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James Luard Wallis, et al v. Centennial Ins. Co.

January 31, 2013

JAMES LUARD WALLIS, ET AL., PLAINTIFFS,
v.
CENTENNIAL INS. CO., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Allison Claire United States Magistrate Judge

ORDER

On January 30, 2013, the court held a hearing on defendants Atlantic Mutual Insurance, Co., Inc. and Centennial Insurance Co., Inc's ("defendants") December 20, 2012 motion to quash and motion for protective order. Joanna Mendoza appeared for plaintiffs. Gary Selvin appeared for defendants. On review of defendants' motions, the documents filed in support and opposition, the arguments of counsel, and good cause appearing therefor, THE COURT FINDS AND ORDERS AS FOLLOWS:

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

A. Introduction

Defendant Centennial Insurance Company issued a general liability insurance policy to plaintiff Dr. Dale M. Wallis effective from January to December 1989. Beginning in 1993, Dr. Wallis was involved in litigation over intellectual property rights to a bovine vaccine she had developed while working for Poultry Health Laboratories ("PHL"). Several lawsuits followed, one of which involved Dr. Wallis and PHL in a dispute over rights to sell or market the vaccine. Part of that lawsuit involved a cross-claim by PHL against Dr. Wallis ("the PHL cross-action"). Dr. Wallis tendered the cross-action to defendants for defense and indemnity. Centennial accepted the tender of the claim subject to a full reservation of rights to deny coverage should additional facts so warrant. This reservation of rights triggered Dr. Wallis's right to Cumis*fn1 counsel that Centennial was required to pay. Joanna Mendoza, who is also appearing as plaintiffs' counsel in this action, was chosen by plaintiffs as their Cumis counsel in the PHL cross-action. The defense of the PHL cross-action proceeded for years until a dispute developed over the payment of Ms. Mendoza's bills.

In response to the defendants' allegedly improper refusal to pay attorneys' fees related to the PHL cross-action, plaintiffs filed suit in this court on October 27, 2008 against Centennial Insurance Company and Atlantic Mutual Insurance Company for declaratory relief, breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and injunctive relief. Defendants filed a counter-claim against plaintiffs seeking declaratory relief. ECF No. 9.*fn2 Defendants also moved to arbitrate the fee claim as required under Cal. Civ. Code § 2860*fn3 . Ultimately, the parties entered into a settlement to dismiss all of their claims against each other but for those claims relating to the defendants' payment of attorneys' fees incurred by Cumis counsel in defending against the PHL cross-action. ECF No. 57.

On September 14, 2010, defendant insurance companies were deemed insolvent by a New York state court. Selvin Decl., Ex. A. For each entity, an Order of Rehabilitation issued directing the New York Superintendent of Insurance to "take possession and/or control" of defendants' property and enjoining and restraining "[t]he officers, directors, shareholders, members, depositories, trustees, policyholders, agents, servants, employees, attorneys, managers and affiliates" of the entities from transacting business or otherwise interfering with the Rehabilitator, the New York Superintendent of Insurance, in the "possession, control and management" of the entities' property. According to each Order of Rehabilitation, the property of each entity was to be "maintain[ed]" and "preserve[d]." Id.

On April 27, 2011, the New York state court issued an Order of Liquidation for both defendant insurance companies. Selvin Decl., Ex. B. The Order of Liquidation directed the New York Superintendent of Insurance (also known as "the Liquidator") to convert the rehabilitation proceeding of the companies to a liquidation proceeding. Id. After finding that "[f]urther efforts to rehabilitate . . . would be futile," the court authorized the Liquidator "to sell, assign, or transfer any and all stocks, bonds or securities, and any real or other property of [American Mutual Insurance Company] at market price or better, or if there is no market price, at the best price obtainable at a private sale at such times and upon such terms and conditions as, in his discretion, he deems is in the best interest of the creditors of [American Mutual Insurance Company], and he is further authorized to take such steps and to make and execute such agreements and other papers as may be necessary to effect and carry out such sales, transfers and assignments." See Selvin Decl., Ex. B at 4 ¶10.

