*1 In the First Amended Complaint (“FAC”), Plaintiff Pacific Western Bank (“Pac West') alleges breach of contract and tortious breach of the duty of good faith and fair dealing against Defendants AIG Specialty Insurance Company (“AIG”), Federal Insurance Company (“Federal”), and XL Specialty Insurance Company (“XL”) (collectively the “Insurers”). [Dkt. No. 50.] On June 15, 2022, after an informal discovery conference, AIG filed a motion to compel Pac West to provide further responses and produce documents responsive to AIG's First Requests for Production of Documents (the “Motion”). Federal and XL joined that motion, and it has been fully briefed. The Court has read and considered all of the documents filed [Dkt. Nos. 67-70, 72, 73, 75-79, 81] and the arguments of counsel at the informal discovery conference and at the hearing on July 25, 2022. For the reasons set forth herein, the Motion is partially granted and partially denied.

I. Pertinent Background

A. Facts

Pac West is a bank that marketed asset financing products to insurance companies. FAC ¶ 26. In one such product, Pac West would buy certain assets that, for regulatory reasons, insurance companies could not show on their balance sheets (“non-admitted assets”) and lease them back to the companies as “admitted assets” that purportedly could be shown on their balance sheets. Id. at ¶¶ 26-27. Physician's United Plan, Inc. (“PUP”), a health maintenance organization, was a Pac West customer for whom the bank engaged in these “sale-leaseback” transactions. Id. at ¶¶ 28-32.

In March 2014, the Florida Office of Insurance Regulations determined that the admitted assets Pac West had leased back to PUP should be reclassified as non-admitted assets. Id. at ¶¶ 32-35. As a result, PUP became unable to meet the financial requirements mandated by state regulations and consented to enter into receivership. Id. at ¶ 35. The Florida Department of Financial Services was appointed as PUP's receiver (the “Receiver”). Id. at ¶ 36.

In May 2016, the Receiver sued Pac West in Florida for damages allegedly suffered by PUP from Pac West's perpetration of “a scheme ... to hide PUP's financial condition from Florida's insurance regulators” (the “PUP Lawsuit” or “Receiver Action”). Id. at ¶¶ 37-38. The Receiver alleged that Pac West “designed and intended the Sale-Leaseback Transactions, from their inception, as a device to artificially inflate PUP's financial condition to circumvent state regulatory requirements” and “encouraged, actively participated in, rendered substantial assistance to and had actual knowledge or constructive knowledge and a general awareness of, breach of fiduciary [sic] by PUP's officers.” Id. at ¶ 39. In the PUP Lawsuit, the Receiver sought damages in excess of $100 million. Id. at ¶ 41.

In June 2016, MB Financial Bank (“MB Financial”) and Central Bank of St. Louis (“CBSL”) (together the “Banks”) requested that Pac West, “as the party that originated the transactions which are the subject of” the PUP Lawsuit, provide a defense to the claims asserted against the Banks and hold the Banks harmless against any loss, expense or damage they may incur in connection with the PUP Lawsuit (the “Indemnification Request”). Id. at ¶ 42. In July 2016, Pac West and the Banks entered into a Joint Defense Agreement (“JDA”) whereby they agreed that Holland & Knight would represent them in the PUP lawsuit. Mohr Decl., Dkt. No. 73-1, at ¶ 6.

*2 Pac West held a bankers' professional liability insurance policy issued by AIG and parallel policies issued by Federal and XL (the “Policies”). Id. ¶¶ 15-25, Exhs. 1-3. AIG was the primary insurer in an insurance tower in which Federal and XL provided excess insurance. Motion at 8, n.1. In April 2016, Pac West provided AIG with notice of threatened litigation based on claims that would form the basis of the PUP Lawsuit, and in June 2016 Pac West notified AIG of the PUP Lawsuit and the Banks' indemnification request. Id. at ¶¶ 43-44. Pac West subsequently also notified Federal and XL. Id. at ¶¶ 46 49. The Insurers denied coverage. Id. at ¶¶ 43, 47-50.

Pac West alleges that in light of the Insurers' denial of coverage, it took all reasonable steps to mitigate its damages, and those of the Banks in connection with the PUP Lawsuit. Id. at ¶ 51. In the PUP Lawsuit, the court ordered mediation no later than March 12, 2021, and the mediation was scheduled for March 11, 2021. In February 2021, Pac West advised the Insurers of the upcoming mediation and invited them to participate in the mediation if they would confirm their willingness to participate in a reasonable settlement of the PUP Lawsuit. In response, the Insurers affirmed their denial of coverage, and Pac West thereafter decided to participate in the mediation without the Insurers' involvement. Id. at ¶¶ 52-53.

