1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 AEROJET ROCKETDYNE, INC., No. 2:17-cv-01515-KJM-AC 12 Plaintiff, 13 v. ORDER 14 GLOBAL AEROSPACE, INC., et al., 15 Defendants. 16 17 Defendant Global Aerospace Inc. (“Global”) and counterclaimants (collectively 18 “defendants”)1 move for reconsideration of the assigned magistrate judge’s October 7, 2019 order 19 granting plaintiff’s motion to compel and denying defendants’ motion to compel. For the 20 foregoing reasons the court DENIES in full defendants’ motion to reconsider. 21 I. BACKGROUND 22 This is a liability insurance coverage action between insured plaintiff and a 23 number of its insurers (collectively “defendants”) arising out of a settlement agreement between 24 plaintiff and a third-party company. Jt. St. Re Disc. Disagreement Re Mot. to Compel Prod. of 25 26 27 1 Defendant Mitsui Sumitomo Insurance, Co. of America, which has its own counsel, did not join the motion to reconsider. See Answer & Countercl. ¶¶ 106−32, ECF No. 154 (identifying 28 Global defendants). 1 Docs. at 8, ECF No. 95.2 According to the operative Second Amended Complaint (“SAC”), the 2 dispute between plaintiff and the third-party company, Orbital Sciences Corporation (“Orbital”), 3 stems from two incidents, May 22, 2014 and October 28, 2014, in which engines plaintiff 4 supplied to Orbital failed, causing property damage. Sec. Am. Compl. ¶ 36, ECF No. 149. On 5 September 21, 2015, plaintiff and Orbital entered a $50 million settlement following which 6 plaintiff brought this liability insurance coverage case seeking indemnity against defendants. Jt. 7 St. Re Mot. to Compel Prod. of Docs. at 8, ECF No. 178; Sec. Am. Compl. ¶ 48. Defendants 8 answered and brought counterclaims for breach of the covenant of good faith and fair dealing, 9 breach of contract, estoppel and waiver. Answer & Countercl. ¶¶ 106−07, ECF No. 154. This 10 court previously set forth the detailed factual and procedural history of this matter in its 11 September 24, 2019 order on defendants’ prior motion to reconsider rulings by the magistrate 12 judge; the court incorporates that history by reference here. First Mot. to Recons. Order at 3–9, 13 ECF No. 233. 14 A. Motions to Compel 15 On January 30, 2019, defendants filed a motion to compel production of several 16 documents Aerojet had redacted as privileged and requested in camera review of those 17 documents. Global Mot. to Compel, ECF No. 141. On February 1, 2019, plaintiff brought its 18 own motion to compel defendants’ production of several documents and responses to 19 interrogatories. Aerojet Mot. to Compel, ECF No. 151. The parties opposed one another’s 20 motions in their joint statements, Jt. St. Disc. Disagreement Re Def.’s Mot., ECF No. 177; Jt. St. 21 Re Disc. Disagreement Re Pl.’s Mot., ECF No. 178. 22 In resolving defendants’ motion to compel, the magistrate judge concluded 23 Aerojet’s documents “were properly redacted on privilege grounds,” and reasoned defendants’ 24 challenge to plaintiff’s privilege claims did not meet “the necessary threshold showing that the 25 attorney-client privilege d[id] not apply; . . . [and] the court would not exercise its discretion to 26 conduct an in camera review in light of [defendants’] superficial arguments.” First Mot. to 27
28 2 The court cites to the page numbers assigned by the court’s ECF system. 1 Compel MJ Order (“March 13, 2019 order”) at 5–6, ECF No. 189. Thus, the magistrate judge 2 declined defendants’ request for in camera review and denied their motion to compel. Id. 3 At the same time, the magistrate judge granted plaintiff’s motion in its entirety and 4 compelled the production of several categories of documents: (1) information concerning 5 Global’s investigation of Aerojet’s claims including allegedly privileged documents, 6 (2) information related to other Global insureds, including Orbital, (3) claims manual file 7 documents, and (4) joint defense agreements between the defendants. First MJ Order at 6–9. The 8 magistrate judge reasoned these documents were not privileged and plaintiff was entitled to 9 production of them in full. Id. In her order, the magistrate judge noted she had previously ruled 10 on this topic when defendants moved for a protective order to bar discovery under the Federal 11 Rules of Civil Procedure related to its communication with outside counsel Condon & Forsyth 12 and Hinshaw & Culbertson during the claims investigation process. See MJ Order on Protective 13 Order at 4–7, ECF No. 137 (granting defendant’s motion for a protective order, ECF No. 130, in 14 part and denying in part).3 In both orders, the magistrate judge found defendants’ documents 15 were not protected by attorney-client privilege because the applicable law provides “when an 16 attorney conducts an investigation not for the purpose of preparing for litigation or providing 17 legal advice, but rather for some other purpose, [attorney-client] privilege is inapplicable.” MJ 18 Order on Protective Order at 5 (quoting Payton v. New Jersey Tpk. Auth., 148 N.J. 524, 550–51 19 (1997)). 