The opinion of the court was delivered by: RUBEN B. BROOKS
On January 28, 1994, a hearing was held on plaintiff Daniel Cunningham's motion for a protective order and request to return and seal disclosed documents and defendant Connecticut Mutual Life Insurance's motion to compel disclosure of attorney-client communications. Gastone Bebi, Esq., appeared on behalf of the plaintiff. Pamela S. Ewers, Esq., of Luce, Forward, Hamilton & Scripps, appeared on behalf of the defendant.
This lawsuit involves the decision by defendant Connecticut Mutual Life Insurance ("Connecticut Mutual") to stop paying disability benefits to plaintiff Daniel Cunningham. The defendant insurer claims that the plaintiff is not disabled.
On November 9, 1978, Connecticut Mutual issued a disability income insurance policy to Daniel Cunningham. The policy provided a monthly benefit of $ 3,500.00, if the plaintiff became totally disabled and unable to engage in his regular occupation. When he obtained this policy, plaintiff listed his occupation as the president of a labor union.
In June of 1985, plaintiff incurred a loss compensable under the policy and filed for disability benefits. Cunningham claimed that he was totally disabled and could not perform the duties of his regular occupation because of chest, back and leg pains and a heart disorder that made him unable to cope with stress. At the time, he was employed as a real estate developer and construction consultant. Defendant made payments on the disability policy from 1985 until August, 1992.
On December 11, 1992, Cunningham filed the state court complaint underlying this suit. The lawsuit alleges breaches of the implied covenant of good faith and fair dealing and of Cunningham's insurance contract with Connecticut Mutual. On January 19, 1993, defendant Connecticut Mutual removed this action to federal court based on diversity of citizenship. The defendant later filed a counterclaim for fraud, breach of the implied covenant of good faith and fair dealing, rescission and declaratory relief.
The Friedman State Court Litigation
Over a year before this action was filed and in connection with a dispute unrelated to Connecticut Mutual, Cunningham, his wife and his daughter filed suit in state court against Russell Friedman, Joseph Lorintz, and the law firm of Lorintz and Friedman. (Complaint, attached as Ex. F to Def.'s Notice of Lodgment, filed Jan. 14, 1994 [hereinafter Def.'s Notice].) This action is entitled Daniel Cunningham, et al. v. Russell Friedman, et al., San Diego Superior Court Case Number EC003610 ("Friedman").
The Cunninghams are represented in the Friedman suit by attorney Gerald Solomon. The Cunninghams allege that in 1987 they sought legal advice from attorneys Friedman and Lorintz about owning and operating certain restaurants. According to the plaintiffs, Friedman and Lorintz advised the Cunninghams that any corporations or entities developed to own or operate these restaurants should be owned by Friedman and Lorintz. The Cunninghams further allege that Friedman and Lorintz were to take title in name alone, but the Cunninghams were the true owners. They also claim that Friedman and Lorintz used the Cunninghams to gain ownership and control of these businesses. The Cunninghams filed suit for fraud, deceit, malpractice, breach of oral contract, breach of the implied covenant of good faith and fair dealing, duress, conspiracy, conversion, intentional infliction of emotional distress, an accounting and for the imposition of a constructive trust. The Friedman case is still pending.
The October 4, 1991, Letter to Cunningham's Counsel
In this federal action, on April 1, 1993, defendant Connecticut Mutual served plaintiff Cunningham with a request to produce all documents relating to plaintiff's disability claim, whether or not in plaintiff's possession. The plaintiff served his written response to the request on April 30, 1993, and agreed to produce nonprivileged responsive documents. Attached to Cunningham's response was a list of twenty (20) documents withheld from production. (Log of Docs. Withheld, accompanying Pl.'s Doc. Resp., attached as Ex. C to Def.'s Notice of Lodgment, filed Jan. 21, 1994 [hereinafter Def.'s First Supplemental Notice].) The log contains a brief description of each document and the bases for not disclosing each listed item.
On July 27, 1993, pursuant to rule 45 of the Federal Rules of Civil Procedure, Connecticut Mutual served a subpoena duces tecum on Gerald Solomon, plaintiff's attorney in the Friedman case. The subpoena requested nonprivileged documents related to this federal action.
Initially, Solomon claimed that he did not have any nonprivileged documents other than pleadings. (Solomon Dep., at 4, attached as Ex. A to Def.'s Notice, supra.) However, months later, on October 28, 1993, Solomon produced four boxes of documents. No claims of privilege were made by Solomon or Cunningham, and no documents were withheld. A four-page, handwritten letter dated October 4, 1991, from plaintiff Cunningham to Solomon ("Gerry"), was included among these documents. (Letter from Cunningham to Solomon of 10/4/91, attached as Ex. E to Def.'s Notice, supra.) Connecticut Mutual copied the letter and retained its copy.
