The opinion of the court was delivered by: ORRICK
In this complex ERISA action, defendant and counterclaimant First California Mortgage Co. ("FCMC") moves to compel the production of certain documents and for sanctions against plaintiff and counterdefendant McMorgan & Company ("McMorgan"). McMorgan brings a countermotion for a protective order barring discovery of the disputed documents. For the reasons hereinafter set forth, the Court grants FCMC's motion to compel, denies FCMC's motion for sanctions, and denies McMorgan's countermotion for a protective order.
This is a complex ERISA action involving a large number of parties. For the purposes of these motions, only the briefest outline of the facts is required. McMorgan brought the underlying ERISA action against FCMC on behalf of several pension trust funds (the "Trust Funds") for which McMorgan was the investment manager. FCMC performed real estate mortgage services for the Trust Funds in connection with multiple construction loans made to real estate developers. McMorgan alleges that FCMC exercised discretionary control over the Trust Funds and, therefore, was an ERISA fiduciary. It brings claims against FCMC under ERISA for eight construction loans that went into default. McMorgan alleges that FCMC's servicing of the various loans was performed negligently and fraudulently.
At some point, the United States Department of Labor ("DOL") began investigating the loan transactions involved in this action. At the DOL's request, McMorgan transmitted to the DOL various documents relating to the loan transaction. McMorgan's counsel engaged in a correspondence with the DOL that is apparently reflected in various letters and reports, copies of which remain in McMorgan's possession. As of yet, the DOL has not initiated any legal proceedings against either McMorgan or FCMC.
In the current dispute before the Court, FCMC moves the court for an order compelling McMorgan to produce all documents McMorgan transmitted to the DOL as well as all communications with the DOL relating to the loans at issue in this litigation and to McMorgan's construction loan program in general. In the alternative, FCMC seeks an order compelling McMorgan to produce immediately all such documents to which McMorgan asserts no privilege, and to produce a detailed privilege log for those documents McMorgan claims are privileged. FCMC also moves for sanctions against McMorgan for the attorneys' fees and costs involved in bringing this motion.
McMorgan brings a countermotion for a protective order to (1) deny discovery of documents and communications exchanged between McMorgan and the DOL; and (2) protect McMorgan from the burdens of producing a privilege log of any kind respecting any documents and communications between McMorgan and the DOL.
During the deposition of Daniel O'Donnell, McMorgan's Federal Rule of Civil Procedure 30(b)(6) designee, O'Donnell testified that the DOL was reviewing eight of the McMorgan construction loans that are, or were, involved in this litigation. (McLeod Decl., Ex. A, O'Donnell Dep. 51:3-10.) Since then, McMorgan has steadfastly refused to produce to FCMC any of the documents that it provided to the DOL on the grounds that (1) all of the nonprivileged documents have already been produced, and (2) the remainder are attorney work product and/or protected by attorney/client privilege. McMorgan has also refused to provide a privilege log of the allegedly privileged communications between McMorgan and the DOL.
FCMC then attempted to obtain the documents McMorgan transmitted to the DOL by filing a Freedom of Information Act ("FOZA") request with the DOL. The DOL responded that it was withholding all nonpublic documents at this time pursuant to 5 U.S.C. 552(b)(7)(A), which authorizes the withholding of records or information compiled for law enforcement purposes to the extent that production of such information could reasonably be expected to interfere with enforcement proceedings. (Ramirez Decl., Ex. A.)
After a telephone conference on February 2, 1996, Special Master Edward S. Washburn ordered McMorgan to provide, for in camera review, the documents to which McMorgan asserts a privilege. Special Master Washburn ordered McMorgan to produce to FCMC all other documents that McMorgan sent to the DOL. (McLeod Decl., Ex. B, Tr. 44:14-19.)
On February 23, 1996, counsel for FCMC reviewed two boxes of the nonprivileged documents that Special Master Washburn ordered McMorgan to produce. McMorgan did not allow FCMC's counsel to make copies of any of these documents, even though FCMC's counsel located some documents that McMorgan had not previously produced.
After reviewing the allegedly privileged documents, and after further briefing on the question of whether the DOL investigation prevents further inquiry by FCMC into the communications between McMorgan and the DOL, Special Master Washburn referred the matter to this Court for decision.
The key issue in these motions is whether producing otherwise privileged documents to a government investigatory agency at the agency's request constitutes a waiver of the privilege. In the Ninth Circuit, the party asserting a privilege bears the burden of proving that the privilege applies, and that the privilege has not been waived. Weil v. Investment/Indicators, Research & Management, Inc., 647 F.2d 18, 25 (9th Cir. 1981); Fed. R. Civ. P. 26(b)(5). Thus, McMorgan bears the burden of demonstrating that ...