20 B. First Motion for Reconsideration and Court’s Order Resolving 21 On March 27, 2019, defendants moved for reconsideration of the magistrate 22 judge’s March 13, 2019 order. First Mot. to Recons., ECF No. 197. Plaintiff opposed. Opp’n, 23 ECF No. 200. Specifically, defendants sought reconsideration of the magistrate judge’s findings 24 that: (1) plaintiff was entitled in discovery to review attorney-client communications; (2) plaintiff 25 3 The magistrate judge explained, “As the responding party, Global has an obligation to 26 construe Aerojet’s topics reasonably.” MJ Order on Protective Order at 9 (quoting Luna v. 27 Universal City Studios LLC, No. CV 12-9286 PSG (SS), 2015 WL 13655668, at *6 (C.D. Cal. Feb. 10, 2015) (“a 30(b)(6) topic is not objectionable to the extent that it may be reasonably 28 construed to seek relevant information capable of being addressed in a deposition.”)). 1 was entitled to attorney files; and (3) plaintiff was entitled to information about defendants’ other 2 insureds. See generally First Mot. to Recons. Defendants also argued the Joint Defense 3 Agreement and claims administration fees and expense schedule are not relevant to this action. 4 Id. 5 In this court’s order on defendants’ first motion to reconsider, First Mot. to 6 Recons. Order, the court referred a portion of defendants’ motion back to the magistrate judge to 7 consider new evidence in the first instance, id. at 6, at the same time deciding to the extent 8 defendants’ motion was unaffected by this new evidence, the motion was denied, id. This court 9 also referred the balance of the matter back to the magistrate judge to “more fully explain the law 10 she reli[ed] on, the evidence she considered and the basis for her decisions” in granting plaintiff’s 11 motion to compel in its entirety. Id. at 16. 12 In moving for reconsideration then, defendant had argued in part it had become 13 aware of “[a] more compelling example of the heavy-handed nature of [plaintiff’s] redactions” on 14 February 28, 2019, when defendants re-deposed plaintiff’s witness, Peter Cova. First Mot. to 15 Recons. Order at 23. Mr. Cova’s deposition took place after the parties filed their joint statement 16 on their discovery dispute and before the issuance of the magistrate judge’s order. Id. at 5. As 17 the court noted, defendants made no attempt to supplement the record before the magistrate judge 18 or request she delay her ruling until they could supplement the record before her. Id. In its first 19 review, this court referred the matter back to the magistrate judge to consider in the first instance 20 whether Mr. Cova’s testimony required a different result. Id. at 6, 16. 21 In referring the matter back to the magistrate judge the court also directed that she 22 address plaintiff’s demand for defendants’ draft documents, including those underlying: 23 (1) defendants’ privilege log entries identifying thirteen draft market reports to the insurer 24 defendants, most of which were authored by Global Claims attorney Tamer Ahmed and two of 25 which had no identified author; (2) three entries identifying draft communications to plaintiff, for 26 which no author was identified; (3) three draft communications for which no further description 27 or author was provided; and (4) a draft request for documents and a draft reservation of rights 28 ///// 1 letter. Id. at 11. The court further directed the magistrate judge to clarify her prior order on 2 plaintiff’s motion with respect to defendants’ communications with co-insurers. Id. at 12. 3 C. Second Magistrate Judge Order and Motion to Reconsider 4 On October 7, 2019, on remand, the magistrate judge once again granted plaintiff’s 5 motion and denied defendants’ motion to compel. Second Mot. to Compel MJ Order (“Sec. MJ 6 Order”), ECF No. 239. 7 On October 21, 2019, defendants moved for reconsideration of the magistrate 8 judge’s second order. Second Mot. to Recons. (“Sec. Mot. to Recons.”), ECF No. 248. Plaintiff 9 timely opposed. Opp’n, ECF No. 249. 