B. Discovery Background

On July 2, 2009, the Honorable William B. Shubb issued a scheduling order setting February 8, 2010 as the discovery deadline and scheduling a jury trial for July 27, 2010.

See ECF No. 53. By order dated May 1, 2012, Judge Shubb continued the discovery cut-off date to September 28, 2012 and continued the trial date to February 20, 2013. ECF No. 141. On October 31, 2012, Judge Shubb again continued the discovery deadline to November 27, 2012. ECF No. 167. Finally, by order dated December 12, 2012, the undersigned continued the discovery deadline one last time to March 15, 2013 based on the agreement of the parties, and limited the scope of discovery to all outstanding discovery and discovery initiated prior to the November 27, 2012 deadline. ECF No. 182.

The outstanding discovery includes the depositions of plaintiffs and plaintiffs' co-counsel and plaintiffs' November 13, 2012 subpoenas duces tecum served on the law firm of Selvin, Wraith, Halman LLP ("the Selvin firm"), the law firm currently representing defendants, and the law firm of Longyear O'Dea & Lavra ("the Longyear firm"), the insurers' coverage counsel before being replaced by the Selvin firm. Selvin Delc., Exs. C-D. Plaintiffs have also issued a deposition subpoena on Gary Selvin, defense counsel here and counsel for the insurers in the PHL cross-action.*fn4 The outstanding discovery disputes involve the defendants' alleged failure to comply with Rule 26's initial disclosure requirements, the requested entry of a protective order, and defendants' responses to plaintiffs' requests for admissions. The previously-initiated discovery includes plaintiff's July 25, 2012 requests for admissions, and defendants' August 9, 2012 interrogatories, requests for admissions, and requests for production of documents.

C. The Subpoenas Duces Tecum

On November 13, 2012 plaintiffs served on the Selvin law firm and the Longyear law firm subpoenas duces tecum, at the top of which plaintiffs included the following language:

PLAINTIFFS' POSITION RE: ATTORNEY-CLIENT PRIVILEGE The DEFENDANTS no longer exist as corporate entities.

They have been dissolved and, by acknowledgment of counsel for defendants, they are not going concerns [sic] and have no employees. The State of New York has placed whatever remains of the assets of the DEFENDANTS into the hands of an outside Liquidator pursuant to an order of liquidation by the New York Supreme Court. This situation is identical to the handling of bank assets by the FDIC after a bank has been shut down and its assets are merely being liquidated by the government insurer or the banks. In this regard, the attorney-client privilege does not survive and cannot be asserted in order to prohibit disclosure of otherwise responsive documents to the categories of information being requested.

Therefore, there is no basis to assert the attorney-client privilege because the complete dissolution of the entities and current process of liquidating their assets by the Liquidator in New York means that the privilege no longer exists and cannot be asserted. FDIC v. Amundson (D. Minn. 1988) 682 F. Supp. 981, 987 (where FDIC merely acted as a receiver and liquidator of bank's assets, FDIC could not assert former attorney-client relationship with bank's attorney for purposes of disqualification); FDIC v. McAfee (D. Kan. 1988) 124 F.R.D. 662, 664 ("[T]he transfer of assets to the FDIC in its corporate capacity does not transfer the attorney-client privilege.").

See Selvin Decl., Exs. C-D. Plaintiffs also served a deposition subpoena on defense counsel, Gary Selvin. Id. Ex. C.

On December 20, 2012, defendants filed a motion to quash these subpoenas and a motion for protective order. Defendants argue that (1) plaintiffs did not tender the requisite fees required under Rule 45(b)(1) upon service of the Selvin deposition subpoena; (2) it is improper to depose counsel for a represented party; and (3) the subpoenas duces tecum served on the Selvin law firm and the Longyear ...


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