Scottsdale Insurance Company v. CNC Technologies LLC et al

MEMORANDUM in Opposition to MOTION to Compel Documents from Steven Erigero of Ropers, Majeski, Kohn, Bentley, PC 83

C.D. Cal.July 12, 2018

-0- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GODES & PREIS, LLP Joseph M. Preis (State Bar No. 212998) jpreis@gaplegal.com 300 Spectrum Center Drive, Suite 1420 Irvine, CA 92618 Telephone: (949) 468-0051 Facsimile: (949) 872-2281 BROWER LAW GROUP, APC Steven Brower (State Bar No. 93568) Steve@BrowerLawGroup.com 25201 La Paz Road, Suite 202 Laguna Hills, CA 92653 Telephone: (949) 668-0825 Attorneys for Defendants and Counterclaimant UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SCOTTSDALE INSURANCE COMPANY, Plaintiff, v. CNC TECHNOLOGIES, LLC, et al., Defendants. Case No.: 2:17-cv-03190-VAP-E CNC’S OPPOSITION TO SCOTTSDALE’S MOTION TO COMPEL PRIVILEGED DOCUMENTS FROM ROPERS Date: July 27, 20181 Time: 9:30 a.m. AND RELATED COUNTER-ACTION 1 CNC is cognizant that this Court takes many matters under submission without oral argument. However, should the Court determine that a hearing is appropriate for the important issues here, lead counsel for CNC will be in Chicago for a deposition which was scheduled some time ago (a court ordered deposition, in the same case, will occur the day before in New York), a co-counsel Mr. Preis will be on vacation. Therefore, CNC would request that any oral argument be rescheduled for a different date convenient to the Court and counsel. Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 1 of 11 Page ID #:2934 -1- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 CNC Technologies, LLC and the CNC Individuals (jointly “CNC”), hereby oppose the Motion to Compel as follows: I. INTRODUCTION. The Ropers Majeski law firm (“Ropers”), in which Steve Erigero is a litigation partner, was appointed as defense counsel for CNC by its insurer, Scottsdale, in the underlying Helinet matter. As required by the insurance policy, Scottsdale paid for the defense. But even though Scottsdale was the third-party payor, “Defense counsel [Ropers] was retained to solely represent the insureds.” Who said that? Darius Kandawalla, the coverage counsel for Scottsdale (who was, for a period of time, co-counsel of record in this action). See Exhibit F to the First Amended Complaint (Docket 31-5, page 12 of 15, middle of the page). However, from the outset, and particularly through the time of the settlement of the underlying litigation (which settlement Scottsdale was saying it would not pay in full, so that the CNC parties were being asked to contribute), there was clearly a conflict of interest between Scottsdale and CNC. Therefore, CNC had private counsel (primarily Godes & Preis) who was specifically advising the CNC parties about their divergent interests. Scottsdale served a subpoena on the Ropers firm to obtain a copy of their file. Ropers provided Scottsdale with a complete copy of their file with redactions on a very specific subset of Attorney Work-Product privileged materials, as reflected on the privilege log which they provided to Scottsdale (although it seems to have claimed attorney-client privilege instead of attorney work-product, contrary to the specific instructions of CNC). Those redactions were made based on an assertion of Work Product Privilege by CNC only on behalf of its separate counsel, and not as to anything written by Ropers. The instructions from CNC to Ropers, regarding the privileges which were being asserted, and the precise outline of those privileges, were provided to Ropers in an email, Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 2 of 11 Page ID #:2935 -2- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 a copy of which is attached to the concurrently filed Declaration of Steven Brower, as Exhibit “A.” Those instructions were:2 Please be advised that, as counsel to CNC and the individuals, we are formally advising you as follows: 1. CNC and the individuals are not waiving the attorney work- product privilege/doctrine as it applies to their separate counsel. Therefore, you should not produce to Scottsdale any email (or the portion of any email thread) which was sent by Joseph Preis or Oliver Dreger only to your firm and/or to the clients. By way of clarification: a. Even if they were the author, if the email was also sent by them to Scottsdale and/or to counsel for Helinet, we are obviously not asserting work-product since it would not apply. b. We are not asking