LA Terminals, Inc. v. United Nat'l Ins. Co.
LA Terminals, Inc. v. United Nat'l Ins. Co.
2021 WL 6103181 (C.D. Cal. 2021)
November 17, 2021
Castillo, Pedro V., United States Magistrate Judge
Summary
The Court conducted an in camera review of documents to determine the application of the attorney-client privilege and ordered United National to re-produce all documents produced to date in either the format requested by Plaintiffs or as individual searchable PDFs. The Court also found that the majority of the redactions were warranted, but ordered disclosure of certain materials.
LA TERMINALS, INC., et al., Plaintiffs,
v.
UNITED NATIONAL INSURANCE COMPANY, Defendant
v.
UNITED NATIONAL INSURANCE COMPANY, Defendant
SACV 19-0286 ODW (PVCx)
United States District Court, C.D. California
Signed November 17, 2021
Counsel
Brook Blaine Roberts, James A. Tabb, Iryna Fedoseienko, Michael Lee Huggins, Steven B. Lesan, Latham and Watkins LLP, San Diego, CA, Kirsten Courtney Jackson, Latham and Watkins LLP, Los Angeles, CA, for Plaintiffs.Daniel Nicholas Katibah, James C. Nielsen, Stuart Edward Jones, Thomas Harvey Nienow, Nielsen Katibah LLP, San Rafael, CA, for Defendant.
Castillo, Pedro V., United States Magistrate Judge
MEMORANDUM DECISION AND ORDER GRANTING IN PART PLAINTIFFS' MOTION TO COMPEL PRODUCTION OF DOCUMENTS (Dkt. No. 81)
*1 On October 26, 2021, Plaintiffs LA Terminals, Inc. (“LAT”) and SOCO West, Inc. (“Soco”) (collectively, “Plaintiffs”) filed a Motion to Compel Production of Documents (“MTC”) against Defendant United National Insurance Company (“United National” or “Defendant”), including a Joint Stipulation pursuant to Local Rule 37-2 (“Jt. Stip.”) and supporting exhibits. (Dkt. No. 81). On November 2, 2021, Plaintiffs and Defendant separately filed supplemental memoranda. (Dkt. No. 87 (“P Supp. Memo.”); Dkt. No. 86 (“D Supp. Memo.”)). Plaintiff's supplemental memorandum was supported by the declaration of counsel Kirsten C. Jackson (“Jackson Decl.,” Dkt. No. 87-1) and an attached excerpt of Defendant's privilege log (“Exhibit A,” Dkt. No. 87-2). On November 5, 2021, the Court held an expedited in-person hearing and heard from counsel on both sides. At the hearing, Plaintiffs repeatedly urged the Court conduct an in camera review of certain documents to determine if Defendant's claim of attorney client privilege was proper. The Court conducted such a review of a limited number of documents.[1] While the vast majority of Defendant's redactions are fully supported, for the reasons stated below, Plaintiffs' Motion to Compel is GRANTED IN PART. Defendant is ORDERED to produce documents as required by this Order by November 19, 2021.
I. BACKGROUND FACTS AND ALLEGATIONS[2]
This is a duty to defend action for a defense against underlying actions brought by the City of Los Angeles (“City”) against Plaintiffs in separate proceedings. The City's actions, filed in 2018, allege that Plaintiffs caused pollution at and around a now-defunct chemical storage facility at the Port of Los Angeles in the 1980s and 1990s. LAT is an insured, and the City and Soco are additional insureds, under comprehensive general liability policies issued by United National. Each policy contains an exclusion for damage caused by releases of pollutants, though the exclusion is subject to an exception for releases or escapes that are “sudden and accidental.”
LAT tendered to United National in May 2018. United National disclaimed a duty to defend in August 2018 because the City did not expressly allege that the spills and releases were “sudden and accidental.” Therefore, Plaintiffs paid, and continue to pay, for their own counsel, Rutan & Tucker LLP, to defend them.
*2 On August 6, 2018, LAT cross-sued the City and other entities and filed a federal lawsuit against the same parties. LAT's pleadings alleged that the contamination “was caused by various sudden and accidental releases” committed by other parties. The City tendered these additional pleadings to United National a few days later. On September 18, 2018, United National agreed to defend the City against Plaintiffs' counterclaims in the underlying actions because Plaintiffs used the phrase “sudden and accidental.” United National represents that “for a time,” it adjusted the City's claim under the same claim file that it had opened when LAT tendered. During that time, United National had a single claims handler, Senior Environmental Attorney Randi Hoffman, overseeing the combined claims file for both Plaintiffs and the City.
In February 2019, LAT and Soco tendered various new pleadings from the underlying suits that expressly alleged that Plaintiffs had committed “sudden and accidental” releases of pollutants. In April 2019, approximately seven months after United National agreed to defend the City, United National agreed to defend Plaintiffs under reservation of rights.
In the reservation letters, United National said it would retain attorney John Brydon of the law firm Demler Armstrong & Rowland LLP to defend Plaintiffs. Plaintiffs insisted they were entitled to independent counsel and rejected Mr. Brydon, instructing him to refrain from taking any action on their behalf as defense counsel.
