Southern Rehabilitation Network, Inc. v. Sharpe

Full title: SOUTHERN REHABILITATION NETWORK, INC., Plaintiff v. SUZI SHARPE et al.…

Court: United States District Court, E.D. North Carolina, Western Division

Date published: Jan 13, 2000

5:99-CV-353-BR(2) (E.D.N.C. Jan. 13, 2000)

Opinion

5:99-CV-353-BR(2)

January 14, 2000

ORDER

ALEXANDER B. DENSON, United States Magistrate Judge

This matter is before the Court on Plaintiff's motion to compel. Defendants have responded, and this matter is ripe for disposition.

I. Background

Plaintiff Southern Rehabilitation Network, Inc. ("SRN") brought this action against its former employees, Suzi Sharpe, Becky Earley, and Susan Ward, as well as Combined Case Management, Inc. ("CCM"), the company they formed. Plaintiff alleges that each individual defendant breached her respective duty of loyalty owed to SRN. Defendants deny these allegations and counterclaim against Plaintiff

Plaintiff seeks to compel Defendant Earley to answer questions asked of her in deposition concerning in-house counsel's work on this case. Plaintiff also seeks to compel production of correspondence between Defendants and their insurance company. Furthermore, Plaintiff asks the Court to rule that in-house counsel, Sandra King, is disqualified from representing Defendants in this lawsuit. Plaintiff also moves the Court to order Defendants both to bear the costs, not including attorney's fees, of completing the recessed deposition of Defendant Earley and to reimburse Plaintiff for the reasonable costs, including attorney's fees, it incurred by prosecuting this motion.¹

1 Plaintiff also requests an oral argument to be conducted by telephone. However, because the Court finds that oral argument is not necessary to resolve these issues, this request is DENIED.

II. Plaintiff's Motion to Compel Defendant Earley to Answer Questions Concerning Attorney King's Participation in the Defense of the Case

A. Factual Background

Attorney Sandra King, from prior to the inception of this lawsuit, and up to and including the present time, has acted as the corporate legal counsel for Defendants. She has given legal advice regarding the Defendants' incorporation of CCM, and she continues to provide advice and service to CCM. Defendants have relied upon some of her advice as a defense to Plaintiff's allegations. It is likely that Attorney King will be called as a fact witness if the matter should come to trial, and she is therefore not participating as the counsel of record in this action.

Plaintiff has been allowed to depose Attorney King for up to eight hours. It has also subpoenaed her for "all documents reflecting the advice given to the defendants about their pre- and post-resignation conduct as it relates to plaintiff." (Pl.'s Ex. 2, King Subpoena). Attorney King has produced all the documents without objection.

When Plaintiff deposed Defendant Earley, she stated that Attorney King assisted her in the production of discovery documents for this case. (Pl.'s Ex. 5, p. 77). When Plaintiff's counsel sought to explore Attorney King's other involvement in this case, Defendants' counsel directed Defendant Earley not to respond, and she followed his advice. (Pl.'s Ex. 5, 155). At the conclusion of the deposition, Plaintiff's counsel again attempted to explore the involvement of Attorney King in this case, but Defendants' counsel again instructed Ms. Earley not to answer the questions on the basis of the attorney-client privilege, and she again followed his advice. (Pl.'s Ex. 5, pp. 178-80).

Plaintiff seeks to compel Defendant Earley to answer these questions. Defendants argue that this information is privileged.

B. Analysis

The purpose of the attorney-client privilege is "to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice." Upjohn Co. v. United States, 449 U.S. 383, 389 (1981). The attorney-client privilege bars the discovery of statements made to a lawyer for the purpose of obtaining legal advice.See id. Stated more precisely, the privilege applies if

(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with this communication is acting as a lawyer; (3) the communication relates to a fact of which an attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and not (d) for the purpose of committing a crime or tort; and (4) the privilege has been (a) claimed and (b) not waived by the client.

In re Allen, 106 F.3d 582, 600 (4th Cir. 1997) (internal quotation marks and citations omitted). The party asserting the privilege bears the burden of proving that the privilege is applicable. See In re Grand Jury Proceedings, 33 F.3d 342, 353 (4th Cir. 1994).