10 II. LEGAL STANDARD 11 Federal Rule of Civil Procedure 72(a) requires that district judges consider timely 12 objections to nondispositive pretrial orders issued by magistrate judges and “modify or set aside 13 any part of the order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); see 14 also 28 U.S.C. § 636(b)(1)(A); E.D. Cal. R. 303(f). A magistrate judge’s decision is “‘contrary to 15 law’ if it applies an incorrect legal standard, fails to consider an element of [an] applicable 16 standard, or fails to apply or misapplies relevant statutes, case law, or rules of procedure.” Martin 17 v. Loadholt, No. 1:10-cv-00156-LJO-MJS, 2014 WL 3563312, at *1 (E.D. Cal. July 18, 2014); 18 12 Fed. Prac. & Proc. Civ. § 3069 (3d ed.) (noting “‘contrary to law’ appears to invite plenary 19 review,” though “many matters such as discovery scheduling or disputes might better be 20 characterized as suitable for an abuse-of-discretion analysis”). “A finding is ‘clearly erroneous’ 21 when although there is evidence to support it, the reviewing [body] on the entire evidence is left 22 with the definite and firm conviction that a mistake has been committed.” Concrete Pipe and 23 Prods. v. Constr. Laborers Pension Trust, 508 U.S. 602, 622 (1993) (alteration in original) 24 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). “[R]eview under 25 the ‘clearly erroneous’ standard is significantly deferential . . . .” Id. at 623. 26 III. DISCUSSION 27 Defendants contend the magistrate judge’s grant of plaintiff’s motion to compel 28 should be vacated on the grounds it is both clearly erroneous and contrary to law. Sec. Mot. to 1 Recons. at 11, 25, ECF No. 248. In light of the magistrate judge’s order explaining the law she 2 applied, the evidence she considered, and the reasoning underlying her decision, the court denies 3 defendants’ motion to reconsider, as explained below. 4 A. Choice of Law v.a.v. Attorney Client Privilege 5 The parties agree that on the issue of attorney-client privilege, there is no apparent 6 conflict between the laws of California, New York and New Jersey with respect to this motion. Jt. 7 St. Re Disc. Disagreement Re Pl.’s Mot. at 12 n.6, 21 n.22, ECF No. 178 (“For purposes of this 8 Motion to Compel, the Global Defendants rely on California, New Jersey, and New York law— 9 none of which appear to be in conflict on the issue of attorney—client privilege.”); see also Sec. 10 MJ Order at 7–8. 11 At the same time, defendants argue “a determination that there is no conflict of 12 laws among New York, New Jersey and California on this issue requires the application of 13 California law to litigation pending in this Court.” Sec. Mot. to Recons. at 12. In doing so, 14 defendants rely on cases standing for the general proposition that California resolves choice-of- 15 law questions using a “governmental interest analysis,” to identify the applicable law based on the 16 interests of the litigants and the affected states. McGhee v. Arabian Am. Oil Co., 871 F.2d 1412, 17 1422 (9th Cir. 1989), as amended on reh’g (Apr. 28, 1989); Frontier Oil Corp. v. RLI Ins. Co., 18 153 Cal. App. 4th 1436, 1464 (2007), as modified (Sept. 5, 2007) (“If there is no material 19 difference, there is no choice-of-law problem and the court may proceed to apply California 20 law”). 21 Defendants also argue “[r]esolution of this issue required the magistrate judge to 22 consider the dominant purpose of the relationships between the parties to the communications.” 23 Sec. Mot. to Recons. at 13. In support of this proposition, defendants point to a prior decision by 24 this court as well as a decision by a colleague. See Lennar Mare Island, LLC v. Steadfast Ins. 25 Co., No. 2:12-CV-2182 KJM KJN, 2014 WL 1366252, at *4 (E.D. Cal. Apr. 7, 2014) (quoting 26 Clark v. Superior Court, 196 Cal. App. 4th 37, 51, 125 Cal.Rptr.3d 361 (2011) (“[T]o determine 27 whether a communication is privileged, the focus of the inquiry is the dominant purpose of the 28 relationship between the parties to the communication.”)); Umpqua Bank v. First Am. Title Ins. 1 Co., No. CIV S-09-3208 WBS EF, 2011 WL 997212, at *3 (E.D. Cal. Mar. 17, 2011) (noting 2 “requirement [of the court] that it make a determination as to which function predominated”). 3 The court is not persuaded by these cases. 4 As noted above, in its September 24, 2019 order, this court asked the magistrate 5 judge to clarify the law upon which she relied in granting plaintiff’s motion to compel. See First 6 Mot. to Recons. Order at 11:15–17. In her order providing this clarification, the magistrate judge 7 held the law of New Jersey applies. Sec. MJ Order at 7. The court agrees with this conclusion. 8 After reviewing the applicable federal law with respect to choice of law in the context of 9 attorney-client privilege questions, the magistrate judge found that, while the forum state 10 generally applies its own rule of decision, an exception arises when a party litigant timely invokes 11 the law of a foreign state. See Hurtado v. Superior Court, 11 Cal. 3d 574, 581 (1974). Moreover, 12 “[t]he state of domicile of the corporation asserting the attorney-client privilege is an important 13 factor to consider in choosing the law that governs the scope of that privilege.” Connolly Data 14 Sys., Inc. v. Victor Techs., Inc., 114 F.R.D. 89, 91 (S.D. Cal. 1987). 