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Omni Home Financing, Inc. v. Hartford Life and Annuity Insurance Co.

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA


January 7, 2008

OMNI HOME FINANCING, INC., ET AL., PLAINTIFFS,
v.
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY, ET AL., DEFENDANTS.

The opinion of the court was delivered by: Jan M. Adler U.S. Magistrate Judge

MOTION FOR AN ORDER COMPELLING ORDER DENYING DEFENDANTS' THE DEPOSITIONS OF ATTORNEYS KENNETH BONUS AND ROBERT BUTTERFIELD [Doc. No. 121]

Defendants Hartford Life and Annuity Insurance Company ("Hartford") and Paul Bannock ("Bannock") (hereinafter collectively "Defendants") have filed a letter brief in support of their motion for an order compelling the depositions of attorneys Kenneth Bonus and Robert Butterfield. Plaintiffs Omni Home Financing, Inc. ("Omni"), Omni Home Financing, Inc. 412(i) Defined Benefit Plan ("Plan"), Keith Murphy ("Murphy"), Anthony A. Gaglione and David A. Bancroft (hereinafter collectively "Plaintiffs") oppose. For the reasons set forth below, the Court DENIES Defendants' motion.

BACKGROUND

On November 7, 2007, counsel for Defendants, Jessica Taylor, Esq., deposed Plaintiff Murphy as an individual and as the corporate representative for Omni. Defs.' Letter Br. at 1. During his deposition, Mr. Murphy testified about legal advice obtained by Plaintiffs from Kenneth Bonus ("Bonus"), an attorney, in connection with the subject Plan. Id. at 1-2; Murphy Dep., attached as Ex. 1 to Taylor Decl. ("Murphy Dep."), 65:6-66:24. Mr. Murphy testified that Mr. Bonus had advised Plaintiffs to terminate the Plan and had helped Plaintiffs with the termination process. Murphy Dep., 65:16-66:24. Mr. Murphy also testified that attorney Robert Butterfield ("Butterfield") had provided advice to Plaintiffs regarding an audit conducted by the Internal Revenue Service ("IRS"), without discussing the nature of any such advice. Id., 191:6-15.*fn1 Mr. Murphy further testified that Mr. Bonus and/or Mr. Butterfield had not discussed the possibility of Plaintiffs working with Defendant Hartford to convert the whole life policies at issue in this case to different types of policies, instead of allowing the whole life policies to lapse. Id., 202:14-24.

On or about November 9, 2007, Defendants issued deposition notices and subpoenas for the depositions of Bonus and Butterfield, which were scheduled to be held on November 27, 2007. Taylor Decl., Ex. 4. After various communications between Plaintiffs' and Defendants' counsel, the depositions were rescheduled for November 28 and 29, 2007. Defs.' Letter Br. at 5; Taylor Decl., Exs. 5-9. On November 27, 2007, counsel for Mr. Butterfield, Daniel Levinson, Esq., sent a letter to Defendants' counsel advising that Mr. Butterfield would not appear for his deposition absent a court order. Taylor Decl., Ex. 10. Robert Plumb, Esq., counsel for Mr. Bonus, orally indicated the same. Taylor Decl., ¶ 19.

Plaintiffs currently object to the taking of the depositions of Bonus and Butterfield on relevance and attorney-client privilege grounds. With regard to relevance, Defendants contend that the legal advice obtained by Plaintiffs from Bonus and Butterfield in connection with the subject Plan is relevant to Plaintiffs' damages claims, and is thus discoverable. Specifically, Defendants argue that they are entitled to know (1) if Plaintiffs considered mitigating their damages by, for example, "converting to other policies to preserve the cash value of their policies rather than letting them lapse and losing all of their contributions", (2) whether Plaintiffs are seeking to minimize the amount of money they will owe the IRS, and (3) whether Plaintiffs have made any argument to the IRS about the legitimacy of the Plan that is inconsistent with the claims of alleged defects in the Plan made in this lawsuit. Defs.' Br. at 2. Defendants further argue, with regard to Plaintiffs' assertion of the attorney-client privilege, that Plaintiffs have waived the privilege in various ways. Id. at 2-6.