According to United National, in May 2019, after having agreed to defend both Plaintiffs and the City in the underlying actions, it created four segregated claim files for Plaintiffs' and the City's coverage and defense issues. The files were each assigned a distinct claim number and continue to be overseen by four separate adjusters. The four adjusters have no contact with one another about their files.
II. THE PARTIES' DISCOVERY DISPUTE
Plaintiffs served production requests on United National on April 12, 2019. (Jt. Stip., Exh. C). United National's response in May 2019 asserted privilege over various categories of documents. (Jt. Stip. at 3). In an attempt to resolve the parties' disputes, the parties held “several hours-long telephonic meet-and-confers” and participated in two informal discovery conferences with the Magistrate Judge, one with Judge Segal on July 11, 2019, and the other with the undersigned on June 23, 2021. (Id.). In the email requesting the June 23, 2021 informal discovery conference, United National stated that it “intends to produce the documents described, subject to reasonable redactions based on applicable privileges, and is in the process of doing so.” (Id., Exh. A at 5). The parties obtained a three-month extension of the discovery cut-off, to November 19, 2021, on the understanding that the additional time “would be sufficient for United National to supplement its production and update its privilege log so that the parties could obtain resolution of any remaining disputes and complete discovery by the new cut-off.” (Jt. Stip. at 3-4).
Because Plaintiffs had not received any documents or a revised privilege log from United National, on October 1, 2021, they served United National with their portion of the Joint Stipulation for the instant Motion to Compel. On October 7, 2021, one day before United National's portion of the Joint Stipulation was due, United National served Plaintiffs with a single, 10,000-page PDF that Plaintiffs contend contains “nothing more than heavily redacted emails and documents with most if not all text blacked out” and “gives no indication of where [ ] one document ends and the next one begins.” (Id. at 4). Three days later, on October 10, 2021, United National produced a 500-page privilege log. (Id.).
The instant Motion to Compel was filed just over two weeks later, on October 26, 2021. Plaintiffs seek an order compelling United National to produce unredacted copies of the following three categories of documents “in a reasonably usable format”: (1) internal communications between United National's claims handlers, (2) correspondence and documents between United National and the City regarding insurance coverage, and (3) correspondence between United National and Mr. Brydon/Demler during the period when United National was vetting Mr. Brydon/ Demler to be LAT's replacement defense counsel. (Id. at 3, 5). Plaintiffs further suggest that an in camera review may be helpful, and request that any such review be conducted on an expedited basis.
*3 United National states that the “vast majority” of its production “relates to the City's defense in the underlying lawsuits, information that everyone agrees is not discoverable.” (Id. at 7). United National further contends that the City's coverage documents are privileged and production would require the City's consent. (Id.). Similarly, United National argues that correspondence and documents between United National and Mr. Brydon/Demler are also privileged. (Id.). Finally, United National maintains that because Plaintiffs did not object to its prior productions and written responses to the production requests, which objected to Plaintiffs' form-of-production instructions and stated that United National would produce “all discoverable material responsive to plaintiffs' requests in Portable Document File (PDF) format with Bates-numbered pages,” Plaintiffs have waived the right to object to the format of the instant production. (Id. at 24).
III. STANDARDS
A. Scope of Permissible Discovery
Federal Rule of Civil Procedure 26(b)(1) provides:
Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.
Fed. R. Civ. P. 26(b)(1).
Evidence is relevant if “it has any tendency to make a fact more or less probable than it would be without the evidence, and the fact is of consequence in determining the action.” Fed. R. Evid. 401. “The relevance standard is commonly recognized as one that is necessarily broad in scope in order ‘to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.’ ” Doherty v. Comenity Capital Bank & Comenity Bank, 2017 WL 1885677, at *2 (S.D. Cal. May 9, 2017) (quoting Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978)); see also Sci. Games Corp. v. AGS LLC, 2017 WL 3013251, at *2 (D. Nev. July 13, 2017) (“Even after the 2015 amendments, courts continue to recognize that discovery relevance remains ‘broad’ in scope.”). “Proportionality focuses on the marginal utility of the discovery sought.” In re Methyl Tertiary Butyl Ether Prod. Liab. Litig., 180 F. Supp. 3d 273, 280 n.43 (S.D. N.Y. 2016) (internal quotation marks and citation omitted). While the scope of permissible discovery may be broad, because discovery must be both relevant and proportional to the needs of the case, the right to discovery, even plainly relevant discovery, is not limitless.