The attorney-client privilege, which applies to corporations as well as to individuals see Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343, 348 (1985), is designed to protect the substance of confidential communications from client to attorney and render the same immune from discovery. See Republican Party v. Martin, 136 F.R.D. 421, 426 (E.D.N.C. 1991). Communications from attorney to client may also fall within the privilege if they tend to reveal confidential client communications. See F.T.C. v. Shaffner, 626 F.2d 32 (7th Cir. 1980);North Carolina Elec. Membership Corp. v. Carolina Power Light Co., 110 F.R.D. 511, 514 (M.D.N.C. 1986). The privilege is inapplicable to instances where the attorney is merely acting as a "conduit for the client's funds," as a "scrivener for the client," or as a "business advisor." United States v. Horvath, 731 F.2d 557, 561 (8th Cir. 1984).

Defendants claim that as corporate counsel, Attorney King performs numerous roles for CCM, some of which involve giving legal advice and services, and some of which are ministerial in nature. They correctly argue that the attorney-client privilege attaches to the former, but not to the latter. See, e.g., Republican Party, 136 F.R.D. at 426 (noting that the privilege does not apply when the attorney's communication to the client "essentially involves the giving of political advice" (citation omitted)). Defendants are also correct that the mere fact that Attorney King serves as in-house counsel for CCM does not dilute the privilege. See In re Sealed Case, 737 F.2d 94, 99 (D.C. Cir. 1984);

Plaintiff's counsel asked Defendant Earley four questions which upon advice of her counsel she refused to answer:

1) What involvement has Ms. King had in the defense of this claim?

2) Did Ms. King explain to you why she is not an attorney of record in this case, ma'am?

3) How has Ms. King been involved in framing the answer and counterclaim?

4) How has Ms. King been involved in response to discovery from the Plaintiff?

(Pl.'s Ex. 5, pp. 155, 178-80). The first question does not seem to be asking for specific confidential communications between Attorney King and her clients. See In re Allen, 106 F.3d at 600. Instead, the counselor seems to be merely inquiring if there was in fact any such communications between Attorney King and her clients regarding the defense of this case. Such an inquiry does not invoke the attorney-client privilege, and Defendant Earley must answer this question.

The second and third questions, on the other hand, do seem to ask for specific information regarding the communications between an attorney and her client. See F.T.C. v. Shaffner, 626 F.2d 32 (7th Cir. 1980); North Carolina Elec. Membership Corp., 110 F.R.D. at 514. Communications between Attorney King and Defendant Earley concerning why Attorney King has chosen not to be the attorney of record in this matter could conceivably reveal confidential client communications. Furthermore, the act of framing an answer and counterclaim, which is a providing of legal services, by its very nature, would necessarily involve a discussion between counselor and client concerning the strengths and weaknesses of a particular claim. Such information is undoubtedly confidential and privileged.

As for the fourth question, it could be broadly construed to be an inquiry into the communications between attorney and client. However, a narrower reading of the question is also possible. Plaintiff is entitled to know what kinds of services Attorney King provided in regard to Plaintiff's discovery requests. Plaintiff is entitled to know, for example, whether Attorney King merely performed "menial" tasks such as collecting data or whether she gave Defendants legal advice about the discovery requests. of course, Plaintiff is not entitled to know the nature of any legal advice (if any) offered by Attorney King to Defendants.

In short, Plaintiff's motion to compel Defendant Earley to answer the four unanswered deposition questions IS GRANTED in part and DENIED in part. Defendant Earley is ORDERED to answer the first and fourth questions.

III. Plaintiff's Motion to Compel Production of Defendants' Correspondence with Zurich

A. Factual Background

During discovery, SRN sought information from Defendants concerning their insurance policy with Zurich Insurance Company ("Zurich") because Zurich is defending Defendants under a reservation of rights. Defendants provided Plaintiff with a copy of their insurance policy with Zurich and identified five letters exchanged between them and Zurich. (Pl.'s Ex. 6, CCM's Resp. to Req. No. 9; Pl.'s Ex. 7, Individual Defs.' Resp. to Req. No. 12).