15 In this case, defendants claimed attorney-client and/or work product privilege as a 16 basis for not producing materials in response to plaintiff’s request for documents. Jt. St. Re 17 Aerojet Mot. at 11–17. Defendants are Delaware corporations with principal places of business 18 in Parsippany, New Jersey, and are headquartered in New Jersey. Answer & Countercl. at 4. 19 The communications at issue took place at least in part in New Jersey. Id. ¶¶ 106, 180. 20 Consistent with California’s “governmental interest analysis,” the magistrate judge found New 21 Jersey has the greatest interest in application of its privilege laws to the claimed privileges 22 underlying this motion. Sec. MJ Order at 7. The court finds no reason to reconsider the 23 magistrate judge’s conclusion, as it is not clearly erroneous or contrary to law. 24 Defendants also contend that “[e]ven if New Jersey law were to apply” to its 25 motion to compel, “the October 7 Order must be set aside . . . because it fails to apply New 26 Jersey’s legal standard for determining whether [pre-denial insurance coverage investigation 27 documents] are protected by the attorney-client privilege” and instead “quotes dicta from Payton 28 v. New Jersey Tpk. Auth., 148 N.J. 524 (1997), repeated in Paff v. Div. of Law, 412 N.J. Super. 1 140 (App. Div. 2010).” Sec. Mot. to Recons. at 13. The court agrees with the observation 2 regarding dicta in Payton, but otherwise is not persuaded. While Payton did not “clearly 3 establish[] that an insurer’s claims investigation constitutes a standard business activity to which 4 no attorney-client privilege attaches,” see Sec. Mot. to Compel MJ Order at 9:8–11, it does not 5 follow that the magistrate judge erred in concluding defendants’ investigation of the claim prior 6 to denial was “in fact just that: an investigation, and not actual preparation for litigation,” id. at 7 9:11–14. In Payton, the court disagreed with defendant’s blanket contention that the attorney- 8 client privilege protected the entire investigatory process because attorneys employed by 9 defendant participated in the investigation. Payton, 148 N.J. 524 at 550. In Paff, the court quotes 10 Payton to clarify that an exception to the attorney-client privilege applies “when an attorney is not 11 providing legal advice, but is merely performing ‘nonlegal duties’ such as conducting an 12 investigation.” Paff, 412 N.J. Super. at 151–52. 13 The magistrate judge’s conclusions here are not clearly erroneous or contrary to 14 law to the extent she references Payton and Paff, given that New Jersey law has “repeatedly 15 recognized that the [attorney-client] privilege is ‘limited to communications made to the attorney 16 in his professional capacity.’” United Jersey Bank v. Wolosoff, 196 N.J. Super. 553, 562 (App. 17 Div. 1984) (quoting Metalsalts Corp. v. Weiss, 76 N.J. Super. 291, 297 (Ch. Div. 1962)); see Sec. 18 MJ Order at 8:5–10. Furthermore, “a fine line exists between an attorney who provides legal 19 services or advice . . . and one who performs essentially nonlegal duties. An attorney who is not 20 performing legal services or providing legal advice . . . does not qualify as a ‘lawyer’ for purposes 21 of the [attorney-client] privilege.” Payton, 148 N.J. 524 at 550–51. Accordingly, the court must 22 determine the nature of the role defendants’ attorneys played with regard to each claimed 23 privilege document, separate from their status as attorneys. Id. As explained below, the record 24 supports the conclusion defendants’ attorneys were performing nonlegal duties in the course of a 25 claim investigation process and their communications with defendants were routine, non- 26 privileged communications. 27 ///// 28 ///// 1 B. Defendants’ Initial Claims Investigation 2 Plaintiff also seeks documents relating to defendants’ initial claims investigation, 3 including as noted the pre-denial investigation file of outside counsel Condon & Forsyth. Jt. St. 4 Re Disc. Disagreement Re Pl.’s Mot. at 11–17. Defendants claim these files also are protected 5 from discovery by attorney-client privilege and/or work product protection. Id. 6 Defendants indicate in a footnote that they “do not dispute that claims 7 investigations are a routine part of an insurer’s work.” Sec. Mot. to Recons. at 14 n.6. However, 8 defendants argue they “responded to the unique circumstances surrounding this particular 9 matter,” and the magistrate judge rejected “uncontroverted first-hand evidence of the work . . . 10 performed by [its] claims attorneys and outside coverage counsel” and accepted plaintiff’s 11 “unsubstantiated contentions regarding the nature of such work based on inapplicable provisions 12 of the Global Claims Manual.” Id. at 14. 