At the mediation, Pac West agreed to a settlement, and it paid the settlement amount of $12,500,000. Id. at ¶ 54. In April 2021, Pac West notified the Insurers of the settlement, provided them with copies of the settlement agreement and order approving it, and requested that the Insurers reimburse Pac West for its payment of the settlement. The Insurers did not respond or contribute to the settlement. Id. at ¶ 55.

Pac West alleges that it incurred and paid more than $6,800,000 in defense costs in connection with the PUP Lawsuit and paid $12,500,000 to settle it, and that the Insurers have not paid or agreed to pay any portion of those losses. Id. at ¶ 56; Mohr Decl., Dkt. No. 73-1, ¶ 7. Pac West seeks reimbursement of those amounts as well as punitive damages. Id. at ¶¶ 58-76.

B. Discovery Dispute

On February 18, 2022, AIG served its First Requests for Production of Documents on Pac West (the “RFP”). Neubauer Decl., Dkt. No. 69, ¶ 9, Ex. 1. On March 21, 2022, Pac West served its responses and objections, but did not provide documents. Id. at ¶ 10. Pac West made supplemental productions on May 18; June 9, 13, and 15; and July 13, 2022. Neubauer Decl. Dkt. Nos. 70 ¶¶ 4, 5; 76 ¶¶ 7, 9; 81 ¶ 7. Pac West objects to and has not produced all documents responsive to following RFPs, which AIG seeks to compel:

AIG also seeks to compel Pac West to supplement its initial production of redacted copies of attorneys' fee invoices on which Pac West bases its claim for $6.8 million in defense costs and fees. AIG seeks unredacted invoices. Neubauer Decl., Dkt. No. 69, ¶ 15.

II. Legal Standard

Rule 26 of the Federal Rules of Civil Procedure provides that a party may obtain discovery concerning any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case. Fed. R. Civ. P. 26(b)(1). As amended in December 2015, Rule 26(b)(1) identifies six factors to be considered when determining if the proportionality requirement has been met, namely, the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to the 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. Id. Relevant information need not be admissible to be discoverable. Id.

In response to a request for production of documents under Rule 34, a party is to produce all relevant documents in its “possession, custody, or control.” Fed. R. Civ. P. 34(a)(1). Under Rule 37(a), a party may move for an order compelling disclosure or discovery if “a party fails to produce documents ... as requested under Rule 34.” Fed. R. Civ. P. 37(a)(3)(B)(iv). “Upon a motion to compel discovery, the movant has the initial burden of demonstrating relevance. In turn, the party opposing discovery has the burden of showing that discovery should not be allowed, and also has the burden of clarifying, explaining and supporting its objections with competent evidence.” United States v. McGraw-Hill Cos., Inc., 2014 WL 1647385, at *8 (C.D. Cal. 2014) (citations and quotation marks omitted).

III. Discussion

A. The Documents Requested by AIG Relating to the PUP Lawsuit Defense Costs are Relevant

*4 RFP Nos. 11, 20-22, 28 and 29 seek communications between Pac West and the Banks regarding the PUP Lawsuit, including the transactions at issue in that lawsuit, and the Indemnification Request, as well as documents evidencing the basis for that Request, and analyses conducted by or on behalf of Pac West and/or the Banks regarding the Banks' liability and regarding recoverable damages for the claims asserted in the PUP Lawsuit. AIG moves to compel and thus has the burden to show relevance. AIG contends that these RFPs are relevant to: (1) the claim by Pac West that the costs it incurred in the PUP Lawsuit on its own behalf and on behalf of the Banks, who are not insureds, were reasonably related to Pac West's defense of the PUP Lawsuit and thus must be reimbursed by the Insurers; and (2) AIG's defenses, including whether the costs were reasonably related and necessary to Pac's West's defense of the PUP Lawsuit, whether any allocation of the costs among Pac West and the Banks is warranted, and whether AIG can rebut the presumption that defense costs are reasonable and necessary.

Under California law, costs may be covered if they are “reasonably related” to the defense of an insured, even if they also benefit an uninsured entity. Pan Pac. Retail Props., Inc. v. Gulf Ins. Co., 471 F.3d 961, 971 (9th Cir. 2006) (insured seeking reimbursement after underlying litigation has settled must show that expenses at issue were related to claims that fell within scope of coverage); Barratt Am. Inc. v. Transcon. Ins. Co., 102 Cal. App. 4th 848, 859-60 (2002) (“insurer has a duty to pay defense costs if the costs are incurred between tender and settlement of a lawsuit, and if the defense investigation and expenses are ‘reasonable and necessary' to mount a defense in a pending lawsuit.”) (citation and quotations omitted). The insurer must bear those costs “even if the insured obtains additional benefits from the expenditures, and even if the same costs could potentially be characterized as an indemnification cost in a different context.” Id. at 861 (citation omitted).

