From Casetext: Smarter Legal Research

Securities and Exchange Commission v. Credit Bancorp

United States District Court, S.D. New York
Jan 16, 2002
99 Civ. 11395 (RWS) (S.D.N.Y. Jan. 16, 2002)

Opinion

99 Civ. 11395 (RWS)

January 16, 2002

Dickstein Shapiro Morin Oshinsky, Attorneys for Receiver, New York, NY, By: Randy Paar, Esq., Of Counsel.

Pattison Flannery, Attorneys for Insurers, New York, NY, By: Martin J. Flannery, Jr., Esq., Of Counsel.


OPINION


Carl H. Loewenson, Jr. ("Loewenson"), the court-appointed receiver (the "Receiver") for defendant Credit Bancorp, Ltd. and related entities (collectively, "CBL") has moved to compel the production of certain documents pertaining to an investigation into two lost securities claims submitted by CBL in May of 1998 by the law firm of Pattison Flannery. Because the insurers have not demonstrated that the documents at issue are protected by the attorney-client privilege, or the work-product doctrine, and the Receiver has not acted in a dilatory manner in making this request, the documents will be produced.

Parties and Prior Proceedings

The parties and prior proceedings are described in previous opinions of this Court, familiarity with which is presumed. See SEC v. Credit Bancorp, Ltd., 147 F. Supp.2d 238 (S.D.N.Y. 2001); SEC v. Credit Bancorp, Ltd., 93 F. Supp.2d 475 (S.D.N.Y. 2000); SEC v. Credit Bancorp, Ltd., 96 F. Supp.2d 357 (S.D.N.Y. 2000); SEC v. Credit Bancorp, Ltd. 103 F. Supp.2d 223; SEC v. Credit Bancorp, Ltd., 109 F. Supp.2d 142 (S.D.N.Y. 2000); SEC v. Credit Bancorp, Ltd., No. 99 Civ. 11395, 2000 WL 968010 (S.D.N.Y. July 12, 2000); SEC v. Credit Bancorp, Ltd., 194 F.R.D. 469 (S.D.N.Y. 2000); SEC v. Credit Bancorp, Ltd., 2000 WL 1170136.

In this Court's opinion of June 27, 2001, summary judgment was granted in part, dismissing certain of the affirmative defenses asserted by Certain Underwriters at Lloyd's ("Lloyd's"); London Market Companies; and Gulf Insurance Company ("Gulf") (collectively the "Insurers"). See SEC v. Credit Bancorp, Ltd., 147 F. Supp.2d 238 (S.D.N.Y. 2001). The principal remaining issue for trial in this third-party action is the Insurers' affirmative defense that the two prior claims submitted by CBL relating to lost Fortune Financial and Colorado Casino stock were false or fraudulent. This motion seeks the production of documents generated during an investigation of those claims. The instant motion to compel the production of documents was filed by letter on November 15, 2001, and was marked fully submitted on December 5, 2001.

The Documents are Discoverable

The Insurers have withheld numerous documents relating to the investigation of lost securities claims conducted by Pattison Flannery as counsel to the Insurers and have listed those documents in a privilege log. In particular, there are two February 26, 1999 Reports to Underwriters that are listed on a privilege log that the Receiver contends are likely to contain information supporting CBL's position that the claims were not false or fraudulent when made.

Rule 26(b)(3) of the Federal Rules of Civil Procedure provides in relevant part that a party "may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense. . . Relevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence." This motion seeks the production of documents generated during a ten-month investigation of those claims, as a result of which Pattison Flannery apparently found no wrongdoing on the part of CBL and concluded that the shares had been lost. The narrative of Pattison Flannery's factual investigation may lead to the discovery of admissible evidence. The documents are thus subject to production.

The Documents Are Not Protected Work Product

The Insurers contend that the subject documents are not discoverable because they represent protected attorney work product. Rule 26(b)(3) provides in relevant part that:

a party may obtain discovery of documents and tangible things otherwise discoverable . . . and prepared in anticipation of litigation or for trial by or for another party or by or for that other party's representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent) 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. In ordering discovery of such materials when the required showing has been made, the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

As many courts have noted, it often is difficult to determine whether documents prepared by an insurance company or its representatives are entitled to work-product protection because insurers are in the business of investigating and adjusting claims. See, e.g., Arkwright Mut. Ins. Co. v. National Union Fire Ins. Co., No. 90 Civ. 7811, 1994 WL 510043, at *5 (S.D.N.Y. Sept. 16, 1994) (Francis, M.J.) ("line between documents prepared in the ordinary course of business and those prepared in anticipation of litigation is not always clear"); Mount Vernon Fire Ins. Co. v. Try 3 Building Servs., Inc., No. 96 Civ. 5590, 1998 WL 729735, at *5 (S.D.N Y Oct. 16, 1998) (Pitman, M.J.) ("Application of the work-product doctrine to documents prepared by insurance companies has been particularly troublesome"); see also International Surplus Lines Ins. Co. v. Willis Corroon Corp., No. 91 C 6057, 1992 WL 345051, at *5 (N.D.Ill. Nov. 12, 1992) (expressing dismay that certain "discovery opponents seem to use the doctrine to relieve themselves of the burden of producing factual information accumulated in what appears to be routine investigations").