that you redact/withhold your response to any such email, except to the extent that such reply includes a direct quotation of the mental impressions, strategy, etc. 2. Many of the documents you will be producing to Scottsdale are subject to the attorney-client privilege, including, for example, your own prior communications to Scottsdale discussing the strengths and weaknesses of the case. But, under the circumstances of an insurer/insured relationship, it is common and necessary to share certain attorney-client privileged information with the insurer. However, such sharing does not constitute a waiver of the attorney-client privilege and it would be a serious ethical and legal violation for the insurer to file such documents in the public court file. Consistent with such principles, we are not asking that you withhold any documents from 2 These instructions were intended to be shared with Scottsdale and/or the Court at an appropriate time. CNC is not waiving any Attorney-Client or Attorney Work Product privilege as to the communications and considerations which resulted in this document. Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 3 of 11 Page ID #:2936 -3- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Scottsdale on the basis of attorney-client privilege, but we do not intend such production to constitute a waiver of such privilege. Scottsdale makes arguments to rationalize its overbroad subpoena entirely within the supposed “tripartite” relationship which Scottsdale claims existed between it; Ropers, the lawyers it hired for its insured; and CNC, the insured against whom how Scottsdale then and now argues should shoulder the entire burden of settlement. That conflict, existing since the first Scottsdale “coverage” letter, eventually resulted in this litigation and cross-action. Scottsdale then subpoenaed their own panel counsel, Ropers, for information and evidence regarding Scottsdale’s improper actions as to CNC. Ropers produced records but withheld a very few portions of documents at the instruction of its client, CNC, on the basis of attorney work-product privilege. Scottsdale now seeks to use its hiring of Ropers for CNC as a sword, attempting to discover what CNC’s private counsel told the counsel of record for CNC in connection with settlement and conflicts with Scottsdale. This is not about attorney-client communications with Ropers, as Scottsdale argues; it is about the sanctity of the CNC attorney work-product: thought processes, analyses and strategies which Scottsdale improperly seeks to exploit. II. SCOTTSDALE IMPROPERLY SOUGHT TO USE COMMUNICATIONS ONLY WITH ROPERS TO ELIMINATE CNC’S RIGHT TO PROTECT ITS INVIOLATE OPINION WORK PRODUCT. In Exhibit “F” to the Ruocco Declaration filed by Scottsdale, on June 1, 2018, Scottsdale demanded documents which had been withheld based on privilege. In that letter, Scottsdale deliberately and wrongfully “cast its net” overly wide. It claimed, under its “tripartite relationship” theory, entitlement to communications and work-product by and between “Stephen Erigero (“Erigero”) and the separate counsel for CNC, Joseph Preis (“Preis”) and Steven Brower (“Brower”).” Scottsdale explains that this is due to the “common interest among the insured and the insurer,” citing Cal. Ev. Code §962. Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 4 of 11 Page ID #:2937 -4- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 As shown by the attached Exhibit “H” to Scottsdale’s own attorney declaration, and Exhibit “B” to the attached Brower Declaration, on June 7, 2018, counsel for Ropers (the subpoenaed party) and Scottsdale’s counsel were advised by counsel for CNC that CNC and the attorneys specifically asserted the attorney work-product privilege as to communications to and from its private counsel, Joseph Preis and Steven Brower. While Scottsdale may contend (and CNC may disagree) that paying for Ropers’ defense allows Scottsdale to also be considered a “client” for coverage purposes; under no circumstances may Scottsdale legally contend it is “entitled” to the work-product of CNC’s private counsel. A. Scottsdale May Not Obtain The Work Product of CNC’s Separate Counsel Particularly Where There Are Significant Conflicts Between Scottsdale And Its Insureds. The attorney work product doctrine protects trial preparation materials that reveal an attorney’s strategy, intended lines of proof, evaluation of strengths and weaknesses, and inferences drawn from interviews. Fed.R.Civ.P. 