Trust.
Ultimately, in December 2014, First American resolved its
liability in these matters by contributing $41 million as part of
a
global
settlement
in
the
Delaware
bankruptcy
court.
First
American recovered a portion of this loss through its reinsurance
policies, but only after Old Republic and Stewart contested their
3
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1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
liability and forced First American to litigate the claims. In
turn, First American filed this lawsuit for breach of contract
against Bowles Rice on November 16, 2016.
More particularly, First American seeks to recover its loss
based on Bowles Rice's alleged breaches of their agency agreements.
First, First American contends that Bowles Rice knew construction
had commenced on the power plant prior to issuing the title
insurance policy - thus giving rise to the possibility of the
filing of mechanic’s liens that would hold priority over the Deed
of Trust - but breached its duty to inform First American of such
a critical fact. Second, First American claims that Bowles Rice
breached its duty to indemnify it for losses associated with Union
Bank’s claim under the title insurance policy.
B.
Procedural Background
The parties have been engaged in discovery since the Court
conducted a scheduling conference in February 2017. In August 2017,
Bowles Rice filed two motions to compel, which the Court referred
to Magistrate Judge Aloi (Dkt. Nos. 51; 52). On October 23, 2017,
Magistrate Judge Aloi entered a written order denying portions of
Bowles Rice’s motions (Dkt. No. 89).3
3
Many issues that were the subject of Bowles Rice’s motions
actually were resolved during proceedings before the magistrate
judge. His written order dealt exclusively with remaining matters
4
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1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
1.
Bowles Rice’s Motions
In
its
first
set
of
interrogatories,
particularly
Interrogatory No. 4, Bowles Rice sought the following:
Identify by name, residence and business address and
residence and business telephone number, each and every
agent, representative and/or employee of Plaintiff who
participated in the decision regarding the level at which
any reserve should be established as to any claim herein
described and state specifically the reasons and rational
relied on in support of the decision to set a reserve at
the level where it was first established and describe in
detail any and all documents which might exist which
would indicate the amount of the reserve established;
when it was established; who established the reserve; the
reasons and rationale relied on in support of the
establishment of the reserve, whether such reserve was
ever changed, and if so, how and why it was changed.
(Dkt. No. 51-1 at 7). First American responded as follows:
First American objects to this interrogatory on grounds
it seeks information that is not relevant, the request is
not reasonably calculated to lead to the discovery of
admissible evidence, and the request is not proportional
to the needs of the case. Further objecting, First
American states that the request seeks information
protected by the attorney client privilege and the
attorney work product doctrine.
Id.
Bowles Rice moved to compel this information, arguing that
1)
reserve
information
"is
relevant
to
determining
the
reasonableness of any settlements that [First American] now seeks
to recover from Bowles Rice"; 2) without a privilege log, Bowles
that are now the subject of Bowles Rice’s objections.
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Rice cannot not adequately assess First American's work-product
claims; and 3) the identity of individuals involved with reserves
"is clearly discoverable" (Dkt. No. 51 at 8-10).
At the same time, in Requests for Production Nos. 4, 6, 8, 10,
12, 14, and 16, Bowles Rice sought "litigation related documents
which would not have been publicly filed" (Dkt. No. 52 at 10). It
specifically sought "all documents reflecting all communications,
emails, letters, etc., between Plaintiff and any attorney or
representative retained by it or acting on its behalf related to"
the following actions, many of which are discussed above:
•
Jarrett F. Jamison, III, et al. v. Longview Power,
LLC, et al., Civil Action No. 07-CV-20 (N.D.W.Va.);
•
Jarrett F. Jamison, III, et al. v. Longview Power,
LLC, et al., Civil Action No. 07-CV-41 (N.D.W.Va.);
•
Old Republic National Title Insurance Company v.
First American Insurance Company, Civil Action No.
8:15-cv-126-T-30EAJ (M.D. Fla.);
•
In re Longview Power, LLC, et al., Adversary
Proceeding No. 14-AP-50369 (BLS) (Bankr. D. Del.);
•
First American Title Insurance Company v. Union
Bank, N.A. fka Union Bank of California, N.A., et
al., Civil Action No. 8:14-CV-00953 (Super. Ct.);
and
•
Kvaerner North American Construction Inc.'s action
against Longview Power, LLC, Civil Action No.
12-C-521, in the Circuit Court of Monongalia
County, West Virginia.