B. The Attorney-Client Privilege
Plaintiffs bring this action pursuant to the Court's diversity jurisdiction under 28 U.S.C. § 1332. (See Second Amended Complaint, Dkt. No. 50, ¶ 3). When parties to a federal diversity action assert evidentiary privileges during discovery litigation, state law privileges apply to the extent that state law provides the rule of decision. See Fed. R. Evid. 501; see also Star Editorial, Inc. v. Dist. Court, 7 F.3d 856, 859 (9th Cir. 1993); In re Cal. Pub. Utils. Comm'n v. Westinghouse Elec. Corp., 892 F.2d 778, 781 (9th Cir. 1989) (“In diversity actions, questions of privilege are controlled by state law.”). Accordingly, California law, not federal law, concerning the attorney-client privilege applies. See Kandel v. Brother Intern. Corp., 683 F. Supp. 2d 1076, 1081 (C.D. Cal. 2010) (“In a federal action such as this based on diversity of citizenship jurisdiction, state law governs attorney-client privilege claims.”).
The “fundamental purpose” of the attorney-client privilege is “to encourage full and open communication between client and attorney.” Zimmerman v. Super. Ct., 220 Cal. App. 4th 389, 396 (2013) (internal quotations omitted). In California, the attorney-client privilege is governed by statute, and the party claiming the privilege “shoulders the burden of showing that the evidence it seeks to suppress falls within the terms of [the] applicable statute.” HLC Properties, Ltd. v. Super. Ct., 35 Cal. 4th 54, 60 (2005). Pursuant to California Evidence Code § 954, the attorney-client privilege “confers a privilege on the client ‘to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer[.]’ ” Costco Wholesale Corp. v. Super. Ct., 47 Cal. 4th 725, 732 (2009). “The party claiming the privilege” must establish the “preliminary facts necessary to support its exercise, i.e., a communication made in the course of an attorney-client relationship.” Id. at 733. Once a party “establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply.” Id.
*4 Special rules apply to the application of the attorney-client privilege in the insurance context. Under California law, “[w]hen an insurer retains counsel to defend its insured, a tripartite attorney-client relationship arises among the insurer, insured, and counsel. As a consequence, confidential communications between either the insurer or the insured and counsel are protected by the attorney-client privilege, and both the insurer and insured are holders of the privilege.” Bank of Am., N.A. v. Superior Ct., 212 Cal. App. 4th 1076, 1083 (2013). As one court explained,
In the insurance context, California courts recognize that “[w]hen there is a single, common goal shared by an insurer and its insured of minimizing or eliminating liability to a third party ... a unique tripartite relationship exists among those parties.” Continental Casualty Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510, 519 (E.D. Cal. 2010). Within the tripartite relationship, both insurer and the insured have a common interest in overcoming a third party's claim against the insured, and thus, the attorney-client privilege is shared among the insurer, insured, and attorney. Id.; American Mutual Liability Insurance Company v. Superior Court, 38 Cal. App. 3d 579, 592 (1974). The tripartite relationship arises when the insurer has acknowledged its duty to defend the insured and then provides a defense of the action to the insured. Continental Casualty Co. v. St. Paul Surplus Lines Insurance Co., 265 F.R.D. 510, 520 (2010). However, the insured and insurer have a common interest “only when it has been determined that the ... insurer is obligated to defend the underlying action brought against the insured ....” In re Imperial Corporation of America, 167 F.R.D. 4[4]7, 452 ([S.D. Cal.] 1995) (citing NL Industries, Inc. v. Commercial Union Ins. Co., 144 F.R.D. 225, 231 (D. N.J. 1992)).
Lincoln Gen. Ins. Co. v. Ryan Mercaldo LLP, 2015 WL 12672142, at *2 (S.D. Cal. July 15, 2015); see also Cont'l Cas. Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510, 519 (E.D. Cal. 2010) (“The attorney-client relationship is more complex in the context of insurance litigation. When there is a single, common goal shared by an insurer and its insured of minimizing or eliminating liability to a third party, California courts have recognized that a unique tripartite relationship exists among those parties (the insurer and the insured) and the defense counsel hired to defend against third-party liability. In that tripartite relationship, both the insurer and the insured are considered the clients of the defense counsel, and an attorney-client privilege is shared among all of them.”).
However, when a conflict arises between the insurer and the insured, the tripartite attorney-client relationship also changes.
[W]hen a conflict arises between the insurer and insured, such as a dispute over coverage, California law requires the insurance company to hire separate counsel for the insured. “A different situation is presented ... when some or all of the allegations in the complaint do not fall within the scope of coverage under the policy. In such a case, the standard practice of an insurer is to defend under a reservation of rights where the insurer promises to defend but states it may not indemnify the insured if liability is found. In this situation, there may be little commonality of interest.” [San Diego Navy Federal Credit Union v. Cumis Ins. Society (“Cumis” ), 162 Cal. App. 3d 358, 364 (1984)] (footnote omitted).[3] Under such a scenario, “an insurance company must pay for independent counsel for its insured when there are divergent interests of the insured and the insurer brought about by the insurer's reservation of rights to deny coverage under an insurance policy.” Kroll & Tract v. Paris & Paris, 72 Cal. App. 4th 1537, 1542-43 (1999); N. Ins. Co. of N.Y. v. Allied Mut. Ins. Co., 955 F.2d 1353, 1359 (9th Cir. 1992).... [¶]
*5 In the Cumis context, unlike the “usual tripartite relationship,” the attorney-client privilege insulates from the defending insurer privileged communications between the insured and its counsel. Cumis counsel represents the insured, not the insurance company. “The Cumis doctrine requires ‘complete independence of counsel’ ..., who represents ‘solely the insured’ ....” Kroll & Tract, 72 Cal. App. 4th at 1543 (internal citations omitted). While counsel for both the insurer and insured are required to “cooperate fully in the exchange of information that is consistent with each counsel's ethical and legal obligation to the insured,” and with the insured's “duty to cooperate with the insurer under the terms of the insurance contract,” Cal. Civ. Code § 2860(f), these disclosure and cooperation requirements do not require the disclosure of privileged material....
