United States District Court, S.D. California
ORDER ON REMAND RE: PLAINTIFF'S MOTION TO COMPEL
MITCHELL D. DEMBIN, Magistrate Judge.
This matter comes to the Court on remand from the District Court's March 21, 2014, Order. (ECF No. 79.) The District Court remanded with instructions that this Court "make particularized, written findings of fact and conclusions of law as to the application of the attorney-client privilege" and to make "where appropriate, determinations of whether any of the communications made during a period when an attorney-client relationship did not predominate are nonetheless privileged." ( Id. at 16.)
I. Procedural History
A. Plaintiff's Motion to Compel
On September 3, 2013, Plaintiff filed a Motion to Compel Better Discovery Responses from Defendants. (ECF No. 32.) A hearing was held on Plaintiff's Motion on September 27, 2013. (ECF No. 49.) After some initial discussions between the parties, a dispute remained regarding over 650 pages of documents. Those documents were submitted to the Court for in camera review. The parties filed supplemental briefs regarding these documents on October 28, 2013. (ECF Nos. 42, 43.) On November 1, 2013, this Court issued an Order holding that Defendants, who had failed to provide the Court with any declarations supporting their position that the documents were privileged, had failed to establish a prima facie case of privilege as to documents created before the start of the instant lawsuit. (ECF No. 44.) Defendants State National and Arnold and Arnold ("A&A") timely filed objections to the Court's Order with the District Court on November 15, 2013. (ECF No. 50.)
B. The District Court's Order re: Defendants' Objections
The District Court issued its Order re: Defendants' Objections on March 21, 2014. (ECF No. 79.) In the Order, the District Court made several findings. First, the District Court examined Defendants' contention that the documents at issue were privileged based on an attorney-client relationship between State National, A&A, Optimum Claims Services ("Optimum"), and Gordon & Rees LLP ("G&R"). The District Court noted that Defendants had failed to provide declarations regarding the nature of scope of that relationship, and that therefore this Court could have found that no privilege existed without conducting an in camera review. ( Id. at 8.) The District Court further noted, however, that because this Court did in fact conduct such a review, it was required to perform a thorough review supported with detailed factual findings. ( Id. ) The District Court remanded for that purpose.
The District Court also examined Defendants' contention that documents shared with A&A should be considered confidential communications. ( Id. at 13.) The District Court suggested that, separate from other privilege concerns, Defendants had failed to establish that it was reasonably necessary to share documents with A&A in order to further State National and Optimum's interests in litigation, and therefore those documents may have lost their confidential nature. ( Id. ) The District Court also remanded for this Court to determine if documents shared with A&A should be considered confidential. ( Id. )
A. Documents Shared with A&A Are Not Confidential Because Disclosure to A&A Was Not "Reasonably Necessary" to Further Defendants' Interests in Litigation.
The majority of documents at issue are documents that were shared with A&A. There is an outstanding question as to whether documents shared with A&A retain their confidential nature. ( Id. ) If these documents are not confidential, then regardless of other privilege issues, they are not protected under the attorney-client privilege and are subject to disclosure. Cal. Evid. Code § 952; U.S. v. Richey, 632 F.3d 559, 566 (9th Cir. 2011). Thus, the confidentiality of documents shared with A&A is a threshold issue that the Court addresses first. The Court will then address the remaining documents.
In their original briefing, Defendants asserted that documents shared with A&A were confidential and protected pursuant to Cal. Evid. Code § 952, even though there was no direct attorney-client relationship between A&A and G&R, because sharing those documents was reasonably necessary to further the litigation interests of Optimum and State National. (ECF No. 35.)
The District Court addressed the issue in its March 21, 2014, Order. (ECF No. 79.) First, the District Court noted that the documents were not protected based on a relationship between A&A and State National. ( Id. at 14.) Defendants cited Insurance Co. of North America v. Superior Court ("INA"), 108 Cal.App.3d 758, 767 (1980) and Zurich Am. Ins. v. Superior Court, 155 Cal.App.4th 1485, 1504 (2007) for the proposition that disclosure of otherwise confidential information to a reasonably necessary party to further the purpose of the attorney's legal consultation does not destroy confidentiality. The District Court found the comparison inapt, noting, "To the extent the objectors ask the Court to find that communications with A&A are privileged based on the relationship between A&A and State National, they misread INA. " (ECF No. 79 at 14.) The District Court noted that in INA, the entity that confidential information was shared with had a unity of interest and identity with the client entity, whereas here, A&A explicitly held itself out as an "independent" adjuster assigned to investigate the Plaintiff's claim. ( Id. at 14-15.)
Second, the District Court suggested that A&A would not fall under the exception articulated in Gen-Probe, Inc. v. Becton, Dickinson and Co., 2012 U.S. Dist. LEXIS 49028, *10 (S.D. Cal. April 6, 2012). In Gen-Probe, the court recognized that sharing documents with an "independent contractor" may not destroy the confidential nature of those documents if the contractor is "the functional equivalent of a[n] employee [of the client], working in tandem with [the client's employees]." Id. at 11. In Gen-Probe, the client proved that the contractor at issue was the equivalent of an employee through declarations and exhibits showing that the contractor worked with employees on the project at issue, the nature of the contractor's work was identical to the type of work performed by actual employees, and the contractor was vested with similar levels of direction and supervision as actual employees. Id. at 10-11. The District Court found that Defendants had failed to show that A&A fell under this narrow exception, stating "State National established only that A&A adjusted claims and corresponded with G&R. State National even emphasized that it does not do claims adjustment. (Objs. 7.) Hence, A&A's work was not functionally equivalent to State ...