26(b)(3); Hickman v. Taylor (1947) 329 U.S. 495, 510-511. Work product protection is designed to preserve the privacy of attorneys' thought processes and to prevent parties from borrowing the wits of their adversaries. Hickman v. Taylor, supra, 329 U.S. at 510-511; Holmgren v. State Farm Mut. Auto. Ins. Co. 976 F.2d 573, 576 (9th Cir. 1992); FTC v. Boehringer Ingelheim Pharmaceuticals, Inc. 778 F.3d 142, 150 (D.C. Cir. 2015) (work product doctrine is “grounded in the realities of litigation in our adversarial system” (internal quotes omitted).) The work product privilege “shields the wrangles within the client's legal team from the opposing party.” Menasha Corp. v. U.S. Dept. of Justice, 707 F.3d 846, 852 (7th Cir. 2013). Work-product protection applies to “documents prepared by an attorney or the attorney's agent to analyze and prepare the client's case.” United States v. Smith, 502 F.3d 680, 689 (7th Cir. 2007); United States v. Adlman, 134 F.3d 1194, 1197 (2nd Cir. 1998) (documents that tend to reveal attorney's mental process - “opinion work product” - are protected.) Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 5 of 11 Page ID #:2938 -5- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The scope of the work product doctrine is broader than the reach of Fed.R.Civ.P. 26(b)(3) because it encompasses intangible as well as tangible work product. See Hickman v. Taylor, supra, 329 U.S. 495 at 511; United States v. Deloitte LLP, 610 F.3d 129, 136 (D.C. Cir. 2010.) When the work product reflects the attorney's mental impressions, conclusions, opinions or legal theories, the protection is much greater than for other work product. See Appleton Papers, Inc. v. E.P.A. 702 F.3d 1018, 1023-1024 (7th Cir. 2012); United States v. Deloitte LLP 610 F.3d 129, 135 (D.C. Cir. 2010) (“opinion work product is virtually undiscoverable” (internal quotes omitted)); see also Ideal Elec. Co. v. Flowserve Corp. 230 F.R.D. 603, 608-609 (D. NV 2005) (attorney's draft affidavits may constitute work product, because they reflect strategies and mental impressions and contain opinions and legal advice); In re Murphy, 560 F.2d 326, 336 (8th Cir. 1977) (“Therefore, unlike ordinary work product, opinion work product can not be discovered upon a showing of substantial need and an inability to secure the substantial equivalent of the materials by alternate means without undue hardship. See Fed.R.Civ.P. 26(b) (3). In our view, opinion work product enjoys a nearly absolute immunity and can be discovered only in very rare and extraordinary circumstances. See Hickman v. Taylor, supra.”) As aptly stated in In re Columbia/HCA Healthcorp. Billing Practices Litigation, 293 F.3d 289 (6th Cir. 2002): The work product doctrine “is distinct from and broader than the attorney-client privilege.” In re Antitrust Grand Jury, 805 F.2d 155, 163 (6th Cir. 1986) (quoting United States v. Nobles, 422 U.S. 225, 238 n. 11 (1975)). The doctrine is designed to allow an attorney to “assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference ... to promote justice and to protect [his] clients' interests.” Hickman. supra, 329 U.S. 495, 510 [. . .] [A]bsent waiver, a party may not obtain the “opinion” work product of his adversary; i.e., “any material reflecting the attorney's Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 6 of 11 Page ID #:2939 -6- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 mental impressions, opinions, conclusions, judgments, or legal theories.” In re Antitrust Grand Jury, 805 F.2d at 163-64. [Emphasis added]. As noted in Scottsdale’s own evidence, and as recognized by this Court in ordering a revised briefing schedule allowing CNC an opportunity to protect its interests, attorneys Preis and Brower, on behalf of CNC, on several occasions and through several written communications expressly informed Scottsdale’s attorneys about CNC’s and their work- product privilege assertions. B. No Waiver Of CNC’s Attorney Work Product Privilege Has Occurred. Scottsdale has not made, nor can it make, any legal argument for this unconscionable result. As In re Antitrust Grand Jury, supra, 805 F.2d 155, 163-64 states, “absent waiver, a party may not obtain the “opinion” work product of his adversary; i.e., “any material reflecting the attorney's mental impressions, opinions, conclusions, judgments, or legal theories.” (Emphasis supplied). Scottsdale makes the argument, which it should know is meritless, that because attorney-client privileged material