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OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
In response, First American "object[ed] that [each] request
seeks documents and information that are protected from production
by
the
attorney
client
privilege
and
attorney
work
product
doctrine." According to Bowles Rice, although this information is
relevant to whether the settlements were in good faith, First
American did not provide a privilege log. Bowles Rice moved to
compel First American to provide a privilege log so that Bowles
Rice could evaluate the claims of privilege (Dkt. No. 52 at 13-14).
At Magistrate Judge Aloi's direction, Bowles Rice filed a
supplemental brief on October 6, 2017, to address its argument that
First American had impliedly waived the attorney-client privilege
covering the enumerated litigation by filing this lawsuit (Dkt. No.
73). First American argues, on the other hand, that it must only
prove the "objective reasonableness" of its settlement to succeed
on its indemnification claim, making the privileged documents
irrelevant (Dkt. No. 81 at 6).
2.
The Magistrate Judge’s Decision
In rejecting Bowles Rice’s arguments and denying its motions
to compel, Magistrate Judge Aloi reasoned that First American had
not waived the attorney-client privilege regarding underlying
settlements
because
it
had
not
placed
attorney-client
communications in issue by relying on them (Dkt. No. 89 at 9-11).
7
FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Second, Magistrate Judge Aloi denied Bowles Rice’s request to
compel production of the mental impressions behind First American’s
reserves, given that reserves themselves are irrelevant to the
reasonableness of the settlement. Id. at 12. Finally, he did not
require
First
American
to
produce
a
privilege
log
for
communications taking place after July 2014. Id.
II. STANDARD OF REVIEW
Pursuant to 28 U.S.C. § 636(b)(1)(A), the Court may designate
a magistrate judge to determine non-dispositive pretrial matters,
but the Court “may reconsider any pretrial matter . . . where it
has been shown that the magistrate judge’s order is clearly
erroneous or contrary to law.” Fed. R. Civ. P. 72(a) provides the
framework for such reconsideration. When the Court refers a nondispositive motion, “the magistrate judge must . . . , when
appropriate, issue a written order stating the decision.” The
parties have an opportunity to object within 14 days of being
served with the order, and “[t]he district judge in the case must
consider timely objections and modify or set aside any part of the
order that is clearly erroneous or is contrary to law.”
In this case, Bowles Rice identifies three specific objections
to Magistrate Judge Aloi’s rulings on its motions to compel. The
questions presented for the Court are as follows:
8
FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
•
Whether the decision is contrary to law because it did not
require First American to provide privilege logs for allegedly
privileged documents produced after July 29, 2014;
•
Whether the decision that reserve information is irrelevant is
clearly erroneous or contrary to law given the particularized
facts of this case; and
•
Whether the decision that First American did not waive its
attorney-client privilege regarding the underlying lawsuits is
clearly erroneous or contrary to law.
III. LEGAL FRAMEWORK
Although they rely on the same authority, First American and
Bowles Rice dispute a foundational issue: whether, under the burden
of
proof
applicable
indemnification,
subjective
“good
First
to
First
American
faith,”
or
American’s
must
must
prove
only
that
request
it
demonstrate
acted
that
for
in
the
underlying settlements were objectively reasonable. After reviewing
relevant West Virginia precedent, the Court is persuaded that First
American has the better argument.
West
Virginia
recognizes
both
express
and
implied
indemnification. Express indemnity is based on a written agreement
and "can provide the person having the benefit of the agreement,
the indemnitee, indemnification even though the indemnitee is at
9
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
fault." Syl. Pt. 1, Valloric v. Dravo Corp., 357 S.E.2d 207 (W. Va.
1987). Implied indemnity, on the other hand, arises out of a
relationship between the parties. Id.
“Where a party having a duty to indemnify has been notified or
been made a party to the underlying proceedings and given an
opportunity to participate in its settlement negotiations . . . the
indemnitee should not be required to prove" that it was actually
liable "to recover the amount paid in the settlement." Rather,
"[u]nder a potential liability standard, the indemnitee must in his
indemnity suit show that the original claim is covered by the
indemnity agreement. Then he must demonstrate that he was exposed
to liability which could reasonably be expected to lead to an
adverse judgment. Finally, he must prove that the amount of the
settlement was reasonable." Id., 357 S.E.2d 207, Syl. Pt. 4.
This test obtains regardless of whether the duty is express or
implied. Moreover, the standard does not involve inquiry into the
subjective belief of a settling indemnitee. Rather, the Supreme
Court of Appeals has identified two objective factors for assessing
reasonableness: "the amount paid in settlement of the claim in
light of the risk of exposure." Id. at 214.