Cont'l Cas. Co., 265 F.R.D. at 520 (parallel case citations omitted).
IV. DISCUSSION
While the Court finds that the overwhelming majority of Defendant's redactions are warranted, it does order disclosure of certain materials as set forth below.
A. Internal Documents and Communications from Plaintiffs' Claims File[4]
Plaintiffs assert that they “are entitled to unredacted copies of internal communications, notes, reports, and other claim file documents that relate to Plaintiffs' claim for coverage.” (Jt. Stip. at 9). Furthermore, Plaintiffs contend that “because the business of insurers is adjusting claims, their claim investigation diary, reports, and related internal communications cannot be withheld on work product grounds or attorney-client privilege.” (Id.) (citing Umpqua Bank v. First Am. Title Ins. Co., 2011 WL 997212, at *4 (E.D. Cal. Mar. 17, 2011)). According to Plaintiffs, United National improperly “heavily redacted” its “internal documents and communications from Plaintiffs' claims file” on the ground of privilege, even though the documents are not to or from an attorney and should not have been redacted at all unless they conveyed or discussed privileged communications from counsel. (Jt. Stip. at 9; P Supp. Memo. at 2). Plaintiffs maintain that the redactions are so extensive, and the privilege log so unrevealing, that it is impossible to test United National's invocation of a privilege. Plaintiffs contend that it is United National's burden to show that its redactions are “narrowly-tailored to protect only privileged information,” which its “blanket redactions of entire documents -- including the subject line,” does not even attempt to accomplish. (P Supp. Memo. at 1; see also Jt. Stip. at 10-12 & Exhs. E (redaction of internal emails where no attorney is in “to,” “from,” or “cc” line), G (redaction of claims diary), H (redaction of previously publicly-filed document), I-J (redaction of previously publicly-filed email)).
United National argues that Plaintiffs mistakenly assume that the redacted documents produced are from Plaintiffs' claim file. (Jt. Stip. at 21). While United National acknowledges that it did “for a time” adjust the City's and Plaintiffs' insurance claims under a single file, it stopped doing so in May 2019 when it agreed to defend Plaintiffs and created four separate master files overseen by four separate adjusters. (Id.). The four files contained: (1) Plaintiffs' defense documents and communications; (2) Plaintiffs' coverage communications; (3) the City's defense documents and communications; and (4) the City's coverage communications. (Id.). United National explains that it produced documents from all four files because Plaintiffs' RFP No. 4 requested the “complete files” maintained by United National “relating to ... the underlying actions.” (Id. at 22) (citing id., Exh. C).[5] Therefore, the “vast majority” of the production pertains to the City's defense in the underlying action, which Plaintiffs have stated they are not seeking to discover. (Jt. Stip. at 22). United National states that documents and information pertaining to Plaintiffs' defense and coverage comprise only a “small amount of material,” which was produced without redaction. (Id.). United National further argues that Plaintiffs cannot argue that the privilege log is insufficient to test its claims of privilege because Plaintiffs did not attach a copy of the log with the Motion.[6] (Id. at 23).
*6 With respect to the first group of documents -- United National's internal documents and communications between claims handlers regarding Plaintiffs' coverage -- the Court reviewed the following documents in camera: UNIC 1-11, 32-33, 37-38, 84-88, 699-700, 712-713, 859-860, 1113, 1887-1888, 2443, 2908, and 6465-6467. The Court rules as follows:
• UNIC 1-11 is United National's claims file for LAT, consisting largely of summaries of communications between Randi Hoffman, United National's claims handler,[7] and other counsel, including (1) Dan Katibah, coverage counsel, at Nielsen, Haley & Abbott, LLP; (2) Ed Hugo, counsel for the City of Los Angeles, (3) Chris Bobo, with the Los Angeles City Attorney's Office; (4) potential defense counsel for the City of Los Angeles, including Dee Katz; (5) City of Los Angeles defense counsel, Buchalter APC. The Court is satisfied that the majority of the redactions in the claims file are warranted and does not order further disclosure, with the following exceptions. Defendant shall produce unredacted copies of the following entries or portions of entries:
• UNIC 0008, entry dated 9/5/2018, 2:08:22 PM: paragraphs two, three and four, beginning “As we know,” and ending “reservation of rights.”• UNIC 0009, entry dated 8/2/2018, 2:49:19 PM: paragraph one.• UNIC 0009-0010, entry dated 7/24/2018, 10:05:37 AM: entire entry.• UNIC 32-33 is an email chain between Randi Hoffman and Cynthia Winfield, claims administrator for Global Indemnity Group, Inc., regarding United National's submission of loss run requests, including for a matter unrelated to the instant action.[8] Because the redacted matter solely concerns the unrelated action, the Court does not order further disclosure.