Pac West contends that it is entitled to coverage under the Insurers' Policies for the defense costs, including those incurred by Pac West on the Banks' behalf, as they are reasonable and necessary to its defense of the PUP Lawsuit. The Court agrees with AIG that RFP Nos. 11, 20-22, 28 and 29 are relevant to whether the defense costs claimed by Pac West – including those incurred in connection with the Banks' defense – were reasonable and necessary. Likewise, these RFPs are relevant to a potential defense by the Insurers rebutting a presumption that defense costs are reasonable and necessary. See Longs Drug Storers Cal., Inc. v. Fed. Ins. Co., 2005 WL 2072296, at *1 (N.D. Cal. Aug. 26, 2005) (once the insured has met its burden of demonstrating the existence and amount of litigation expenses, they are presumed reasonable and necessary, and insurer bears the burden of demonstrating that they were unreasonable or unnecessary).

The discovery requested in these RFPs is also relevant to a potential defense that AIG may allocate if the costs incurred by Pac West on the Banks' behalf are not reasonably related to Pac West's defense. See Raychem Corp. v. Fed. Ins. Co., 853 F. Supp. 1170, 1182 (N.D. Cal. 1994) (insurer entitled to present evidence that “defense costs were incurred independent of any reasonable relation to the defense of claims against” the insured). In the financial scheme alleged in the PUP Lawsuit, Pac West received $11.7 million, and the Banks received a total of $25.7 million. Neubauer Decl., Dkt. No. 69, ¶ 5. In this action, Pac West contends that AIG owes the entire amount of the defense costs incurred, and the entire settlement amount paid, on behalf of both Pac West and the Banks, the latter of which are not insureds under the Policies. The RFPs are relevant to determine whether any of the fees and/or settlement amount were incurred solely on behalf of the Banks. In sum, AIG has met its burden of showing that the requested discovery is relevant.

In its opposition, Pac West does not assert that the RFPs are irrelevant. Citing caselaw regarding the insurer's duty to investigate a claim fully and the circumstances in which an insurer waives defenses to coverage, Pac West argues that AIG should have sought the information it now requests in discovery six years ago, before it denied coverage. However, the cases cited by Pac West do not address the scope of discovery in an action brought by an insured for reimbursement of costs defending a lawsuit for which the insurer denied coverage. None of the cases cited by Pac West holds, or even discusses, whether an insurer defending a reimbursement action may seek discovery beyond the information it considered in denying coverage. See Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., Inc., 78 Cal. App. 4th 847, 879-80 (2000) (discussing general principles regarding covenant of good faith and fair dealing); Betts v. Allstate Ins. Co., 154 Cal. App. 3d 688, 707-08 (1984) (same); Intel Corp. v. Harford Acc. & Indem. Co., 952 F.2d 1551, 1560-61 (9th Cir. 1991) (stating that under California law, an insurer waives defenses to coverage not asserted in its denial only if the insured can show misconduct by the insurer or detrimental reliance by the insured); Standard Plan, Inc. v. Tucker, 582 So. 2d 1024, 1028 (1991) (discussing whether evidence was sufficient to support verdict in favor of plaintiff in bad-faith refusal case under Alabama law); Zumbrun v. United Servs. Auto. Ass'n, 719 F. Supp. 890, 895-96 (E.D. Cal. 1989) (addressing whether insurer's failure to specify a reason for denying a claim constitutes a waiver). Pac West's position is not supported by the caselaw or by Rule 26.[1]

*5 Pac West also states that AIG is not entitled to the discovery sought in these RFPs based on the importance of the discovery in resolving the issues and whether its burden or expense outweighs its likely benefit. These are two of the factors listed in Rule 26(b)(1) for determining whether the discovery requests are proportional to the needs of the action. See Fed. R. Civ. P. 26(b)(1). AIG has shown the importance of the requested discovery in resolving whether the $6.8 million in legal fees and costs for which Pac West seeks reimbursement are reasonably related to its defense of the PUP Lawsuit and whether they are subject to apportionment. Regarding the burden or expense of the proposed discovery, Pac West offers no specific information. It does not provide any explanation that would suggest the burden is significant enough that the discovery should be limited because the burden of it “outweighs its likely benefit.” Id.

In short, RFP Nos. 11, 20-22, 28 and 29 seek discovery that is relevant and proportional to the needs of the case.

B. Implied Waiver of the Attorney-Client Privilege

Pac West objects to RFPs 11, 20-22, 28 and 29 to the extent that they seek information covered by the attorney-client privilege, the attorney work product doctrine, and common-interest or joint defense privilege. In late April 2022, Pac West produced invoices in which it redacted information that it claims are protected by the attorney-client privilege and work product doctrine. Mohr Decl., Dkt. No. 73-1, ¶ 20. The correspondence among counsel refers to Pac West producing a privilege log, see Dkt. Nos. 73-8, 73-11, 76-5, however neither Pac West nor the Insurers discusses the contents or adequacy of that log.