13 Here, defendants appear to overstate the nature of their claims investigation 14 process in reliance on the “dominant purpose of the relationship between the parties to the 15 communication.” Jt. St. Re Disc. Disagreement Re Pl.’s Mot. at 22 (quoting Lennar Mare Island, 16 LLC, 2014 WL 1366252, at *3). Nevertheless, arguing that plaintiff’s underlying claim was “not 17 a routine claim,” Decl. of Anthony Murphy, Vice President for Global Aerospace, Inc. (“Murphy 18 Decl.”) ¶ 9, ECF No. 178, or that defendants “anticipated the potential for litigation should it 19 determine that there was no coverage,” id. ¶ 12, does not now convert defendants’ claims 20 investigation into a coverage dispute to which the privilege attaches. Plaintiff is essentially 21 correct that “an insurer’s claims investigation is a routine business activity to which no attorney- 22 client privilege exists.” Opp’n at 12 (citing Payton, 148 N.J. at 551 (“[W]hen an attorney 23 conducts an investigation not for the purpose of preparing for litigation or providing legal advice, 24 but rather for some other purpose, the privilege is inapplicable.”)). 25 Moreover, defendants specifically distinguish between their claims handling group 26 and its legal counsel for purposes of coverage. Global explains that its legal counsel’s office is 27 the in-house department charged with providing legal advice, and is distinct from claims handling 28 operations: 1 Global maintains a claims group the purpose of which is to handle claims submitted by Global insureds. Global’s claims group consists 2 of Claims Handlers and the Director of Claims. Global maintains 3 two types of Claims Handlers—Claims Representatives and Claims Attorneys. The only difference between the two is that Claims 4 Attorneys have a law degree. But the role of both is the same—to handle claims. Neither are to provide legal advice. That is the role 5 of Global’s legal department, which is separate from the claims group. 6
7 Jt. St. Re Disc. Disagreement Re Pl.’s Mot. at 13, ECF No. 178. 8 Additionally, defendants submitted to the magistrate judge the declaration cited 9 above from Anthony Murphy, Vice President for Global in its claims department, in which he 10 avers that from the outset, defendants “viewed plaintiff’s claim as a coverage case that required in 11 house coverage counsel . . . to investigate and analyze the claim to determine whether it was 12 covered by the applicable policies and to provide a coverage recommendation to the co-insurers.” 13 Murphy Decl. ¶ 10. As the authorities reviewed above teach, the mere fact attorneys are involved 14 in conducting an insurance investigation does not mean their communications are privileged; they 15 are not when the investigation is part of a company’s routine business activity. 16 Having carefully reviewed the magistrate judge’s order, the court does not find the 17 magistrate judge misconstrued the record before her and or that she committed clear error. 18 C. Condon & Forsyth’s Pre-Denial Claim Investigation 19 In granting plaintiff’s motion to compel, the magistrate judge found defendant 20 “has not met its burden as the party asserting privilege” to show the attorney client privilege 21 applies to Condon & Forsyth’s pre-denial claim investigation, which occurred between 22 August 21, 2015 and October 4, 2016,4 because “the evidence suggests outside counsel was 23 acting to investigate the claim in conjunction with [defendants’] claims group.” Sec. MJ Order at 24 10:15–16. Defendants argue the magistrate judge erred in finding the timing of retention, the lack 25 of an engagement letter and defendants’ failure to follow the multi-step process laid out in the 26
27 4 Aerojet tendered its claim to Global on August 21, 2015. Global denied coverage on October 4, 2016 and reaffirmed its denial on February 16, 2017 and April 26, 2017. Jt. St. Re 28 Disc. Disagreement Re Pl.’s Mot. at 8. 1 Claims Manual before retaining outside counsel, taken together, undermine defendants’ 2 contention that Condon & Forsyth’s role was confined to providing coverage advice. See Sec. MJ 3 Order at 10:9–12. 4 As noted above, in her prior determination that the materials called for by 5 plaintiff’s 30(b)(6) request were not protected by attorney-client privilege the materials because 6 they were not created during “an investigation [] for the purpose of preparing for litigation or 7 providing legal advice,” the magistrate judge relied on Payton, supra. Id. at 5 (quoting Payton, 8 148 N.J. at 550–51). Defendants argue the matter currently before this court falls as well outside 9 the scope of the “actual rule articulated in Payton, as opposed to its dicta,” Sec. Mot. to Recons. 10 at 22, because Global’s Claims Director, Sharon Holahan,5 “recognized immediately that there 11 were coverage questions requiring in-depth analysis” and she “put an in-house coverage team in 12 place,” exercising her authority to “have Mr. [Anthony] Murphy6 retain Condon & Forsyth as 13 coverage counsel” on August 24, 2015. Id. at 21 (citing First MJ Order); Murphy Decl. ¶ 13; see 14 also Jt. St. Re Disc. Disagreement Re Pl.’s Mot., Ex. 1 (August 24, 2015 Email) at 32, ECF No. 15 178. 