Bowles Rice argues that First American must show that it acted
in "good faith" in order to recover, claiming that the Supreme
10
FIRST AMERICAN V. BOWLES RICE
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Court of Appeals "implicitly recognized that good faith is required
to support an indemnity claim for an underlying settled claim”
(Dkt. No. 82 at 4-5). This simply is not correct. In Valloric, West
Virginia’s highest court merely noted that requiring an indemnitee
to prove that it was "actually liable," rather than "potentially
liable," would discourage settlements "on a good faith basis."
Valloric, 357 S.E.2d at 212. Nowhere does the court require
indemnitees to prove subjective good faith in addition to or as a
component of reasonableness. Rather, it appears to treat acts that
are "reasonable and undertaken in good faith" as one and the same.
See id.; accord Grace Village Health Care Facilities, Inc. v.
Lancaster Pollard & Co., No. 3:11cv295, 2013 WL 4012662 (N.D. Ind.
Aug.
6,
2013);
Interspan
Distribution
Corp.
v.
Liberty
Ins.
Underwriters, Inc., 2009 WL 2605314 (S.D. Tex. Aug. 21, 2009)
(recognizing an objective standard).
IV. DISCUSSION
Because West Virginia law imposes an objective standard on
parties seeking indemnification, the Court concludes that reserve
information regarding Union Bank’s claim is irrelevant, and that
First
American
did
not
impliedly
waive
its
attorney-client
privilege by filing this lawsuit. Moreover, First American need not
11
FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
provide
a
privilege
log
regarding
those
attorney-client
communications.
A.
Reserves Information Is Irrelevant.
Bowles Rice argues that reserve information is relevant to the
reasonableness of First American’s decision to settle its liability
in the underlying litigation for $41 million. More particularly,
Bowles Rice contends that information related to First American’s
quickly
changing
reserve
for
the
underlying
claim
may
help
establish the unreasonableness of its settlement (Dkt. No. 103 at
9-11). Although not binding on this Court’s application of the
Rules of Evidence, there is persuasive West Virginia authority to
the contrary regarding the relevance of reserve information.
“[R]eserves are value approximations made by an insurance
company regarding what will be sufficient ‘to pay all obligations
for which the insurer may be responsible under the policy with
respect to a certain claim.” State ex rel. Erie Ins. Prop. & Cas.
Co. v. Mazzone, 625 S.E.2d 355, 358-59 (W. Va. 2005). When deciding
whether reserve information is relevant in any particular case, it
is critical to consider the method by which an insurance company
sets reserves (i.e. individual vs. aggregate), the nature of the
underlying litigation, and the purpose for which the information is
sought. “In other words, it is widely recognized that relevancy of
12
FIRST AMERICAN V. BOWLES RICE
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
reserve information turns on the unique factors presented in each
case.” Id. at 360. For instance, in a third-party bad faith case,
information related to an individual reserve may be relevant to
whether
an
plaintiff’s
insurance
claim
company
with
intentionally
regard
to
its
undervalued
settlement
offers.
the
See
Nicholas v. Bituminous Cas. Corp., 235 F.R.D. 325, 330 (N.D.W.Va.
2006) (noting that, “[a]lthough reserve information generally has
been held to be irrelevant in cases involving coverage issues, Erie
recognized that a few courts had determined that such information
is relevant in bad faith cases”).
Here, even assuming that First American set its reserve for
the underlying claim such that its “reasons and rationale” are
probative of good or bad faith, those subjective beliefs are not
relevant given “the unique factors presented” in this case. Erie,
625 S.E.2d at 360. As already discussed, under the potential
liability standard upon which First American relies, an indemnitee
need only prove that it reasonably settled a claim for which it may
have been liable. Valloric, 357 S.E.2d 207, Syl. Pt. 4. Whether
First American’s settlement was reasonable will be determined based
on the amount First American paid in light of the possible exposure
it
faced.
Id.
at
214.
Because
this
standard
is
objective,
Magistrate Judge Aloi’s conclusion that subjective information
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
regarding First American’s reserve is irrelevant - and thus not
discoverable - was neither clearly erroneous nor contrary to law.
B.
First American Did Not Impliedly Waive the Attorney-Client
Privilege.
Bowles Rice also contends Magistrate Judge Aloi incorrectly
concluded that First American did not impliedly waive its attorneyclient privilege regarding underlying litigation (Dkt. No. 103 at
11-13).