LEGAL STANDARDS

A. Relevance

Rule 26 of the Federal Rules of Civil Procedure permits discovery regarding "any non-privileged matter that is relevant to any party's claim or defense." Fed. R. Civ. P. 26(b)(1). Relevant information need not be admissible at trial so long as the discovery appears reasonably calculated to lead to the discovery of admissible evidence. Id. All discovery is subject to the limitations imposed by Rule 26(b)(2)(C), which provides in relevant part:

On motion or on its own, the court must limit the frequency or extent of discovery otherwise allowed by these rules or by local rule if it determines that:

(i) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive;

(ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or

(iii) the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.

Fed. R. Civ. P. 26(b)(2)(C). It is within the authority of the court to define the actual scope of discovery to the reasonable needs of the action. Fed. R. Civ. P. 26 Advisory Committee Notes, 2000 Amendment.

B. Attorney-Client Privilege

The elements of the attorney-client privilege provide that (1) when legal advice of any kind is sought (2) from a professional legal advisor in his or her capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are, at the client's instance, permanently protected (7) from disclosure by the client or by the legal advisor (8) unless the protection be waived. United States v. Martin, 278 F.3d 988, 999 (9th Cir. 2002). Because the attorney-client privilege "impedes full and free discovery of the truth," the privilege is strictly construed. Id.

DISCUSSION

A. Relevance

In response to Defendants' assertion that the testimony of Bonus and Butterfield is relevant to the issue of whether Plaintiffs have mitigated their damages, Plaintiffs state:

[A]dvice of counsel regarding whether to convert is wholly irrelevant to determining mitigation of damages. If conversion of the policies would have mitigated damages, Defendants can establish that there was an option to convert and Plaintiffs did not convert. Whether counsel looked into any such alleged option and whether counsel advised on an alleged conversion option is irrelevant to whether Plaintiffs mitigated damages. To further clarify, even if counsel investigated this option and advised Plaintiffs of the option and Plaintiffs did not exercise the conversion option, it would not defeat a claim of mitigation if Defendant can establish that such a legal option was available and would have mitigated damages. The advice of counsel has no bearing on whether such an option would mitigate damages.

Pls.' Br. at 4-5. The Court agrees. Irrespective of any legal advice Bonus or Butterfield may have rendered to Plaintiffs, the fact remains that Plaintiffs did not convert their policies. Instead, they terminated them. If Defendants want to argue that Plaintiffs failed to mitigate their damages by not converting the policies, they can do so. The testimony of Bonus and Butterfield is neither relevant to nor necessary on this point.

Moreover, any testimony that Bonus or Butterfield would provide on the topics of termination or conversion of the policies would be cumulative of testimony already given by Plaintiff Murphy directly on these points. See Fed. R. Civ. P. 26(b)(2)(C)(i). In particular, Murphy has already testified that Plaintiffs terminated the Plan and stopped paying the premiums on the policies based on the advice of counsel. Murphy Dep., 65:8-66:2. Murphy also testified that counsel did not advise Plaintiffs of any conversion option. Id., 202:17-203:3. Any advice that Bonus or Butterfield may have rendered, or did not render, on the topics of termination or conversion has no bearing on Defendants' ability to argue that Plaintiffs did not mitigate their damages.

Additionally, the Court finds that allowing the depositions would impose an undue burden on Bonus and Butterfield in contravention of Rule 45(c)(1), which aims to protect persons subject to subpoenas. See Fed. R. Civ. P. 45(c)(1) ("A party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena."); see also Fed. R. Civ. P. 26(b)(2)(C)(iii) (requiring the court to limit discovery if "the burden or expense of the proposed discovery outweighs its likely benefit"). For these reasons, the Court will not permit the depositions of Bonus and Butterfield to go forward with respect to the topic of mitigation of damages.