• UNIC 37-38 is a continuation of the same email chain begun in UNIC 32-33. Because the redacted matter solely concerns the unrelated action, the Court does not order further disclosure.• UNIC 84-88 is an email chain between Randi Hoffman and Mark DiGiovanni, Vice President of Litigation Management at Global Indemnity, where Randi Hoffman is also employed, regarding a communication with John Brydon. The Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.• UNIC 699-700 is a policy history chart for Marken Enterprises. The privilege log states that the chart in its entirety is redacted because it is “evidence of communications between the City of Los Angeles and United National relating to the coverage and/or the defense of claims asserted in the underlying actions against the City of Los Angeles.” (Privilege Log at 41-42). However, absolutely nothing on the chart reflects a communication between the City of Los Angeles and United National. Because the basis for withholding the chart is unsupported, the Court ORDERS UNIC 699-700 to be produced in an unredacted form.• UNIC 712-713 is an email from Randi Hoffman to Mr. DiGiovanni regarding United National's “prospective tripartite relationship between United National, Port.” (Privilege Log at 43). The Court is satisfied that the redactions in this email are warranted and does not order further disclosure.
• UNIC 859-860 is an email from Ginger Williams, of Ed Hugo's (the City's defense counsel's) firm, to Randi Hoffman, and Randi Hoffman's forwarding of that email to Mr. DiGiovanni and John Malone, an Environmental Attorney/Senior Claims Handler at Global Indemnity. Although Defendant produced redacted and unredacted versions of the emails themselves, it did not provide a copy of the privilege log corresponding to these documents. However, the Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.*7 • UNIC 1113 contains a follow-up email to the email submitted at UNIC 712-713. Although the privilege log provides a different reason for withholding the chain than the entry for UNIC 712-713, the Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.• UNIC 1887-1888 is an email chain between Mr. DiGiovanni and Mr. Malone regarding an expert witness payment following an inquiry from Mr. Katibah. The Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.• UNIC 2443 is an email from Randi Hoffman to Mr. DiGiovanni, and Mr. DiGiovanni's response, regarding correspondence drafted by Mr. Katibah. The Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.• UNIC 2908 is an email from Randi Hoffman to Mr. DiGiovanni, and Mr. DiGiovanni's response, regarding LA Terminals. The privilege log states that the email is redacted because it is “evidence of communications between the City of Los Angeles and United National relating to the coverage and/or the defense of claims asserted in the underlying actions against the City of Los Angeles.” (Privilege Log at 305-306). However, the email chain on its face appears to refer to coverage of LA Terminals. Because the basis for withholding the email chain is unsupported, the Court ORDERS UNIC 2908 to be produced in an unredacted form.
• UNIC 6465-6467 is an email chain between Randi Hoffman and Doreen Nielsen of Global Indemnity regarding the defense of LA Terminals. The privilege log states that the email chain is redacted because it is “evidence of communications between the City of Los Angeles and United National relating to the coverage and/or the defense of claims asserted in the underlying actions against the City of Los Angeles.” (Privilege Log at 399). However, the email chain on its face appears to refer to coverage of LA Terminals. Because the basis for withholding the email chain is unsupported, the Court ORDERS UNIC 6465-6467 to be produced in an unredacted form.
B. Documents and Communications Regarding the City's Coverage
Plaintiffs note that even though United National agreed to defend the City under the same policies, in the same underlying actions, concerning the same contamination, as Plaintiffs, it nonetheless declined for a year to defend Plaintiffs. (Jt. Stip. at 13). As such, Plaintiffs contend that they are entitled to discovery regarding the disparate treatment of their insurance claims and the City's under the same policy. (Id.). Plaintiffs emphasize that they are seeking documents about the City's coverage only, and not communications relating to the City's defense. (P Supp. Memo. at 4). Plaintiffs further note that because United National “refused” to produce documents on a rolling basis, Plaintiffs did not learn “until the last minute” that they would receive only “wholly-redacted copies of the City's coverage documents and communications.” (Id.). Plaintiffs contend that courts routinely authorize discovery regarding an insurer's disparate treatment of two insureds under the same policy. (Jt. Stip. at 13) (citing Aviara Residence Club Owners Assoc. v. Security Nat'l Ins. Co., 2020 WL 5891523 (S.D. Cal. Oct. 2, 2020); J & M Assocs., Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 2008 WL 638137, at *3 (S.D. Cal. Mar. 4, 2008); Worth Bargain Outlet, Inc. v. AMCO Ins. Co., 2010 WL 11508880, at *2-*3 (S.D. Cal. Mar. 24, 2010)). Additionally, Plaintiffs insist that United National is quite capable of distinguishing coverage from defense documents as it created separate files for those categories of documents. (P Supp. Memo. at 5).