The October 4, 1991, letter relates to Cunningham's suit against Friedman. In the letter, plaintiff discusses his participation in numerous restaurants in which he, his wife and his daughter had invested. Among other things, Cunningham stated that he "supervise[d] the entire buildout & construction of the [Scalini] restaurant" and that he "was on premises until completion." ((Id. at 1.) Cunningham also wrote that he, his wife and his daughter ran the Portofino restaurant "full time on a day to day basis. We were there 7 days a week & did complete management, hiring, menu planning, (doing every job needed to be done)." (Id.) Plaintiff stated that he and his daughter "did the complete day to day business affairs" at the Spice Rack restaurant and that he and his daughter "did the complete renovation & operation day to day" at the Pastels restaurant. (Id. at 2.)
Plaintiff Cunningham was deposed in connection with this lawsuit. During his deposition, he denied participating in the actual construction of the Scalini restaurant. (Pl.'s Dep., at 699-700, attached as Ex. B to Def.'s Notice, supra.) He also denied working full time on a day-to-day basis, seven days a week, at the Portofino restaurant and managing it. (Id. at 700-01.) In addition, plaintiff denied running the day-to-day business of the Spice Rack restaurant. (Id. at 703.) Finally, he denied performing the complete renovation of and operating the Pastel restaurant on a day-to-day basis. (Id. at 703-05.)
On January 14, 1994, Cunningham filed his motion for a protective order seeking the return of the attorney-client communication. Plaintiff argues that the letter should be returned and that defendant Connecticut Mutual should not be able to use evidence obtained as a result of the disclosure of the letter. Cunningham asserts that Solomon's disclosure was inadvertent and does not waive the attorney-client privilege.
On January 14, 1994, Connecticut Mutual filed its motion to compel the production of attorney-client communications between Cunningham and his attorney in the Friedman case, Gerald Solomon. Defendant argues that it is entitled to the October 4, 1991, letter and other attorney-client communications, because the privilege has been waived or does not apply because of the crime-fraud exception to the privilege. Additionally, defendant seeks sanctions for the costs of filing its motion and opposing plaintiff's motion.
CUNNINGHAM'S MOTION FOR A PROTECTIVE ORDER
Upon a showing of good cause, rule 26(c) of the Federal Rules of Civil Procedure authorizes the court to issue "any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense." Fed. R. Civ. P. 26(c). In certain circumstances, a protective order is the appropriate remedy to cure the unauthorized disclosure of privileged communications. See KL Group v. Case, Kay & Lynch, 829 F.2d 909, 919 (9th Cir. 1987).
In this case, Cunningham seeks a protective order to obtain the return of his October 14, 1991, letter to attorney Solomon, to prevent Connecticut Mutual from using information gained from the letter and to seal unspecified deposition testimony relating to the contents of the letter. Connecticut Mutual opposes this motion on three grounds: One, Cunningham waived the privilege because he improperly asserted the claimed privilege. Two, Solomon's production of the letter waived Cunningham's attorney-client privilege. Three, the letter is not privileged because it comes within the crime-fraud exception to the attorney-client privilege.
A. The Failure to Identify the October 4, 1991, Letter
Defendant Connecticut Mutual claims that Cunningham improperly asserted a claim of privilege because he failed to identify the October 4, 1991, letter on his privilege log. Defendant argues that the failure waives the attorney-client privilege.
On April 30, 1993, plaintiff responded to the defendant's rule 34 request for documents. Cunningham did not identify this four-page handwritten letter, for which a claim of privilege is now made, although he did produce a privilege log identifying twenty (20) other documents. A failure to properly assert a privilege, as a matter of federal procedure, can result in a waiver of the privilege. See Eureka Fin. Corp. v. Hartford Accident & Indem. Co., 136 F.R.D. 179, 183-84 (E.D. Cal. 1991). This is true although a waiver might not result under state law.
Rule 35(b)(2), of the Federal Rules of Civil Procedure, operates in an analogous manner. The rule provides that a party requesting and obtaining a report of examination or examiner's deposition testimony waives his or her physician-patient and similar privileges. State law is superseded by federal procedure. See 10 James W. Moore et al., Moore's Federal Practice § 501.05, at V-27 (2d ed. 1993). The same can occur here.
In Eureka, the court found that the improper assertion of a privilege resulted in a waiver. It reached this conclusion by applying the factors considered in inadvertent disclosure cases. 136 F.R.D. at 184-85. This approach will be followed here.
Failure to specifically identify documents on a privilege log does not automatically waive the privilege for omitted documents. Courts distinguish between a "slothful" and "arguable" failure to properly assert a privilege. Id. at 183-84. The following factors, taken from Hartford Fire Insurance Co. v. Garvey, 109 F.R.D. 323, 332 (N.D. Cal. 1985), are applied to determine whether the failure to specifically identify a document or a claim of privilege was excusable inadvertence: (1) the precautions taken to properly assert the privilege, (2) the time taken to rectify the error, (3) the scope of discovery, (4) the ...