Plaintiff seeks to compel Defendants to produce these letters. However, Defendants refuse because they claim that they are not relevant and are in any case protected under the work-product doctrine.

B. Analysis

Rule 26 of the Federal Rules of Civil Procedure states that parties may obtain discovery of any non-privileged matter "which is relevant to the subject matter involved in the pending action." F.R. Civ. Proc. 26(b)(1). The information requested need not be admissible at trial if it "appears reasonably calculated to lead to the discovery of admissible evidence."Id. Courts have construed this relevancy requirement more broadly than the relevancy requirement in Rule 401 of the Federal Rules of Evidence.See, e.g., Alexander v. Cannon Mills Co., 112 F.R.D. 404, 406 (M.D.N.C. 1986). However, information that has no bearing on the case is not discoverable. See 8 WRIGHT MILLER FEDERAL PRACTICE AND PROCEDURE: CIVIL, § 2008.

Plaintiff claims that the letters sought "would enable it to make a realistic appraisal of the case and, thus, base its settlement and litigation strategy on knowledge rather than speculation." (Pl.'s Mem. of Law Support Mot. Compel Disc., p. 4). Plaintiff suggests that the letters contain information relating to the conditions and amount of coverage extended to CCM by Zurich. (Id. p. 7-9). However, as Plaintiff admits that it has been given a copy of Defendants' policy with Zurich, (Id. p. 4), the Court does not see why access to the correspondence between Zurich and Defendants is necessary. Nor does Plaintiff explain how this information relates to the subject matter of the case. See Potomac Electric Power Co. v. California Union Ins. Co., 136 F.R.D. 1, 2-3 (D.D.C. 1990) (finding that correspondence relating to insurance agreements is "neither relevant nor `reasonably calculated to lead to the discovery of admissible evidence.'" (quoting F.R. Civ. Proc. 26(b)(1)));Neuberg v. Michael Reese Hospital and Medical Center, 1992 WL 477018, at *1 (N.D. Ill. 1992) (noting that "[i]f a party wishes to discovery policy information beyond the agreement itself . . . it must make a showing of relevancy"). Because Plaintiff has not met the standard of relevancy set out in Rule 26(b)(1), Plaintiff's motion to compel production of the correspondence IS DENIED.

IV. Plaintiff's Request to Have Attorney King Disqualified from Representing Defendants in This Case

Plaintiff asks the Court to disqualify Attorney King from Representing Defendants in this case. However, Attorney King is not Defendants' attorney of record in this case and will not represent them at the trial in this matter. Plaintiff suggests that Attorney King is acting as "ghost counsel" for Defendants in this case, but the only evidence it offers of this is that Defendant Earley stated that Attorney King aided CCM in the production of discovery documents. This by itself does not suggest that Attorney King has done anything improper. Locating documents out of a file is a ministerial task and is not inappropriate for in-house counsel to do. Because Plaintiff has not offered sufficient evidence of any impropriety on Attorney King's part, Plaintiff's motion IS DENIED.

V. Plaintiff's Request for Costs

Plaintiff asks the Court to order Defendants to pay for the costs of finishing the deposition of Defendant Earley. However, Plaintiff's order to compel has been denied in part, and the Court does not believe that Defendant's counsel's objections during the deposition were made in bad faith. Plaintiff's request is DENIED. The attorney reasonably asserted the attorney-client privilege, which is lost unless the witness is instructed not to answer the question. Similarly, because Defendants' correctly refused to produce their correspondence with Zurich and have not acted in bad faith, Plaintiff's request for costs associated with the filing of its motion to compel are DENIED.

VI. Conclusion

In sum, Plaintiff's request to compel Defendant Earley to answer the four disputed questions IS ALLOWED in part and DENIED in part, and Defendant Earley IS ORDERED to answer the first and fourth disputed questions. Plaintiff's request for Attorney King to be disqualified from representing Defendants in this case IS DENIED. Finally, Plaintiff's motion for costs IS DENIED.