AIG does not contest whether the information it seeks is attorney-client privileged. AIG contends that Pac West has waived the privilege over attorney-client communications relevant to Pac West's claim for reimbursement of unallocated defense costs and settlement payment in the PUP Lawsuit by putting them at issue in this action.

When the basis of jurisdiction is diversity, as it is here, the law of the forum state governs claims of attorney-client privilege. In re California Pub. Utils. Comm'n, 892 F.2d 778, 781 (9th Cir. 1989) (“In diversity actions, questions of privilege are controlled by state law.”); Fed. R. Evid. 501 (“[I]n a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.”).

In California, the attorney-client privilege is governed by Evidence Code Section 954, which confers a privilege on the client “to refuse to disclose, and to prevent another from disclosing, a confidential communication between client and lawyer.” The party seeking to invoke 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.” Costco Wholesale Corp. v. Super. Ct., 47 Cal. 4th 725, 733 (2009). “Once that 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. The contents of an invoice for legal services are privileged if they either contain information for the purpose of legal consultation or risk exposing information that was communicated for such a purpose. Los Angeles Cty. Bd. of Supervisors v. Super. Ct., 2 Cal. 5th 282, 300 (2016).

The California Supreme Court recognized the “in issue” doctrine of implied waiver of the attorney-client privilege in Mitchell v. Superior Court, 37 Cal. 3d 591, 604 (1984). When a party has placed in issue a privileged communication that “goes to the heart of the claim in controversy,” fundamental fairness may require disclosure of that communication. Id. In Rockwell International Corporation v. Superior Court, 26 Cal. App. 4th 1255, 1268 (1994), an action by an insured against its liability insurers for failure to defend it in environmental contamination lawsuits, the insurers sought all documents prepared by the insured's lawyers in defending the underlying action on the ground that the insured had placed in issue its conduct giving rise to the underlying claim. The court discussed the scope of the in-issue doctrine, explaining that “[t]he in issue doctrine creates an implied waiver of the privilege only when the client tenders an issue involving the substance or content of a protected communication, not where the privileged communication simply represents one of several forms of indirect evidence in a particular case.” Id. at 1268 (emphasis in original) (citing Mitchell, 37 Cal. 3d at 606). “For this reason, the doctrine has no application in a coverage action between an insured and its carrier where the issues turn on the underlying facts and the insured is not relying on the advice of counsel for any purpose.” Id. (citing Aetna Cas. & Sur. Co. v. Superior Court, 153 Cal. App. 3d 467, 476-477 (1984) and S. Cal. Gas Co. v. Pub. Utils. Com., 50 Cal. 3d 31, 45 (1990)).

*6 The court in Rockwell held that the in issue doctrine did not apply because nothing in the record suggested that the insured had tendered any privileged communications or any issue that could not be proved or disproved by other, more direct evidence. Id. at 1268; see Geothermal Res. Int'l, Inc. v. Lumsden, 93 F.3d 648, 652-53, n.4 (9th Cir. 1996) (applying California law and explaining that attorney-client privilege is waived “only when the client tenders an issue touching directly upon the substance or content of an attorney-client communication – not when the testimony sought would be only ‘one of several forms of indirect evidence' about an issue”) (citing Rockwell, 26 Cal. App. 4th at 1268); Garver v. Harford Life & Accident Ins. Co., 2006 WL 8445924, at * 2 (S.D. Cal. 2006) (attorney-client privilege will not be invaded unless a party has placed in issue the decision, conclusions, and mental state of the attorney) (citations omitted).

AIG submits that the applicable law for determining whether a waiver has been effected is the three-pronged test set forth in Home Indemnity Company v. Lane Powell Moss and Miller, 43 F.3d 1322, 1326 (9th Cir. 1995). In Home Indemnity, the Ninth Circuit stated that “[b]ecause this is a diversity action, we apply the substantive law of the forum state, Alaska. Where the state supreme court has not ruled on a question in issue, ‘we look to other state-court decisions, well-reasoned decisions from other jurisdictions, and any other available authority to determine the applicable state law.’ ” Id. (citation omitted). The Home Indemnity court then applied the three-part test set forth in Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D. Wash. 1975), a federal civil rights case in which “the common law of privilege as interpreted by the court of the United States” governed. Id. (citing Hearn, 68 F.R.D. at 578). Thus, the three-part test in Hearn, adopted by Home Indemnity, does not govern here. As stated above, California law applies.