16 Defendants’ claims manual authorizes handlers to hire outside attorneys to 17 conduct claims investigations and to serve as coverage counsel. Id. at 17–18; Sec. MJ Order at 18 10:2–12. While defendants assert Global engaged Condon & Forsyth to conduct a coverage 19 analysis as opposed to a claims investigation, the record does not bear out that assertion. Murphy 20 Decl. at 43 ¶ 14. Section 8.3 of the claims manual outlines a nine-step process for claims 21 handlers to address coverage questions. Jt. St. Re Disc. Disagreement Re Pl.’s Mot. at 18. The 22 seventh step details the process for engaging coverage counsel, which defendants concede they 23 did not follow when hiring Condon & Forsyth. Id. 24
25 5 Plaintiff’s broker submitted its initial claim directly to Ms. Holahan, after business hours on Friday, August 21, 2015. Decl. of Tamer Ahmed, Vice President and Claims Attorney for 26 Global Aerospace, Inc. ¶ 3, ECF No. 178. 27 6 Mr. Murphy, a lawyer, worked on plaintiff’s initial ‘claim’ submitted by [plaintiff] in August 2015, and then the actual claim that plaintiff submitted for $6.9 million in February 2016, 28 under two liability insurance policies issued by defendants. Murphy Decl. ¶¶ 1, 3. 1 Moreover, defendants did not produce an engagement letter, Resp. & Obj. to Pl.’s 2 Interrog. at 146:26–27, ECF. 178, and instead argue simply “an engagement letter is not 3 necessary to retain counsel to provide legal advice,” Sec. Mot. to Recons. at 21 n.13 (citing Home 4 Care Indus., Inc. v. Murray, 154 F. Supp. 2d 861, 868–70 (D.N.J. 2001) (discussing whether an 5 implied attorney-client relationship existed between corporation’s attorney and its President)). 6 The court finds no error in the magistrate judge’s assigning weight to the lack of an engagement 7 letter between any defendant and Condon & Forsyth limiting that firm’s role to coverage counsel. 8 In sum, here as well nothing in defendants’ motion convinces the court the 9 magistrate judge committed clear error in finding no privilege exists with respect to Condon & 10 Forsyth’s pre-denial claim investigation materials, dated from August 21, 2015, with the onset of 11 defendants’ investigation of plaintiff’s claim, through October 4, 2016, the date of defendants’ 12 first denial letter. See Sec. MJ Order at 11:1–3. 13 D. Defendants’ Draft Documents 14 In its September 24, 2019 order, this court also referred this matter back to the 15 magistrate judge for explanation of how the attorney-client privilege and the work product 16 doctrines informed her analysis leading her to grant plaintiff’s motion. Defendants argue the 17 magistrate judge erred the second time, Sec. Mot. to Recons. at 23, in granting the plaintiff’s 18 motion to compel production of draft documents they claim are protected by either the attorney- 19 client privilege or the work-product doctrine. 20 1. Attorney-Client Privilege 21 The magistrate judge applied the same attorney-client privilege analysis here as 22 she did with respect to the claims investigation materials discussed above, while noting here “the 23 documents were not expressly authored by attorneys (with the exception of Ahmed acting as 24 claims investigator. . .).” Sec. MJ Order at 10:25–28. Even if the documents were directed to 25 attorneys, the attorney-client privilege does not apply just because a statement was made by or to 26 an attorney. See Payton, 148 N.J. at 550–51. 27 Relying on Payton, the magistrate judge concluded, defendants’ “[thirteen draft] 28 [m]arket reports, communications to the insured, and reservation of rights/requests for 1 documents” should be treated no differently in discovery than [defendants’] other pre-denial 2 investigative communications” because they are “all part of normal claims handling activities.” 3 Sec. MJ Order at 10–11. While defendants contend “[t]he unrefuted evidence in the record 4 clearly establishes . . . draft documents were prepared in anticipation of litigation because at the 5 time of their preparation [defendants’] claims attorneys believed that litigation was a real 6 possibility and that belief was objectively reasonable,” Sec. Mot. to Recons. at 23, the court has 7 explained above why the magistrate judge’s conclusion that the communications related to claims 8 handling was not in error. 9 Plaintiff also notes, “under federal law, an insurer cannot reasonably anticipate 10 litigation prior to the denial of a claim.” Opp’n at 13 (citing Cellco P’ship v. Certain 11 Underwriters at Lloyd’s London, No. CIV.A. 05-3158 (SRC), 2006 WL 1320067, at *5 (D.N.J. 12 May 12, 2006)). The timing of Condon & Forsyth’s retention supports outside counsel’s 13 involvement in the investigation of plaintiff’s claim because plaintiff tendered its claim to 14 defendants on August 21, 2015; the court is not persuaded defendants would have conducted any 15 material investigation in a single day. See Jt. St. Re Disc. Disagreement Re Pl.’s Mot. at 11. The 16 record supports a conclusion defendants’ investigation of plaintiff’s initial “claim” began August 17 21, 2015 and lasted through October 4, 2016,7 the date defendants denied coverage. Id. at 8. 