Defendants also seek to depose Bonus and Butterfield to determine whether Plaintiffs are trying to minimize the amount of money they will owe the IRS, and whether Plaintiffs have made any arguments to the IRS about the legitimacy of the Plan which are inconsistent with the positions taken by Plaintiffs in this case.

Plaintiffs, however, represent that they have already produced all documents reflecting communications with the IRS to Defendants, and have submitted a declaration by Butterfield in which he attests that there have been no substantive oral communications with the IRS with regard to the audit of the Plan. Pls.' Br. at 2 fn. 2; Butterfield Decl., ¶ 2. Therefore, Defendants are already in possession of the information needed to address these two issues, and the depositions of Bonus and Butterfield are not needed on these points.*fn2

Accordingly, the Court finds the depositions should not go forward.

B. Waiver of Attorney-Client Privilege

Although the Court need not reach the issue of whether there was a waiver of the attorney-client privilege in view of its findings as to relevance, the Court has considered whether there was a waiver and shall now briefly address this issue. First, the Court does find that there was an express waiver of the attorney-client privilege with respect to the matters that Mr. Murphy disclosed during his deposition. Specifically, Murphy provided testimony on the following privileged attorney communications: (1) that Mr. Bonus advised Plaintiffs to terminate the subject Plan and that Plaintiffs followed this advice (Murphy Dep., 65:6-66:2) and (2) that counsel advised Plaintiffs to let the whole life policies lapse and did not discuss a conversion option with Plaintiffs (id., 202:8-24). The attorney-client privilege was waived as to these matters because the privileged communications were voluntarily disclosed and Plaintiffs' counsel did not take steps to prevent disclosure of the information by, for example, instructing Mr. Murphy not to answer. See Weil v. Investment/Indicators, Research and Management, Inc., 647 F.2d 18, 23-25 (9th Cir. 1981); Perrignon v. Bergen Brunswig Corp., 77 F.R.D. 455, 460 (N.D. Cal. 1978). The waiver of the attorney-client privilege resulting from these disclosures is limited, however, to only those matters to which Murphy provided testimony. See Weil, 647 F.2d at 25 (finding a waiver of privilege only as to communications about matters actually disclosed).

Notwithstanding the waiver, Defendants are not entitled to take the depositions of Messrs. Bonus and Butterfield for the reasons discussed in Section III. A. As set forth therein, the Court has found that deposition testimony by Bonus or Butterfield is neither relevant nor necessary with respect to each of the issues raised by Defendants in this motion.

Defendants' other arguments on the waiver issue are without merit. Defendants have provided no authority to support the proposition that an express waiver of the privilege occurred by way of Plaintiffs' untimely responses to Defendants' written discovery such that Plaintiffs would be altogether barred from invoking the attorney-client privilege at future depositions. There was also no implied waiver by Plaintiffs by simply putting their damages at issue in this case, as Defendants have not satisfied the three-pronged test required to establish such a waiver. See United States v. Amlani, 169 F.3d 1189, 1195 (9th Cir. 1999) (in particular, Defendants have not satisfied the third prong, which requires the court to evaluate whether "allowing the privilege would deny the opposing party access to information vital to its defense"). Finally, Plaintiffs' counsel's acquiescence to the scheduling of the depositions did not result in a waiver of the attorney-client privilege. Although Plaintiffs were apparently initially willing to allow the depositions to go forward, there is absolutely nothing in the record before the Court which reflects any intention on Plaintiffs' part to waive the attorney-client privilege as to any testimony to be provided by Bonus or Butterfield. Rather, it appears that Plaintiffs planned to allow the depositions to take place and intended to assert the attorney-client privilege during the course of the depositions. This is a course which Plaintiffs were entitled to take.

CONCLUSION

For the reasons set forth above, the Court hereby DENIES Defendants' motion for an order compelling the depositions of attorneys Kenneth Bonus and Robert Butterfield.

IT IS SO ORDERED.


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