AIG submits that Pac West put the requested privileged material, including unredacted invoices, at issue because “those documents and communications form the basis for Pac West's claims for coverage for defense costs and will thus be used to support those claims for coverage.” Motion at 16. Specifically, AIG argues that Pac West put the invoices at issue by producing and relying upon them for services such as drafting, strategy, research, analysis, and communications rendered by Holland & Knight and others in the PUP Lawsuit as proof of its contentions that all of the defense costs benefited Pac West's defense, were reasonable and necessary, and were reasonably related to Pac West's defense when incurred on behalf of the Banks.

Pac West responds that AIG is not entitled to the privileged information in the invoices, as California courts have held that redacted invoices are sufficient to permit an insurer to determine whether defense costs were reasonable. See Hartford Cas. Ins. Co. v. J.R. Mktg., L.L.C., 61 Cal. 4th 988, 1005-06 (2015) (objective assessment of litigation as a whole “to determine whether counsel's bills appear fundamentally reasonable is unlikely to involve an examination of individual attorney-client communications or the minute details of every litigation decision. If privileged information on these subjects is included in counsel's billing records, it can be redacted for purposes of assessing whether counsel's bills are reasonable.”) (citations omitted). However, neither Pac West nor AIG identifies the categories of information that are not redacted or explains whether or how the unredacted information is sufficient (or not) to demonstrate the reasonableness of the fees.

*7 AIG cites Safeway Stores, Inc. v. Nat'l Union Fire Ins. Co., 1992 WL 486801, clarified on denial of reconsideration, 1993 WL 739643, at *6 (N.D. Cal. Feb. 4, 1993), in which the court permitted “limited allocation discovery” into attorney-client privileged material, subject to in camera review. The plaintiff in Safeway sought indemnification from its insurer for expenses incurred in settling shareholder lawsuits against its officers and directors, and the court had previously ordered allocation of those expenses between covered and uncovered parties. 1992 WL 486801, at * 2. The discovery had to be relevant to the specific factors identified in the opinion for allocating liability among corporate officers and directors and their employer, and “directed toward determining the potential liability of the parties at the time of settlement.” 1993 WL 739643, at *6. However, the Safeway court did not address whether the privileged communication “simply represents one of several forms of indirect evidence in a particular case,” Rockwell, 26 Cal. App. 4th at 1268, as it was decided before Rockwell.

Regarding allocation, AIG explains that the redactions prevent it from determining on whose behalf the costs were incurred. Pac West responds that all of the Holland & Knight fees, including those incurred on behalf of the Banks, inured to Pac West's benefit because Pac West was implicated in all of the claims in the PUP Lawsuit and its attorneys therefore had to investigate and defend all of the transactions with PUP and the assignment between Pac West and the Banks. Pac West declares that, in any event, “the redactions did not redact information relating to allocation or indemnity between the banks after the JDA was entered.”[2] Mohr Decl., Dkt. No. 73-1, ¶ 21. Pac West does not state whether it redacted information showing whether any costs were incurred only on behalf of one or both Banks.

AIG asserts broadly that the privilege has been waived, and Pac West responds broadly that it has not. AIG has the burden to establish waiver. It has not shown that Pac West tendered any privileged communications, and Pac West represents that it will not rely on privileged communications to prove its case. AIG also has not shown that the reasonableness of the fees and potential allocation cannot be proved or disproved by other, more direct evidence. The parties do not state whether Pac West has produced non-privileged documents in response to RFPs 11, 20-22, 28 and 29 and, as noted above, do not identify the categories of information that are not redacted or explain whether or how the unredacted information is sufficient (or not) to demonstrate the reasonableness of the fees. AIG argues generally that the redactions prevent it from determining the purposes for which the costs were incurred, and that the redacted invoices reflect services such as drafting, strategy, research, analysis, and communications rendered by Holland & Knight and others. AIG also states that “[a]pproximately 30 percent of the millions in those legal fee invoices contain redacted line items.” Neubauer Decl., Dkt. No. 81, ¶ 9. However, AIG's showing is insufficient to demonstrate an at-issue waiver under California law.

This does not end the inquiry, however, because neither party discusses whether the Pac West privilege log provides the requisite detail. “When a party withholds information otherwise discoverable by claiming that the information is privileged ... the party must ... (ii) describe the nature of the documents, communications, or tangible things not produced or disclosed -- and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.” Fed. R. Civ. P. 26(b)(5)(ii). Pac West is required to describe the nature of the withheld documents and communications, including the nature of the redacted entries in the invoices, in a manner that enables the Insurers to assess Pac West's claims that all of its fees are reasonable and necessary, that they are reasonably related to Pac West's defense when incurred on behalf of the Banks, and that apportionment is not warranted. To the extent it has not already done so, Pac West is ordered to provide a supplemental privilege log that complies with Rule 26(b)(5)(ii).