18 Again, the court cannot find the magistrate judge committed clear error. 19 2. Work Product Doctrine 20 Defendants also contend draft documents are protected by the work product 21 doctrine. Sec. Mot. to Recons. at 23. The magistrate judge reasoned the draft documents at issue 22 are not protected work product: “[t]o qualify for protection under the [work product doctrine], 23 documents must have two characteristics: (1) they must be prepared in anticipation of litigation or 24 for trial, and (2) they must be prepared by or for another party or by or for that other party’s 25 representative.” Sec. MJ Order at 11 (citing In re California Pub. Utils. Comm’n, 892 F.2d 778,
26 7 Defendants’ privilege log identifies 195 documents created during defendants’ 27 investigation of plaintiff’s claim, with the first entry dated August 25, 2015, and the last entry dated October 4, 2016. Jt. St. Re Disc. Disagreement Re Pl.’s Mot., Ex. 7 (Privilege Log) at 60– 28 73, ECF 178. 1 780–81 (9th Cir. 1989)). The magistrate judge found defendants “cannot meet the threshold 2 requirement for work product protection,” because, as Mr. Murphy explained, plaintiff’s “claim 3 was purely [a] coverage case” and, while defendant Global may have “anticipated the potential 4 for litigation should it [sic] determine that there was no coverage,” the magistrate judge 5 concluded draft documents were not actually prepared in anticipation of litigation. Id. at 8–9; see 6 also Murphy Decl. at 42 ¶ 12. The court finds no fault in that conclusion. “[T]he hiring of 7 counsel is not in and of itself enough to anticipate litigation within the meaning of the work- 8 product doctrine.” Beachfront N. Condo. Ass’n, Inc., 2015 WL 55402, at *5; Am. Home Assur. 9 Co. v. United States, No. CIV.A. 09-CV-258 DM, 2009 WL 3245445, at *2 (D.N.J. Oct. 7, 2009) 10 (“To assume that litigation may ensue from any accident may not be unreasonable, but the 11 concept that the mere occurrence of an accident constitutes anticipation of litigation has been 12 soundly rejected”). 13 Moreover, defendants’ heavy reliance on Umpqua Bank v. First Am. Title Ins. Co., 14 No. CIV S-09-3208 WBS EFB, 2011 U.S. Dist. LEXIS 34088, at *16-17 (E.D. Cal. Mar. 17, 15 2011), in which the court ordered production of coverage counsel’s pre-denial work product,8 is 16 also unavailing. The magistrate judge’s order provides a conclusion that is plausible, in light of 17 the record in its entirety. See Phoenix Eng’g & Supply Inc. v. Universal Elec. Co., 104 F.3d 18 1137, 1141 (9th Cir. 1997) (quoting Anderson v. Bessemer, 470 U.S. 564, 573–74, (1985) (“[T]he 19 court of appeals may not reverse [the trial court] even though convinced that had it been sitting as 20 the trier of fact, it would have weighed the evidence differently.”)). In short, exercising the 21 deference warranted under the circumstances, the court is not persuaded the magistrate judge 22 misconstrued the record before her and cannot find she committed clear error. 23 E. Defendants’ Communications with Co-Insurers 24 Defendants argue the magistrate judge “relies on the irrelevant fact that there was 25 no engagement letter reflecting retention of Condon & Forsyth’s [sic] on behalf of the co- 26 insurers” to conclude communications between defendants and co-insurers are not entitled to 27 8 Defendants cite this case in their first and second motions to reconsider. See First Mot. 28 to Recons. at 15, ECF No. 197; Sec. Mot. to Recons. at 23, ECF No. 248. 1 protection of the attorney-client privilege.9 Sec. Mot. to Recons. at 24. On the other hand, 2 plaintiff notes under New Jersey law “pre-denial communications are presumptively not 3 privileged.” Opp’n at 20 (citing Zawadsky v. Bankers Standard Ins. Co., No. 14-2293 4 (RBK/AMD), 2015 U.S. Dist. LEXIS 173789, at *19 (D.N.J. Dec. 30, 2015) (ordering production 5 of communications between insurer and its in-house counsel prior to issuance of final denial 6 letter)). Moreover, it is defendants’ burden to prove the attorney-client privilege applies to these 7 communications. See Horon Holding Corp. v. McKenzie, 341 N.J. Super. 117, 124, 775 A.2d 8 111, 116 (App. Div. 2001) (“The person asserting the privilege [] bears the burden to prove it 9 applies to any given communication”). 