is shared with an insurer, there is no boundary on the privilege. But attorney-client privileged information is shared with insurers even when an honest insurer (unlike Scottsdale here) admits that there is a conflict under California Civil Code 2860, leading to the right to independent counsel. Civil Code 2860(d) says: When independent counsel has been selected by the insured, it shall be the duty of that counsel and the insured to disclose to the insurer all information concerning the action except privileged materials relevant to coverage disputes, and timely to inform and consult with the insurer on all matters relating to the action. Any claim of privilege asserted is subject to in camera review in the appropriate law and motion department of the superior court. Any information disclosed by the insured or by independent counsel is not a waiver of the privilege as to any other party. [emphasis added] Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 7 of 11 Page ID #:2940 -7- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Indeed, it would be impossible for insurance companies to perform their function if they did not receive at least some privileged information. For example, even where there is an admitted conflict, the defense counsel needs to tell the insurance company “I think this settlement offer is reasonable because, in my view, my client (your insured) is not a credible witness and he has told me, in confidence, that if they ask about the contents of the suitcase, the testimony will not be favorable to us.” That type of report is being made because of a common interest, between the insurance company and its insured, to resolve the matter for the correct amount. The courts which have said that the sharing of attorney- client privileged communications is dependent on a tri-partite relationship are simply mistaken. Indeed, the work product doctrine privilege is held by both the client and the attorney, so any claimed waiver by the client will not deprive the attorney of his or her own work product protection, and vice versa. Therefore, a waiver by the client or the attorney is not effective against the other. See, e.g., In re Grand Jury Subpoenas 561 F.3d 408, 411(5th Cir. 2009) As Scottsdale’s own evidence shows, CNC, Pries and Brower all advised Scottsdale of the work-product privilege and its application here. (Ruocco Declaration, Exhibit “H.”; see also Brower Declaration, ¶¶ 3-4 and Exhibit “A” thereto). Scottsdale is unable, therefore, to claim CNC has “waived” any privilege for purposes of its subpoena. Moreover, even disclosure to a third party does not waive work product protection if the third party shares a common interest with the disclosing party that is adverse to the interests of the party seeking discovery. See, e.g., Minnesota School Boards Ass'n. Ins. Trust v. Employers Ins. Co. of Wausau, 183 F.R.D. 627, 631 (N.D. IL 1999) (insurer's disclosure of attorney work product to its reinsurers did not waive protection where insurer intended communications would remain confidential and protected from common adversaries.) Here, Scottsdale admits and argues that a form of “common interest” existed between it, CNC and Ropers as retained panel counsel. Nonetheless, as stated in the Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 8 of 11 Page ID #:2941 -8- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 pending counter-claim, an adverse relationship did in fact exist and Scottsdale’s actions, specifically as it related to the payment of the settlement, were adverse to the rights of CNC insofar as Scottsdale did not reserve rights, yet sought to have its client shoulder the burden of settlement rather than honor its policy obligations. The absolute protection of the Preis and Brower work-product must control. In summary CNC, Preis and Brower have asserted the attorney work-product privilege as to certain private communications, including to Scottsdale in the emails Scottsdale submitted. Scottsdale cannot contend a “client” relationship existed between it and Preis and/or Brower, nor can it claim that there wasn’t a conflict when the subject under discussion was Scottsdale’s contention that it didn’t need to pay the settlement. By this motion, Scottsdale improperly seeks to conduct “unwarranted inquiries into the files and the mental impressions of an attorney.” As stated in Hickman3, “not even the most liberal of discovery theories can justify” such an inquiry into opinion work-product. The