*8 AIG also argues that Pac West waived attorney-client privilege by identifying its PUP Lawsuit counsel as witnesses in this action. In its Initial Rule 26(a)(1) Disclosure, Pac West lists witnesses likely to have discoverable information that it may use to support its claims or rebut the Insurers' defenses, which includes two attorneys at Holland & Knight who represented Pac West in the PUP Lawsuit and an attorney at Blank Rome, whom AIG asserts acted as co-counsel, not of record, for one of the Banks in the PUP Lawsuit. Neubauer Decl., Dkt. No. 69, ¶ 17. The Initial Disclosure identifies the Holland & Knight attorneys as having discoverable information regarding the PUP Lawsuit, specifically the nature of the claims and allegations, the settlement, and the defense fees and costs incurred for services rendered by Holland & Knight or third parties. The Blank Rome attorney is identified as having information regarding the indemnity demands from the Banks in connection with the PUP Lawsuit. Pac West's list further includes “[a]ttorneys and other personnel at Holland & Knight” and three additional law firms “involved in the PUP lawsuit with knowledge of the claims against Pac West” and with knowledge of the fees and costs incurred in the defense of Pac West.

If a party indicates that it intends to call its attorneys as witnesses, the attorney-client privilege may be waived. 2,002 Ranch, L.L.C. v. Super. Ct., 113 Cal. App. 4th 1377, 1400 (2003). A waiver is established “by demonstrating that the client has put the otherwise privileged communication directly at issue and that disclosure is essential for a fair adjudication of the action.” Southern Cal. Gas Co. v. Public Util. Comm'n, 50 Cal. 3d 31, 40 (1990). However, if a party does not intend to rely upon its attorneys' advice or state of mind to support its claim, then there is no implied waiver of the attorney-client privilege. Id. at 42.

Pac West states that it does not intend to rely upon its attorneys' advice or state of mind to support its claims. It thus has not waived the privilege simply by identifying its PUP Lawsuit counsel as witnesses. However, if Pac West raises or relies upon its attorneys' advice or state of mind, the Court will consider whether it has waived the privilege as to the topic raised.

Unlike the attorney-client privilege, the attorney work product doctrine is governed by federal law in diversity cases. Baker v. Gen. Motors Corp., 209 F.3d 1051, 1053 (8th Cir. 2000). Rule 26(b)(3) sets forth the work-product doctrine and states in relevant part:

Fed. R. Civ. P. 26(b)(3). The rule distinguishes between factual material prepared in anticipation of litigation or trial (fact work product) and opinion work product, which consists of the “mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.” Fed. R. Civ. P. 26(b)(3)(B). Fact work product is discoverable only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party's case and that the party is unable without undue hardship to obtain the substantial equivalent of the materials by other means. Id.; Upjohn Co. v. United States, 449 U.S. 383, 400-02 (1981); In re Grand Jury Subpoena, 357 F.3d 900, 906 (9th Cir. 2004). Opinion work product is discoverable only “when mental impressions are at issue in a case and the need for the material is compelling.” Holmgren v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573, 577 (9th Cir. 1992).

*9 AIG has not met its burden to obtain fact work product or opinion work product. However, the parties do not discuss whether, or the extent to which, Pac West's privilege log provides sufficient information regarding the materials withheld or redacted from the invoices based on work product. Like the materials withheld based on attorney-client privilege, they must be described in a manner that permits the Insurers to assess and defend against Pac West's claims that all of its PUP Lawsuit fees are reasonable and necessary, reasonably related to Pac West's defense when incurred on behalf of the Banks, and not subject to apportionment.

C. Documents Related to Mediation and Settlement

Pac West objects to RFPs 24-27, 30 and 32 based on the mediation privilege. The PUP Lawsuit was brought and settled in Florida, and the parties agree that Florida's mediation privilege statutes govern this issue. It states, “Except as provided in this section, all mediation communications shall be confidential. A mediation participant shall not disclose a mediation communication to a person other than another mediation participant or a participant's counsel.” F.S. § 44.405(1). The pertinent terms are defined as follows:

F.S. § 44.402. The party asserting the privilege bears the burden of demonstrating that the communication from the mediation is privileged. Strong v. GEICO Gen. Ins. Co., 2017 WL 1006457, at * 2 (M.D. Fla. 2017).