*8 Plaintiffs further note that United National is redacting coverage correspondence that it knows the City does not regard as privileged, because on July 12, 2021, a Deputy City Attorney forwarded coverage documents to the parties' counsel, stating that the City believed that they were “all the correspondence” relating to the City's coverage and that the “City claims no privilege with respect to these documents.” (Jt. Stip. at 15) (quoting id., Exh. L at 152). The production included the City's tender, United National's response, and communications in which the City demanded independent counsel. (Jt. Stip. at 15 & Exh. D, Tabb Decl. ¶ 13). Nonetheless, United National redacted the very same documents under a wrongful claim of privilege. (Jt. Stip. at 15). Plaintiffs state that United National appears to have three more coverage letters that the City did not have, which should be produced in unredacted form, as the letters are not to or from the City's appointed defense counsel. (Id.; see also id. at 16 n.7 (listing numerous documents by bates range that Plaintiffs believe are coverage documents that should be produced)).
United National maintains that its communications with the City about “coverage” are protected from disclosure because United National, the City, and the City's defense counsel fall within a “tripartite attorney-client relationship.” (Jt. Stip. at 25). United National argues that under California law,
“It has long been recognized that communications made by an insured to his liability insurance company, concerning an event which may be made the basis of a claim against him covered by the policy, is a privileged communication, as being between attorney and client, if the policy requires the company to defend him through its attorney, and the communication is intended for the information or assistance of the attorney in so defending him.”
(Id.) (quoting Scripps Health v. Sup. Ct., 109 Cal. App. 4th 529, 535 (2003)). United National states that Plaintiffs' reliance on Aviara is misplaced because the court in that case merely required it to produce documents in its claims files that it was withholding “solely on relevance and proportionality grounds,” which is not the basis of its objections here. (Jt. Stip. at 26) (quoting Aviara Residence Club Owners Assoc., 2020 WL 5891523, at *1 (emphasis omitted)). United National further argues that J&M Assocs. and Worth Bargain Outlet, also cited by Plaintiffs, are distinguishable because those cases involved production of pattern-and-practice evidence from other insureds' past claims files, or claim files from different-but-similar lawsuits, whereas here, Plaintiffs are seeking claim file materials relating to United National's decision to defend the City against claims that Plaintiffs are actively prosecuting. (Jt. Stip. at 27).
United National further contends that there is a potential for “catastrophic prejudice” to the City if United National were compelled to produce the City's unredacted correspondence. (Id.). United National had suggested that the parties involve the City in approving production of its correspondence, and that is what happened in July 2021, when the City provided the parties with what “the City deemed to be its entire record of coverage correspondence with United National.” (Id.). United National states that it redacted its production of those documents because it holds a privilege over them separate from the City, which the City cannot waive. (Id. at 28). As to the three coverage documents that the City did not release, United National argues that just because they are not addressed to the City's defense counsel does not establish that they are substantively about “coverage” and not “defense.” (Id.). United National suggests that the parties re-engage the City Attorney's Office about the three letters and ask whether the City considers them to be privileged. (Id. n.14).
With respect to the second group of documents -- documents and communications regarding the City's coverage -- the Court reviewed the following documents in camera: UNIC 716, 844-846, 923-924, 1074-1076, 1089-1096, 1146-1147, 1182-1183, 2307, and 2320. With the exceptions of UNIC 716 and UNIC 2320, which are emails, the remainder of documents are letters between counsel. The Court rules as follows:
*9 • UNIC 716 is an email from Randi Hoffman to Christopher Bobo, Assistant Los Angeles City Attorney, regarding defense of the City of Los Angeles. The Court is satisfied that the redactions in this email are warranted and does not order further disclosure.• UNIC 844-846 is a letter from Daniel Katibah to Christopher Bobo regarding defense of the City in underlying actions. The Court is satisfied that the redactions in this letter are warranted and does not order further disclosure.• UNIC 923-924 is a letter from Christopher Bobo to Randi Hoffman and Daniel Katibah regarding insurance carrier providing counsel to the City. The Court is satisfied that the redactions in this letter are warranted and does not order further disclosure.• UNIC 1074-1076 is a letter from Daniel Katibah to Christopher Bobo regarding the appointment of counsel for the City. The Court is satisfied that the redactions in this letter are warranted and does not order further disclosure.• UNIC 1089-1096 is a letter from Randi Hoffman to Christopher Bobo regarding the defense of the City and the retention of counsel. A portion of the letter describes the policies governing LA Terminals' claims, and should be produced. Accordingly, the Court ORDERS United to produce a partially unredacted version of the letter. United shall remove the redaction from the section captioned “United National's Policies” beginning on UNIC 1092 through the top three lines of text on UNIC 1094. The Court is satisfied that the remainder of the redactions in this letter are warranted and does not order further disclosure.• UNIC 1146-1147 is a letter from Christopher Bobo to United National regarding tender of claims and request for defense counsel. The Court is satisfied that the redactions in this letter are warranted and does not order further disclosure.• UNIC 1182-1183 is a letter from Christopher Bobo to United National regarding tender of claims and request for defense counsel. The Court is satisfied that the redactions in this letter are warranted and does not order further disclosure.