In
this
diversity
action,
attorney-client
privilege
is
governed by West Virginia law, Fed. R. Evid. 501, which requires
that “(1) both parties must contemplate that the attorney-client
relationship does or will exist; (2) the advice must be sought by
the client from the attorney in his capacity as legal advisor;
[and] (3) the communication between the attorney and client must be
intended to be confidential.” Smith v. Scottsdale Ins. Co., 621 F.
App’x 743, 745 (4th Cir. 2015) (unpublished decision) (alteration
in original) (quoting State ex rel. Med. Assurance of W. Va., Inc.
v. Recht, 583 S.E.2d 80, 84 (W. Va. 2003)). Even if privileged
matters are relevant and helpful to a litigant’s case, they are not
discoverable. Id.
Nonetheless,
“[a]
party
may
waive
the
attorney-client
privilege by asserting claims or defenses that put his or her
attorney’s advice in issue.” Syl. Pt. 6, State ex rel. Brison v.
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OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Kaufman, 584 S.E.2d 480 (W. Va. 2003) (quoting Syl. Pt. 8, State ex
rel. United States Fid. & Guaranty Co. v. Canady, 460 S.E.2d 677
(1995)). “[A]n attorney’s legal advice only ‘becomes an issue where
a client takes affirmative action to assert a [claim or] defense
and attempts to prove that [claim or] defense by disclosing or
describing an attorney’s communication.’” State ex rel. Marshall
Cty. Comm’n v. Carter, 689 S.E.2d 796, 805 (W. Va. 2010) (quoting
Canady, 460 S.E.2d at 688 n.16). Critically, “advice is not in
issue merely because it is relevant, and does not come in issue
merely because it may have some affect [sic] on a client’s state of
mind.” Smith, 621 F. App’x at 746 (quoting Canady, 460 S.E.2d at
688 n.16).
Bowles Rice relies primarily on two cases to argue that First
American placed its attorneys’ advice “in issue” by filing this
indemnification lawsuit: Hearn v. Rhay, 68 F.R.D. 574 (E.D. Wash.
1975), and In re County of Erie, 546 F.3d 222 (2d Cir. 2008). The
approaches outlined in these cases are valuable as persuasive
authority regarding how West Virginia would determine whether First
American placed its attorney advice “in issue” in this case.
In Hearn, the defendants confined the plaintiff in a mental
health unit without a hearing or other review. When the plaintiff
sued
them
for
violations
of
his
15
constitutional
rights,
the
FIRST AMERICAN V. BOWLES RICE
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OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
defendants asserted that they had acted in good faith and were
entitled to immunity. 68 F.R.D. at 578. To counter this defense,
the plaintiff sought discovery of legal advice rendered to the
defendants. In analyzing whether the defendants had impliedly
waived the attorney-client privilege, the district court noted that
privilege exceptions usually involve “the party asserting privilege
plac[ing]
information
protected
by
it
in
issue
through
some
affirmative act for his own benefit.” In order to avoid manifest
unfairness, the court concluded that privilege is impliedly waived
when
“(1)
assertion
of
the
privilege
was
a
result
of
some
affirmative act, such as filing suit, by the asserting party; (2)
through this affirmative act, the asserting party put the protected
information at issue by making it relevant to the case; and (3)
application of the privilege would have denied the opposing party
access to information vital to his defense.” Id. at 581.
Application of the test articulated in Hearn has varied in the
context of indemnification actions. Compare 1st Sec. Bank of
Washington v. Eriksen, 2007 WL 188881, at *3 (W.D. Wash. 2007)
(finding that attorney-client privilege is not waived under Hearn
even though objective reasonableness of a settlement may be at
issue), with GAB Bus. Servs., Inc. v. Syndicate 627, 809 F.2d 755,
762 & n.11 (11th Cir. 1987) (reasoning that an indemnitee waived
16
FIRST AMERICAN V. BOWLES RICE
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OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
its attorney-client privilege by placing the reasonableness of its
settlement at the “very heart” of the litigation, thus “requir[ing]
testimony
from
its
attorneys
or
testimony
concerning
the
reasonableness of its attorneys’ conduct”), criticized in PETCO
Animal Supplies Stores, Inc. v. Ins. Co. of North America, 2011 WL
2490298, at *18 (D. Minn. June 10, 2011).
