The opinion of the court was delivered by: Zimmerman, United States Magistrate Judge.
ORDER DENYING DEFENDANT'S REQUEST FOR IN CAMERA REVIEW OF
Defendant Hartford Fire Insurance Company moves this Court to
conduct an in camera review of certain privileged communications
between plaintiff Inno Ekeh and his attorneys.
This case has its origins in a 1994 lawsuit filed against Ekeh
and the Urban Economic Development Corporation (UEDC), Ekeh's
former employer and Hartford's insured, by Kristine Knockum, a
former employee and subordinate of Ekeh's. After Knockum sued,
Ekeh was fired. He then filed a cross-complaint against Knockum
and UEDC, alleging in part that UEDC defamed and wrongfully
discharged him based on Knockum's false sexual harassment
accusations. UEDC tendered defense and indemnity of the
cross-complaint to Hartford, its insurer, but Hartford rejected
After substantial pre-trial discovery and preliminary
settlement discussions, the case was settled at a mandatory
settlement conference before the Honorable Donald S. Mitchell,
Judge of the San Francisco Superior Court. Under the relevant
terms of the settlement reached before Judge Mitchell, Ekeh first
dismissed all but his defamation claim. UEDC then agreed to a
$1.7 million stipulated judgment in favor of Ekeh that contained
a covenant not to execute the judgment against UEDC. UEDC also
agreed to assign Ekeh its rights against Hartford based on
Hartford's refusal to defend and indemnify UEDC.
Asserting that the settlement was fraudulent, Hartford now
invokes the crime-fraud exception to the attorney-client
privilege and seeks an in camera review of certain privileged
communications between Ekeh and his attorneys. In Hartford's
view, the stipulated damages based entirely on the defamation
claim — the only one of Ekeh's claims potentially covered by
Hartford's policy — are specious. Hartford contends that the
amount of the settlement was excessive and it is troubled by what
it claims was a lack of attention paid to the settlement by UEDC
and its attorneys. Hartford is also suspicious generally of the
settlement process used here: the exchange of a covenant not to
execute for an assignment of rights, Hartford argues, coupled
with a lack of any independent adjudication of liability,
indicates that a fraud may have occurred.
Assuming these contentions are accepted, I offer no view on
whether the settlement can be set aside for bad faith or
unreasonableness, an issue which is not before me. However, I
conclude that the settlement scenario alleged by Hartford could
not amount to fraud, and that Hartford has failed to establish
the factual basis that is a prerequisite, under the doctrine of
United States v. Zolin, 491 U.S. 554, 109 S.Ct. 2619, 105
L.Ed.2d 469 (1989), to an in camera review of attorney-client
The crime-fraud exception to the attorney client privilege
requires, implicitly, conduct that if proven could amount to
fraud. In California, an actionable fraud may involve (1) the
suggestion, as a fact, of that which is not true, by one who does
not believe it to be true, or (2) the assertion, as a fact, of
that which is not true, by one who does not believe it to be
true, or (3) the suppression of a fact, by one who is bound to
disclose it, or who gives information of other facts which are
likely to mislead for want of communication of that fact.
Cal.Civ.Code § 1709 (Deerings 1997). Here Hartford has been
unable to point to or even suggest any such factual misconduct by
Ekeh or by his attorney.
Even assuming that Hartford has alleged actions that could
constitute fraud, before I would review in camera the
communications between Ekeh and his counsel, I would have to be
satisfied that Hartford has established "a factual basis adequate
to support a good faith belief by reasonable person that in
camera review the materials may reveal evidence" that the crime
fraud exception applies. Zolin, 491 U.S. at 572, 109 S.Ct.
2619. This factual showing must be based on evidence which is not
part of the privileged communications I am asked to review. Id.
at 574, 109 S.Ct. 2619. I would also have to determine whether in
my discretion a review of the privileged documents was warranted.
Id. at 572, 109 S.Ct. 2619.
Hartford has failed to make the required factual showing.
Hartford's speculations and legal conclusions are
inadequate.*fn4 See United States v. Chen, 99 F.3d 1495,
1503-04 (9th Cir. 1996). In addition to the conclusions addressed
above, Hartford proffers that UEDC approved the settlement
without considering the amount. A review of the available
evidence suggests that Hartford's version of events is not
entirely accurate, and the reality not nearly as sinister as
Hartford implies. UEDC's attorney, Carl Williams, testified that
the UEDC Board of Directors approved the settlement's legal
structure, authorized Williams to complete the settlement, and
assigned the Board President to work with him. Williams Depo. at
97, 100. This arm's length approach to the final terms is hardly
unusual, and does not mean that the final settlement amount went
unconsidered. Williams testified that the method of calculating
Ekeh's damages was one he could foresee a jury using, id. at
16-17, and that the final amount satisfied his "concern" that the
number not be so large that it would appear UEDC had done
something "horrendous" to Ekeh, id. at 93-94. Hartford's
evidence shows, at most, that UEDC and Williams cared about the
final amount, but "not greatly." Williams Depo. at 18. In any
event, I conclude that I cannot read into UEDC's attitude any
hint of misrepresentation by Ekeh, the opposing party.
Hartford reads too much into Smith v. State Farm Mut. Auto.
Ins. Co., which disapproved stipulated judgments containing a
covenant not to execute as "transactions without substance" that
would encourage collusion between insureds and claimants.
5 Cal.App.4th 1104, 1114, 7 Cal.Rptr.2d 131 (1992). Hartford would
take the Smith rule, which finds this type of settlement almost
collusive per se, and graft it onto the law of privilege to
invoke the crime-fraud exception automatically.
Smith's impact has been seriously circumscribed by subsequent
state case law, which favors a case by case analysis of each
settlement and stipulated judgment to assess whether it is
sufficiently reliable to justify enforcement against the insurer.
National Steel Corp. v. Golden Eagle Ins. Co., 121 F.3d 496,
501 (9th Cir. 1997); McLaughlin v. ...