• UNIC 2307 is a letter from Christopher Bobo to United Nationals regarding service of a counter-claim and request for defense counsel. The Court is satisfied that the redactions in this letter are warranted and does not order further disclosure.• UNIC 2320 is an email from Daniel Katibah, attorney for United National to Christopher Bobo, Assistant City Attorney, regarding LAT's counterclaim. The Court is satisfied that the redactions in this email are warranted and does not order further disclosure.
C. Brydon/Demler Communications
As noted above, United National stated in its reservation letters to Plaintiffs that it retained John Brydon of the law firm Demler Armstrong & Rowland LLP to defend Plaintiffs. Plaintiffs assert that they are entitled to independent counsel and to “discovery into Mr. Brydon/Demler, including their communications with United National during the vetting and retaining of Mr. Brydon/Demler to represent Plaintiffs.” (Jt. Stip. at 18). Plaintiffs acknowledge that under California law, an insurance carrier is an additional client of defense counsel hired to defend an insured, thereby creating a “tripartite relationship” for purposes of the attorney-client privilege. (Id.) (citing Gafcon, Inc. v. Ponsor & Assoc., 98 Cal. App. 4th 1388, 1406 (2002)). However, defense counsel also owes an undivided duty of loyalty to the policyholder. Therefore, Plaintiffs argue that “while United National reasonably expected that its communications with Mr. Brydon/ Demler would be kept confidential from the rest of the world, it could not have expected them to be kept a secret from Plaintiffs -- the insureds that Mr. Brydon/Demler would be representing.” (Jt. Stip. at 18 (emphasis in original); see also P Supp. Memo. at 5-6). Plaintiffs further contend that United National cannot claim privilege “in hindsight” based on Plaintiffs' subsequent insistence on their right to independent counsel because “whether a communication is privileged is determined as of when the communication was made.” (Jt. Stip. at 18-19).
*10 United National argues that Plaintiffs' contention that they are entitled to communications between Mr. Brydon/Demler and United National during the vetting and retaining process is “legal nonsense” without any authority. (Id. at 30). According to United National, a “tripartite” relationship exists only so long as “the interests of the insurer and the insured coincide, at which point “they are both the clients of the defense attorney and the defense attorney's fiduciary duty runs to both” of them. (Id. at 30-31) (quoting Nat'l Union Fire Ins. Co. v. Stites Prof. Law Corp., 235 Cal. App. 3d 1718, 1727 (1991); see also Jt. Stip. at 31 (citing Gafcon, Inc. v. Ponsor & Assocs., 98 Cal. App. 4th 1388, 1406 (2002), for the proposition that a tripartite relationship arises only in the absence of a conflict of interest). United National notes that Plaintiffs rejected the appointment of Mr. Brydon as their defense counsel in part on the ground that United National's August 2018 declination of Plaintiffs' tender created a conflict of interest that precluded a United National-retained lawyer from ethically defending them. (Jt. Stip. at 31). United National further notes that Plaintiffs are currently suing for a declaration that would entitle them to independent counsel because of that purported conflict. (Id.). Accordingly, United National maintains that Plaintiffs are barred by judicial estoppel from simultaneously claiming that they ever had an attorney-client relationship with Mr. Brydon/Demler. (Id.; see also D Supp. Memo. at 5-6).
Furthermore, United National argues that by rejecting Mr. Brydon's appointment, Plaintiffs “ensured that they never formed an attorney-client relationship with him” because an attorney-client relationship cannot exist by declaration of one party alone, but is created only by “contract, express or implied.” (Jt. Stip. at 31) (quoting Koo v. Rubio's Restaurants, Inc., 109 Cal. App. 4th 719, 729 (2003)). Finally, United National contends that pursuant to case law governing the ability of a party to obtain discovery from an opposing party's counsel, “discovery of United National's and Mr. Brydon's privileged communications can only be discovered upon the making of an extraordinary showing, which has not been made in this case.” (Jt. Stip. at 32) (citing Shaughnessy v. LVNV Funding, LLC, 2021 WL 1238876 (S.D. Cal. 2021); Monster Energy Co. v. Vital Pharm, Inc., 2020 WL 2405295 (C.D. Cal. 2020)).[9]
With respect to the third group of documents -- communications with Mr. Brydon and the Demler law firm while they were being vetted to represent Plaintiffs -- the Court reviewed the following documents in camera: UNIC 97-101, 106-108, 6456, and 6710. The Court rules as follows:
• UNIC 97-101 are a set of emails from various people regarding the potential retention of John Brydon to defend LAT. The Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.• UNIC 106-108 are a set of emails between Daniel Katibah and Randi Hoffman and John Brydon and Randi Hoffman regarding the possible retention of John Brydon to defend LAT. The Court is satisfied that the redactions in this email chain are warranted and does not order further disclosure.• UNIC 6456 is an email from Doreen Nielsen to John Brydon regarding the defense of LAT. The Court is satisfied that the redactions in this email are warranted and does not order further disclosure.• UNIC 6710 is an email from Randi Hoffman to John Bydon regarding potential representation of the Brydon firm to defend LAT. The Court is satisfied that the redactions in this email are warranted and does not order further disclosure.
