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United States Fire Insurance Co. v. Sheppard

March 12, 2009; as modified March 26, 2009


(San Francisco City & County Super. Ct. No. 07-466772). Trial Judge: Hon. Patrick J. Mahoney.

The opinion of the court was delivered by: Ruvolo, P.J.



Respondent United States Fire Insurance Company (U.S. Fire) sued to enjoin appellant Sheppard, Mullin, Richter & Hampton, LLP (Sheppard Mullin) from representing an informal committee of asbestos creditors, together with that committee's law firms, in a pending action to which U.S. Fire is a party, entitled Plant Insulation Company v. Fireman's Fund Insurance Company (Super. Ct. S.F. City and County, 2006, No. CGC-06-448618) (Plant Litigation). U.S. Fire claims that Sheppard Mullin has a disqualifying conflict of interest arising out of Sheppard Mullin's former representation of U.S. Fire in the matter of Kelly-Moore Paint Company, Inc. v. Liberty Mutual Insurance Co. et al. (Super. Ct. S.F. City and County, 2001, No. CGC-01-325147) (Kelly-Moore Litigation).

Sheppard Mullin filed a special motion to strike the complaint (a so-called anti-SLAPP motion) pursuant to Code of Civil Procedure section 425.16 (section 425.16), contending that its legal representation in the Plant Litigation is protected activity, and U.S. Fire cannot show a probability that it would succeed on the merits of its claim. The trial court concluded that this action interferes with Sheppard Mullin's right to petition, and thus, is protected activity under the anti-SLAPP law. However, the trial court went on to conclude that U.S. Fire satisfied its burden to show a probability of success as to the merits of its claim, and therefore denied the anti-SLAPP motion. We disagree with the trial court's conclusion that U.S. Fire's complaint arises out of protected activity, and so affirm the ruling denying the motion, but on other grounds.*fn1


A. The Complaint

U.S. Fire's complaint in this case alleges that it is an insurance company that was sued as a defendant in the Kelly-Moore Litigation in 2001. In that case, U.S. Fire's "putative insured," Kelly-Moore Paint Company, Inc. (Kelly-Moore), claimed that U.S. Fire had duties to defend and indemnify it against asbestos-related bodily injury actions brought against Kelly-Moore. Kelly-Moore, it is alleged, sought "to maximize the amount of insurance benefits U.S. Fire may be forced to pay for such asbestos actions to amounts in excess of what is owed by U.S. Fire under its insurance contracts. The interpretation of general liability insurance policy provisions under California law, and facts relating to the defense and settlement of underlying asbestos actions, are at the heart of the [Kelly-Moore Litigation]."

The complaint also alleges that Sheppard Mullin represented U.S. Fire in the Kelly-Moore Litigation for a period of approximately two and one-half years, during which U.S. Fire entrusted Sheppard Mullin with confidential information. This confidential information included "U.S. Fire's litigation strategies, its policies and positions concerning interpretation of insurance policy terms involved in asbestos related bodily injury claims and lawsuits, its settlement negotiation policies and strategies, and the identity of key U.S. Fire decision makers."

The complaint alleges further that, in 2006, U.S. Fire was sued as a defendant in the Plant Litigation. The Plant Litigation is a declaratory relief action by Plant Insulation Company (Plant) "concerning the existence and scope of benefits" allegedly owed by Plant's insurers, including U.S. Fire, for pending and future asbestos-related bodily injury lawsuits. "Like Kelly-Moore in the Kelly-Moore Litigation, Plant also seeks . . . to maximize the amount of insurance benefits U.S. Fire may be forced to pay for such asbestos actions. As in the Kelly-Moore Litigation, the interpretation of U.S. Fire policy provisions under California law and the conduct of underlying asbestos actions are at the heart of the Plant Litigation."

According to the complaint, Sheppard Mullin is representing, in the Plant Litigation, "the informal committee of asbestos creditors," and two law firms providing legal representation to the creditors in their asbestos lawsuits against Plant: Brayton Purcell, LLP and Kazan, McClain, Abrams, Fernandez, Lyons, Farrise & Greenwood PLC (Brayton/Kazan). This representation came to light when U.S. Fire learned that Sheppard Mullin had agreed to defend Brayton/Kazan against subpoenas served on the firms in the Plant Litigation seeking communications between counsel for the asbestos claimants/creditors and counsel for Plant. The communications sought were relevant to, among other issues, the extent of cooperation between claimants' and Plant's counsel in their efforts to " 'maximiz[e] the amount of insurance benefits that may potentially be owed by U.S. Fire and other insurers in the Plant Litigation." U.S. Fire's complaint in the present case alleges that, because of Sheppard Mullin's prior representation of U.S. Fire in the Kelly-Moore Litigation, Sheppard Mullin has a conflict of interest that disqualifies it from playing its current role in the Plant Litigation.

In the course of representing Brayton/Kazan, Sheppard Mullin is alleged to have characterized the relationship between the asbestos claimants/creditors and Plant as follows: " 'Plant and the community of claimants holding asbestos claims against Plant share a common interest with respect to this Action, i.e., a ruling from [the trial court] construing the policies as broadly as possible and finding that Plant has the maximum amount of insurance coverage available to it with respect to and for coverage of asbestos claims asserted against Plant.' "

Counsel for Plant allegedly took a similar position in its opposition to a motion to compel production of communications between Plant's lawyers and the claimants/creditors' lawyers: " 'Plant, as the insured, and the Claimants as the injured parties, share a legal interest in the determination of coverage. Plant wants as many cases covered as possible. The Claimants want as many of their cases covered as possible. The insurers want rulings in this case that will minimize the number of cases covered under their policies. Their interests here are adverse to those of Plant and the Claimants in [the Plant Litigation].' "

U.S. Fire's complaint in this case also alleges that, in both the Kelly-Moore Litigation and the Plant Litigation, the same type of insurance policy provisions are in issue, and the same type of legal arguments will be advanced by both sides. Therefore, it concludes, Sheppard Mullin possesses confidential information by virtue of its representation of U.S. Fire in the Kelly-Moore Litigation " 'in the evaluation, prosecution, and/or settlement of claims concerning the Plant Litigation.' " As a result of these events, U.S. Fire alleges, a conflict of interest exists giving rise to breaches of the duties of confidentiality and loyalty owed by Sheppard Mullin to U.S. Fire. The prayer seeks an order preliminarily and permanently enjoining Sheppard Mullin from representing " 'the committee of asbestos creditors, their counsel, or any related persons or entities in connection with the ...

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