But to the extent that Hearn suggests privileged information
is at issue merely because it is relevant to a claim, this aspect
of the test is difficult to square with West Virginia law.4 As
discussed, although privilege can be waived in West Virginia when
a party’s claim or defense puts its attorney’s advice at issue,
advice does not become “in issue” unless a client takes affirmative
action to rely on his or her attorney’s advice in subsequent
litigation. Indeed, the Supreme Court of Appeals has noted that
advice does not become “in issue” merely because it is relevant or
affected the client’s state of mind. Smith, 621 F. App’x at 746
4
As Bowles Rice points out, a magistrate judge in this
district recently cited Hearn with regard to implied waiver. See
Smith v. Scottsdale Ins. Co., 40 F. Supp. 3d 704, 724 (N.D.W.Va.
2014). But that same decision also cited Rhone-Poulenc Rorer Inc.
v. Home Indemnity Co., which was extremely critical of the test
articulated in Hearn. 32 F.3d 851, 863 (3d Cir. 1994) (“These
decisions are of dubious validity. While the opinions dress up
their analysis with a checklist of factors, they appear to rest on
a conclusion that the information sought is relevant and should in
fairness be disclosed.”).
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(quoting Canady, 460 S.E.2d at 688 n.16). Therefore, Magistrate
Judge Aloi did not act contrary to the law by declining to apply
the Hearn test in this case.5
Rather, the better test was articulated by the Second Circuit
in Erie. The court there was critical of Hearn and its application
by the district court below. More particularly, it found fault with
the fact that Hearn appears to make a communication “at issue”
simply because it is relevant to the lawsuit. Erie, 546 F.3d at
229. The Second Circuit instead reasoned that, in order to make
privileged information “at issue” and implicitly waived, “a party
must rely on privileged advice from his counsel to make his claim
or defense.” Id. (emphasis in original). This holding is consistent
with West Virginia’s discussion of waiver, and Magistrate Judge
Aloi was correct to apply it. See Carter, 689 S.E.2d at 805
(quoting Canady, 460 S.E.2d at 688 n.16) (“[A]n attorney’s legal
5
Even if the Court were to apply the Hearn test, Bowles
Rice’s argument falters on the third requirement because it cannot
establish that the privileged communications it seeks are “vital”
to its defense. Rather, Bowles Rice has “access to witnesses other
than plaintiff’s attorney’s who can shed light on the reasons for
the settlement, and to experts who could opine on the
reasonableness of the settlement.” Eriksen, 2007 WL 188881, at *3.
Indeed, First American itself intends to rely on its employees, as
well as pleadings and discovery from the underlying cases, not the
advice of its attorneys (Dkt. No. 109 at 7). That the privileged
communications are relevant and may be helpful to Bowles Rice does
not necessarily mean that they are “vital.” See Eriksen, 2007 WL
188881, at *3.
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FIRST AMERICAN V. BOWLES RICE
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OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
advice only ‘becomes an issue where a client takes affirmative
action to assert a [claim or] defense and attempts to prove that
[claim or] defense by disclosing or describing an attorney’s
communication.’”).
Here, First American is not relying on the advice of counsel
to establish that its settlement was reasonable, nor does West
Virginia law require that it do so. To the contrary, First American
has expressly stated its intention to rely solely on the objective
factors set forth by the Supreme Court of Appeals in Valloric.
Given that it need not present subjective evidence, First American
did not impliedly waive its attorney-client privilege by the mere
filing of this indemnification lawsuit. Accord AngioDynamics, Inc.
v. Biolitec, Inc., No. 1:08-CV-004, 2010 WL 11541926 (N.D.N.Y. May
25, 2010) (holding that merely filing an indemnification action
does not constitute a waiver of the attorney-client privilege).
Likewise, because First American is not relying on its state of
mind to prove that the underlying settlement was reasonable,
denying access to privileged material is not unfair, as Bowles Rice
argues. See Leviton Mfg. Co., Inc. v. Greenberg Traurig LLP, 2010
WL 4983183, at *3 (S.D.N.Y. Dec. 6, 2010).
In addition, Bowles Rice attempts to establish that it can
satisfy the Erie test, but only by mischaracterizing the test’s
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FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
proper application. This misconception of the Erie test is belied
by Bowles Rice’s reliance on Bacchi v. Massachusetts Mutual Life
Insurance Co., 110 F. Supp. 3d 270, 276 (D. Mass 2015). In Bacchi,
the defendant pleaded affirmative defenses of good faith and
regulatory approval. Id. at 275. As a result, the plaintiff claimed
that the defendant had placed its legal advice at issue and
impliedly waived attorney-client privilege. Id. The district court
reasoned that “it is not necessary for purposes” of proving
reliance under Erie “to show that the defendant has stated an
intent
to
introduce”
attorney
communications.