D. Form of Production
Plaintiffs state that in their requests for production, they specified that files should be produced in TIFF format with load files to distinguish one document from the other. (Jt. Stip. at 12) (citing id., Exh. C at 67-69). Although Plaintiffs concede that United National indicated in its written response to the requests that it intended to serve its production as PDFs instead, Plaintiffs maintain that United National “gave no indication that it intended to lump all documents into a single PDF with no slip sheets, load files, or other means of discerning one document from the next ....” (Jt. Stip. at 12). Plaintiffs ask that United National be required to immediately produce an unredacted copy of its production in the format Plaintiffs requested or, alternatively, as individual searchable PDFs on a per-document basis. (Id. at 13).
*11 United National asserts that it is procedurally improper for Plaintiffs to raise their complaints about the form of the production in this Motion because “the parties have never met and conferred about this issue or discussed it with the Court in a pre-motion conference.” Indeed, United National claims that until it received Plaintiffs' portion of the Joint Stipulation, Plaintiffs had never even mentioned it. (Id. at 23). United National further contends that it properly objected in its written responses to the production requests that Plaintiffs' instructions were “unduly burdensome, time-consuming, expensive, oppressive, unnecessary and not reasonably tailored to lead to discovery of relevant evidence,” and alerted Plaintiffs that it would produce documents in PDF format, which it did in a prior 2019 production, and Plaintiffs never objected. (Id. at 24). Because Plaintiffs chose “total silence” and “passivity to” United National's production starting in 2019, United National maintains that Plaintiffs have waived any objection to the format of the present production. (Id. at 25).
The Court agrees with Plaintiffs that Defendant's production of “a single PDF with no slip sheets, load files, or other means of discerning one document from the next” is indefensible. Defendant has presented no explanation as to why it could not produce documents as requested. However, even if it could not produce documents in TIFF format with load files, it was obligated to produce documents in a form usable to Plaintiffs. It is improper to produce documents in a manner that appears intended to make review and use of the documents unnecessarily more difficult. Accordingly, Defendant is ORDERED to re-produce all documents produced to date by November 19, 2021, either in the format Plaintiffs requested or, alternatively, as individual searchable PDFs on a per-document basis.
V. ORDER
For the reasons stated above, the Plaintiffs' Motion to Compel is GRANTED IN PART. Defendant is ORDERED to produce documents as required by this Order by November 19, 2021.
Footnotes
“[I]n camera review is generally disfavored.” Newport Pac. Inc. v. Cnty. of San Diego, 200 F.R.D. 628, 633 (S.D. Cal. 2001). The Supreme Court instructs that a court should not conduct an in camera review solely because a party requests it. United States v. Zolin, 491 U.S. 554, 571 (1989). As a threshold matter, there must be a sufficient evidentiary showing that creates a legitimate issue as to the application of the privilege asserted. Id. In the unique circumstances of this case, the Court concluded that an in camera review would be the most efficient way to resolve the parties' dispute.
Because the parties are very familiar with the facts of this case, the facts and allegations summarized in this section are taken from the parties' respective statements of the case in the Joint Stipulation without further citation. (See Jt. Stip. at 2-3, 5-7).
California Civil Code section 2860 “substantially codifies the Cumis decision.” Cont'l Cas. Co., 265 F.R.D. at 520.
Although the parties address their disputes over the form of the production as a single PDF with no load files in their respective discussions of the production of Plaintiffs' claims files, the Court will separately address this matter in in Part IV.D below as it is relevant to all three groups of documents Plaintiffs seek.
Plaintiffs argue that because they clearly explained to United National that they were not seeking documents relating to the City's defense, it was “unnecessary” and a “complete waste of time” for United National to spend three months preparing a log of the City's defense file. (P Supp. Memo. at 4).
Plaintiffs did attach excerpts of the privilege log with their supplemental memorandum. (See Jackson Decl., Exh. A). However, because Plaintiffs' and United National's supplemental memoranda were filed simultaneously, Defendants have not had a meaningful opportunity to address the filing.
Plaintiffs note that although Randi Hoffman is a Senior Environmental Attorney at Global Indemnity Limited (“Global Indemnity”), she was acting as a claims handler, not in-house counsel, in connection with matters relevant here. (Jt. Stip. at 10 n.5 (citing id., Exh. F, Hoffman Depo Tr., at 45:17-24)).
The privilege log erroneously identifies the unrelated matter as pertaining to “Dayton Superior Court,” when in fact, the log should read, “Dayton Superior Corp.”
Plaintiffs argue that these cases “merely insulate the discussions [between an attorney and client] from the rest of the world, and not from the insured proposed to be represented by the attorney.” (Jt. Stip. at 18 n.12). United National, of course, disagrees. (Id. at 32).