10 The court finds the record supports the conclusion that communications between 11 defendants and co-insurers occurred prior to the first denial letter being mailed to plaintiffs, when 12 defendants were considering the question of whether any damage sustained by plaintiffs was 13 covered by the policy. The timing of these communications supports plaintiff’s argument that the 14 communications were not privileged, because they were part of the investigation of plaintiff’s 15 claim. Moreover, the record does not support the conclusion that simply because defendants 16 hired an attorney, Global anticipated litigation. Murphy Decl. ¶¶ 9, 12. As plaintiff notes, 17 defendants’ “highly sophisticated” business with an “entire in-house legal department” is 18 inconsistent with its choice “not to secure an engagement letter with Condon & Forsyth,” Opp’n 19 at 21, but it is consistent with the magistrate judge’s finding that outside counsel was hired to 20 perform routine investigative services, not legal work. As the magistrate judge concluded, 21 defendants have not satisfied their burden of proving Global anticipated litigation as of 22 August 24, 2015, the date it retained counsel. See Murphy Decl. ¶ 13. 23 ///// 24
25 9 The court notes the magistrate judge “relies on testimony establishing that [defendants] retained Condon & Forsyth on behalf of all co-insurers as well as itself . . . [and] that testimony is 26 then rejected in connection with communications between defendants and the co-insurers.” Sec. 27 Mot. to Recons. at 20 n.10–11, 23. To clarify, the record establishes that on August 24, 2015 defendant retained Condon & Forsyth on its own behalf and on behalf of all insurers involved in 28 this matter. Murphy Decl. ¶¶ 4, 6. 1 Therefore, defendants must provide plaintiff access to documents dated beginning 2 August 21, 2015, when plaintiff presented its claim to defendants, through October 4, 2016, when 3 defendants issued its first denial letter to plaintiff. 4 F. Claims Manual Document Dispute Moot 5 The court need not address the magistrate judge’s ruling on plaintiff’s motion to 6 compel the remainder of the claims manual documents. Sec. MJ Order at 12:4–15. This issue is 7 now moot given defendants’ production of an “unredacted copy of the North American Claims 8 Handling Agreement (NACHA) and fee schedule.” Sec. Mot. to Recons. at 10 n.4. Moreover, 9 plaintiff “marked the fee schedule as Deposition Exhibit 204 and questioned [defendants’] 10 witnesses on its contents.” Id. at 11 n.4. 11 G. Defendants’ Joint Defense Agreement 12 Finally, plaintiff seeks production of defendants’ Joint Defense Agreement, which 13 defendants identified but have refused to provide on grounds that it is irrelevant to the dispute. Jt. 14 St. Re Disc. Disagreement Re Pl.’s Mot. at 20:20–22. Defendants argue the magistrate judge’s 15 “conclusions . . . concerning privilege . . . and its pool members including Mitsui, beginning on 16 August 24, 2015 contradict the unrefuted evidence in the record and are thereby clearly erroneous 17 and contrary to law.” Id. at 24–25 (citing Resp. & Obj. to Pl.’s Interrog. at 147:9–11, ECF. 178, 18 (“[T]he Joint Defense Agreement [with defendant Mitsui Sumitomo Insurance Company of 19 America] was entered into on August 17, 2017, after this litigation was commenced”)). The 20 magistrate judge was not persuaded that defendants’ claims investigation process prior to denial 21 was anything but a claims investigation in the ordinary course of business. Sec. MJ Order at 12. 22 Moreover, the magistrate judge relied on the same reasoning in denying the existence of an 23 attorney-client privilege, id. at 7–8, to justify the conclusion that the Joint Defense Agreement 24 should be produced, id. at 12:22–24. 25 The record here supports the conclusion defendants “acted for and on behalf of its 26 pool members, including Mitsui, in retaining C&F in August 2015.” Jt. St. Re Disc. 27 Disagreement Re Pl.’s Mot. at 30:4–8; see Murphy Decl. ¶ 4. Mitsui retained its own counsel 28 after plaintiff commenced this litigation, at which point Mitsui and defendants entered into the 1 Joint Defense Agreement on August 18, 2017. Jt. St. Re Disc. Disagreement Re Pl.’s Mot. at 2 30:6–8. Plaintiff counters persuasively that defendants’ recent attempt to use its investigation to 3 defend against plaintiff’s bad faith claim enhances the relevance of the Agreement. Opp’n at 12. 4 The evidence provided by defendants does not establish that, upon tender of plaintiff’s claim, 5 defendants immediately treated the claim as a coverage action. Evidence of defendants’ Joint 6 Defense Agreement with Mitsui therefore is not privileged. The court cannot conclude that the 7 magistrate judge in this respect committed clear error. 8 IV. SUMMARY 9 Defendants’ motion for reconsideration of the magistrate judge’s October 7, 2019 10 order granting plaintiff’s motion to compel is DENIED. 11 This order resolves ECF No. 248. 12 IT IS SO ORDERED. 13 DATED: January 14, 2021. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28