AIG contends that Pac West cannot assert the mediation privilege against it because AIG qualifies as a mediation participant. AIG cites Wheeler's Moving & Storage, Inc. v. Vanliner Insurance Company, 2012 WL 13018588, at *2 (S.D. Fla. 2012), in which the court found that the insurer, “as an undisputed real party in interest,” was a mediation participant under §§ 44.402(2) and 44.402(3)(b). The court in Wheeler's did not address the definition of “real party in interest” or explain why an insurer who did not attend the mediation qualifies as a real party in interest, because in that case the insured did not dispute that the insurer was a real party in interest. Here, Pac West disputes that AIG is a real party in interest, contending that unlike the insurer in Wheeler's, AIG did not have a duty to defend and thereby control the defense of the PUP Lawsuit. Pac West cites no Florida caselaw to support its argument. By seeking to recover from the Insurers the full amount of the settlement reached at the mediation, Pac West has effectively caused the Insurers to be real parties in interest. Accordingly, and based on Wheeler's and the facts in this case the Court concludes that the Insurers qualify as real parties in interest and thus as mediation participants. They are reminded that the provisions of the Florida mediation statutes govern any mediation communications produced to them.

*10 Additionally, even if the Insurers did not meet the mediation statute's definition of real party in interest, Pac West's assertion of the mediation privilege against them would be barred by the “sword and shield” doctrine. Under Florida law, “a party who bases a claim on matter which would be privileged, the proof of which will necessitate the introduction of privileged matter into evidence, and then attempts to raise the privilege so as to thwart discovery, may be deemed to have waived the privilege ...” GAB Bus. Servs., Inc. v. Syndicate, 809 F.2d 755, 762 (11th Cir. 1987) (quoting Home Ins. Co. v. Advance Mach. Co., 443 So. 2d 165, 168 (Fla. App. Ct. 1983)). In Bradfield v. Mid-Continent Cas. Co., 15 F. Supp. 3d 1253 (M.D. Fla. 2014), homeowners who had settled their underlying state court action against home builders and were assigned the builders' failure-to-defend claims against the insurer, sued the insurer for a determination that it was obligated to satisfy the settlement agreement and judgment. The homeowners asserted the mediation privilege as to the insurer, who did not attend the settlement conference. Id. at 1255. The court concluded that even if the mediation privilege applied, the homeowners' assertion of it was barred by the “sword and shield doctrine.” Id. at 1256-57. The court explained that the homeowners could not hide behind the shield of the privilege to prevent the insurer from effectively challenging evidence regarding the reasonableness of the settlement. Id. at 1257; see Strong, 2017 WL 1006457, at * 4 (same).

Pac West alleges that AIG breached the terms of its policies and breached the implied covenant of good faith and fair dealing by, among other things, refusing to pay for any part of the settlement of the PUP lawsuit. FAC ¶¶ 62-73. It seeks indemnification for a $12.5 million settlement that it reached and paid on its own behalf as well as on the Banks' behalf. FAC ¶ 54. Pac West has put the objective reasonableness of the settlement at issue. See Pruyn v. Agric. Ins. Co., 36 Cal. App. 4th 500, 515 (1995). Under Florida law, it cannot withhold discovery based on the mediation privilege to prevent AIG from effectively conducting discovery regarding the mediation that resulted in that settlement. Pac West argues that under the statute, the mediation privilege cannot be waived without agreement by all mediation parties. The statute provides that the privilege does not attach to any mediation communication “[f]or which the confidentiality or privilege against disclosure has been waived by all parties.” F.S. § 44.405(1). The statute does not specifically address implied waiver of the mediation privilege by a party who has put the objective reasonableness of the settlement at issue in an action against its insurer, and Pac West provides no caselaw addressing implied waiver of the mediation privilege under Florida law. Based on this record, the Court concludes that even if the Insurers did not fall within the statutory definition of real party in interest, Pac West may not withhold documents from them based on the mediation privilege.

D. The Protective Order in the PUP Lawsuit

In the PUP Lawsuit, the Receiver, Pac West, and the Banks entered into a “Confidentiality and Clawback Agreement” (the “Agreement”) governing the production of discovery in that matter. Neubauer Decl. Ex. 10, Dkt. No. 69-2. It authorizes the parties to designate discovery as “Confidential Information.” Agreement, ¶ 2. The Agreement refers to another protective order in that lawsuit, the “HIPAA Order,” which provides that as to information obtained by subpoena, the parties are prohibited from using or disclosing protected health information for any purpose other than the litigation of the PUP Lawsuit. Mohr Decl., Dkt. Nos. 73 ¶ 14; 73-4. The HIPAA Order also states that it expires upon the conclusion of the litigation. Dkt. No. 73-4, ¶ 10.

The Agreement provides that Confidential Information cannot be disclosed except in accordance with its terms, which (among other things) require consent from the producing party for the use of Confidential Information other than in the PUP Lawsuit. Agreement, Dkt. No. 69-2, ¶ 5. It also specifically addresses third-party requests for Confidential Information:

*11 Agreement, Dkt. No. 69-2, ¶ 12 (emphasis added).