opinion work-product communications Scottsdale seeks is absolutely protected. Accordingly, the Motion to Compel should be denied. III. SCOTTSDALE AND ITS COUNSEL SHOULD BE ADMONISHED, PURSUANT TO LOCAL RULE 37-4, FOR DELIBERATE FAILURE TO ACT WITH CNC’S COUNSEL ON THIS MOTION. In a stunning display of hubris, Scottsdale filed its Motion to Compel and “Joint” Statement – all without waiting to receive, per Local Rule (or responding to numerous emails regarding) the agreed-to statement from the admitted “real party in interest” as to these requests and the associated privileges – CNC. Instead, Scottdale rushed to obtain an order eviscerating CNC’s unassailable privileges – shockingly, by attempting to deny CNC the ability to support its position! Scottsdale filed the “joint statement” and “declaration” from Ropers, even though attorney Erigero stated Ropers “have no position” on the privileges asserted here. As shown by the 3 Hickman, supra, 329 U.S. 495, 510. Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 9 of 11 Page ID #:2942 -9- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 attached Declaration of Steven Brower, CNC asserted its privileges and expressed its desire to participate in the briefing. (Brower Declaration, ¶¶ 2-7, and Exhibits A-B thereto). Local Rule 37 and its subparts are not lengthy, yet Scottsdale manages to ignore it and violate it several times. As shown by the Declaration of Steven Brower, Esq., counsel for Defendant (and real party in interest to the substance of this Motion, CNC), Scottsdale was advised on no fewer than three occasions that CNC, and NOT Ropers, would prepare and submit the substantive argument against the subpoena. Shockingly, even the Erigero Declaration to the Scottsdale motion says: Scottsdale acknowledged that Ropers was not the real party in interest. Scottsdale and CNC agreed that they would brief and argue the relative merits of the claim of privilege of CNC. Erigero goes on to say that Ropers would do nothing until “the CNC objection was determined”. Erigero Declaration, at ¶ 6. How can Scottsdale possibly argue that the issues it raised were properly before this Court, when Scottsdale ignored several emails from Steven Brower (Brower Decl., ¶¶ 2-7) and submitted a declaration from Ropers admitting Ropers was NOT acting to defend the privilege; but was rather looking to the real party in interest, CNC (whose emails were ignored by Scottsdale) to do so. Indeed, it was obvious to this Court that CNC needed to participate – which is why this Court issued an order, sua sponte, allowing such participation. Local Rule 37-4 states, “The failure of any counsel to comply with or cooperate in the foregoing procedures may result in the imposition of sanctions.” The Brower Declaration, as well as what emails Scottsdale chose to submit with its motion, only show Scottsdale chose to ignore and “freeze-out” CNC, to argue Ropers, its panel counsel, had somehow waived or was required to produce opinion work-product from CNC’s private counsel. Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 10 of 11 Page ID #:2943 -10- CNC’S OPPOSITION TO MOTION TO COMPEL PRIVILEGED DOCUMENTS 4845-4902-9485, v. 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This stratagem, deliberately designed by Scottsdale to deny CNC it’s admitted rights and privileges as the true real party in interest here, should not be countenanced by this Court. IV. CONCLUSION. The work product of CNC’s private attorneys is, under all relevant law, mot subject to Scottsdale’s subpoena. CNC advised Scottsdale of the work product assertion. Scottsdale chose to ignore CNC’s privileges and attempt a procedural end run around the inviolate work-product privilege by acting before this Court only with Ropers, the subpoenaed party which had disavowed any responsibility for the issue. Accordingly, Scottsdale’s motion should be denied as to the specific items of attorney work product identified by attorney Brower in Exhibit A to his declaration; that being “any email (or the portion of any email thread) which was sent by Joseph Preis or Oliver Dreger only to your firm [Ropers] and/or the clients.” and a redaction of any response to the emails listed above, “to the extent that such reply includes a direct quotation of the mental impressions, strategy, etc.” Date: July 12, 2018 BROWER LAW GROUP, APC By: /s/ by ECF Steven Brower Attorneys for Defendants Case 2:17-cv-03190-VAP-E Document 85 Filed 07/12/18 Page 11 of 11 Page ID #:2944