“Rather,
it
is
sufficient if the defendant’s defense relies on certain facts that
can only be tested or rebutted if the adversary is given access to
privileged material.” Id. at 276.
Here, Bowles Rice places itself in the position of the
defendant in Bacchi, arguing that its defense relies on facts that
can only be tested with access to First American’s privileged
communications (Dkt. No. 73 at 9-10). But this argument gets Erie
backwards by contending that one party can impliedly waive its
opponent’s attorney-client privilege by determining that it must
rely on privileged material to establish its own defense. As
discussed, both West Virginia law and Erie are clear that a party
impliedly waives the privilege only through its own reliance on the
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FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
advice of counsel; the straightforward application of that test to
the facts of this case leads to the conclusion that First American
has not done so. Therefore, Magistrate Judge Aloi did not clearly
err or act contrary to law when he ruled that First American’s
attorney-client privilege has not been impliedly waived.
C.
First American Need Not Produce a Further Privilege Log.
Finally, Bowles Rice argues that, even if First American did
not impliedly waive the attorney-client privilege, Magistrate Judge
Aloi erred by not requiring First American to submit a privilege
log for events occurring after July 29, 2014, when First American
retained outside counsel in the underlying actions (Dkt. No. 103 at
4). First American, on the other hand, asserts that the documents
are admittedly and unquestionably privileged, making a privilege
log unnecessary and unduly burdensome (Dkt. No. 109 at 8-10).
The proponent of the attorney-client privilege usually bears
the
burden
of
describing
“otherwise
discoverable”
privileged
material such that other parties will be able to assess the claim.
Fed. R. Civ. P. 26(b)(5). The Local Rules also set out requirements
for what a privilege log must include. L.R. Civ. P. 26.04(a)(2).
“The purpose of the privilege log is to provide information about
the nature of the withheld documents sufficient to enable the
receiving party to make an intelligible determination about the
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FIRST AMERICAN V. BOWLES RICE
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MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
validity of the assertion of the privilege.” Sheets v. Caliber Home
Loans, Inc., No. 3:15-CV-72, 2015 WL 7756156, at *3 (N.D.W.Va. Dec.
1, 2015) (internal quotation and citation omitted).
Here, however, Bowles Rice has conceded that requests for
production of First American’s communications with attorneys and
representatives in the underlying lawsuits were meant to identify
privileged information (Dkt. No. 109-5 at 7). It intended to argue
that First American had impliedly waived any claim of privilege by
filing this lawsuit. Id. Because the Court has ruled that First
American did not impliedly waive the attorney-client privilege when
it filed this lawsuit, it would be futile to require that First
American
provide
a
privilege
log
for
clearly
privileged
communications. Accord Ryan Inv. Corp. v. Pedregal de Cabo San
Lucas, 2009 WL 5114077, at *3 (N.D. Cal. Dec. 18, 2009) (denying
motion to compel “log of post-litigation counsel communications and
work product” because they are “presumptively privileged”); Frye v.
Dan Ryan Builders, Inc., 2011 WL 666326, at *7 (N.D.W.Va. Feb. 11,
2011) (reasoning that party did not have to produce a privilege log
for its litigation file). Therefore, Magsitrate Judge Aloi did not
err when he denied Bowles Rice’s request for such a log.
Nonetheless, as discussed at the status conference on November
20, 2017, to the extent that First American has failed to provide
22
FIRST AMERICAN V. BOWLES RICE
1:16CV219
MEMORANDUM OPINION AND ORDER
OVERRULING DEFENDANT’S OBJECTIONS [DKT. NO. 103]
Bowles Rice with a privilege log for withheld internal documents
generated after July 2014 and not related to the Court’s ruling on
attorney-client privilege - such as the claim file or claim log First American is ORDERED to do so now.
V. CONCLUSION
For the reasons discussed, the Court OVERRULES Bowles Rice’s
objections to the Magistrate Judge Aloi’s October 23, 2017, ruling
on its motions to compel (Dkt. No. 103).
It is so ORDERED.
The Court directs the Clerk to transmit copies of this Order
to counsel of record.
DATED: December 11, 2017.
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE
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