AIG initially contended that Pac West has not produced documents in response to RFP 18 on the ground that all of the discovery in the PUP Lawsuit, including all 77 volumes of deposition testimony and over 697 marked exhibits, is designated “Confidential” under the Agreement. Neubauer Decl., Dkt. No. 69, ¶ 19. AIG explains that on the date it filed the Motion, Pac West produced deposition transcripts with exhibits; however, according to AIG, Pac West has not produced “most” of the 66 volumes or the “bulk” of the exhibits marked in the PUP Lawsuit. Neubauer Decl., Dkt. No. 76, ¶¶ 4-8. AIG does not dispute that RFP 18 seeks material protected by the Agreement.

In late May, Pac West notified the affected parties of the AIG discovery request. Pac West did not provide the notice earlier because it had requested AIG to narrow the scope of RFP 18, which Pac West asserts is not proportional. AIG refused to do so. Mohr Decl., Dkt. No. 73-1, ¶¶ 25-28. On May 25, 2022, by email, Pac West notified counsel for the Receiver, for RSM, and for three PUP directors and officers of AIG's discovery request. Mohr Decl., Dkt. No. 73-1, ¶ 30; Ex. I. On May 31, 2022, pursuant to paragraph 12 of the Agreement, Pac West notified counsel for the Receiver, for RSM, and for three PUP directors and officers of AIG's discovery request. Mohr Decl., Dkt. Nos. 73-1, ¶ 32; 73-12, Ex. K. The Receiver has “repeatedly indicated” its amenability to working with the Insurers, provided “sufficient protections” are in place. Id. at ¶ 36. RSM objected to the production to AIG of information that RSM had designated Confidential, and appeared at the informal discovery conference. The Court granted the request from RSM Counsel to file its objections in this Court if RSM and the Insurers are unable to come to an agreement. Mohr Decl., Dkt. No. 73-1, ¶ 35. [See Dkt. No. 66.] RSM did not file any objections. Pac West also gave notice to counsel for PUP's directors and officers, who also indicated a willingness to cooperate. Mohr Decl., Dkt. No. 73-1, ¶ 37.

The affected parties who have received notice of AIG's discovery request have the “right and obligation” under the Agreement “to obtain a protective order or other judicial or administrative relief to protect the Confidential Information.” Agreement, Dkt. No. 69-2, ¶ 12. At the hearing, counsel for the Receiver explained that the affected parties and the parties in this action have been working together toward a solution under which Confidential Information will be produced to the Insurers. The Court encourages the parties to reach agreement.

IV. Conclusion and Order

Regarding RFP Nos. 11, 20-22, 28 and 29, Pac West's objection based on relevance is overruled. Pac West is ordered to produce all documents responsive to these RFPs that it withheld solely on the basis of relevance. If Pac West has no such responsive documents in its possession, custody or control, it must so certify in a supplemental discovery response. Pac West must produce the documents or make the certification by August 19, 2022. This does not include responsive documents withheld on other or additional bases.

*12 To the extent that Pac West has not yet done so, it is ordered to provide a supplemental privilege log regarding documents responsive to RFP Nos. 11, 20-22, 28 and 29 and withheld based on attorney-client privilege and/or attorney work product doctrine, and regarding redactions to the invoices based on attorney-client privilege and/or attorney work product doctrine, that complies with Rule 26(b)(5). Pac West must provide the supplemental log by August 19, 2022.

Regarding RFPs 24-27, 30 and 32, Pac West's objection based on the Florida mediation privilege statutes is overruled. Pac West is ordered to produce all documents responsive to these RFPs that it withheld solely on the basis of this privilege. As stated above, the Insurers are reminded that the provisions of the Florida mediation statutes apply to these documents. Pac West must produce the responsive materials by August 19, 2022.

Regarding RFP 18, as stated above, the Court encourages the parties to continue working together toward a solution, as discussed at the hearing by counsel for the Receiver.

If the parties are unable to reach a solution by August 12, 2022, then the following deadlines and procedures will apply:

After the Insurers have provided the designations to Pac West and each affected party, the Insurers will work with each affected party to agree upon terms by which the Insurers may obtain from that affected party the Confidential Information designated by the Insurers as relevant and proportional to the issues in this action. The parties are directed to paragraph 19 of the Agreement, which addresses its jurisdiction and enforcement. AIG's request that the Court release any party to this action from compliance with Local Rule 79.5 or the terms of the protective order addressing designation of protected material in this action [Dkt. No. 62, ¶ 5] is denied.[3]

All of the deadlines and procedures are set in light of the history of these discovery disputes detailed in the Neubauer and Mohr declarations and discussed at the informal discovery conference and the hearing, and in light of the discovery cutoff date, which is November 1, 2022.

IT IS SO ORDERED.