The Second Circuit has adopted a "causation" test for determining whether a document was prepared in anticipation of litigation. See United States v. Adlman, 134 F.3d 1194, 1202-1203 (1998) ("Adlman"). Thus, the party seeking to withhold a document must demonstrate that the document it seeks to withhold was created "because of" the anticipation of litigation. See id. Additionally, documents prepared in the ordinary course of business or that would have been created in essentially similar form irrespective of the litigation do not qualify for protection. See id. Here the Insurers paid the claims precisely so that there would be no litigation. As the Court explained in Mount Vernon Fire Ins. Co. v. Try 3 Building Servs., Inc., supra, "courts frequently presume that investigative reports prepared by or for an insurer prior to a coverage decision are prepared in the ordinary course of the insurer's business and are not afforded work-product protection."

The Second Circuit has made clear that the party seeking to withhold a document must demonstrate that the document it seeks to withhold was created "because of" the anticipation of litigation. Adlman, 134 F.3d at 1202-03. That approach is followed here. Because the Insurers have not provided evidence that supports a finding that these documents were prepared outside the ordinary course of business in preparation for litigation, they are not immune from production as attorney work product.

The Documents Are Not Privileged

The Insurers contend that the documents at issue were prepared by Pattison Flannery in its capacity as legal advisor and not claim investigators and are thus protected by the attorney-client privilege. However, the party resisting the production of documents also has the burden of establishing the applicability of the privilege. See In re Horowitz, 482 F.2d 72, 82 (2d Cir. 1973). Here, the Insurers have not met this burden. In order for a communication to be privileged, it "must be made for the purpose of seeking or providing legal advice or assistance and the communication itself must have been primarily or predominately of a legal character." Aetna Cas. Sur. Co. v. Certain Underwriters at Lloyd's London, 176 Misc.2d 605, 608, 676 N.Y.S.2d 727, 730 (Sup.Ct. 1998), aff'd 263 A.D.2d 367, 692 N.Y.S.2d 384 (1st Dep't 1999), leave to appeal dismissed, 94 N.Y.2d 875, 726 N.E.2d 483, 705 N.Y.S.2d 6 (2000). Thus, for the privilege to apply, the attorneys involved with the communication must be acting as attorneys.

The privilege does not apply here because Pattison Flannery appears to have been hired to investigate the facts surrounding the two claims and make a recommendation to the Insurers. The documents at issue here were part of the regular course of business for an insurance company. In determining whether to pay a claim, the Insurers hired an outside investigator, here a law firm, to investigate the claim. Courts have held that reports prepared by attorneys investigating insurance claims on behalf of an insurance company are not privileged, "because the reports, although prepared by attorneys, are prepared as part of the `regular business' of the company." Bertalo's Rest. Inc. v Exch. Ins. Co., 240 A.D.2d 452, 455, 658 N.Y.S.2d 656, 659 (2d Dep't 1997); see Chicago Meat Processors, Inc. v. Mid-Century Ins. Co., No. 95 C 4277, 1996 WL 172148, at *3 (N.D.Ill. Apr. 10, 1996).

Because the Insurers have not submitted evidence which establishes that Pattison Flannery created the challenged documents in the course of providing legal advice, as opposed to its investigation of the facts surrounding the prior claims, the documents will be produced.

The Receiver Has Not Waived His Opportunity to Request the Documents

The Insurers seek to enforce a January 26, 2001 discovery deadline imposed by this Court to prohibit further document discovery absent a showing of special circumstances. Due to the complexity of this case, numerous requests for additional discovery have been granted past that deadline. The privilege log which forms the basis of the Receiver's request was not sent until February 13, 2001, and depositions have been conducted in this case as recently as November of 1999.

Most importantly, Insurers' do not contend that any prejudice will result from this admittedly belated request. For the above reasons, the Receiver's motion to compel is granted. The documents will be produced on January 22, 2002.

It is so ordered.


Summaries of

Securities and Exchange Commission v. Credit Bancorp

United States District Court, S.D. New York
Jan 16, 2002
99 Civ. 11395 (RWS) (S.D.N.Y. Jan. 16, 2002)
Case details for

Securities and Exchange Commission v. Credit Bancorp

Case Details

Full title:Securities And Exchange Commission, Plaintiff, Stephenson Equity Company…

Court:United States District Court, S.D. New York

Date published: Jan 16, 2002

Citations

99 Civ. 11395 (RWS) (S.D.N.Y. Jan. 16, 2002)

Citing Cases

William A. Gross Const., Assoc., Inc. v. American Mfrs. Mut. Ins. Co.

United States v. Adlman, 134 F.3d at 1195. Accord, e.g., Allied Irish Banks v. Bank of America, N.A., 240…

Tudor Ins. Co. v. Stay Secure Const. Corp.

Id.;accordInt'l Design Concepts v. Saks Inc., 2006 WL 1564684, at *1 (S.D.N.Y. June 6, 2006); Gulf Islands…