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MKB Constructors v. American Zurich Insurance Co.

United States District Court, W.D. Washington, Seattle

May 27, 2014

MKB CONSTRUCTORS, Plaintiff,
v.
AMERICAN ZURICH INSURANCE COMPANY, Defendant.

          Attorneys and Law Firms A. Richard Dykstra, Peter J. Mullenix, Friedman Rubin, Seattle, WA, for Plaintiff.

          Elaine Videa, Jonathan R. Gross, Rebecca B. Aherne, Bishop Barry Drath, Emeryville, CA, Jose Dino Vasquez, Karr Tuttle Campbell, Seattle, WA, for Defendant.

          ORDER ON PLAINTIFF'S MOTION TO COMPEL

          JAMES L. ROBART, DISTRICT JUDGE.

         I. INTRODUCTION

         This matter comes before the court on Plaintiff MKB Constructors's (“MKB”) motion to compel documents from Defendant American Zurich Insurance Company (“American Zurich”). (See Mot. (Dkt.# 42).) Having considered the submissions of the parties, the balance of the record, the relevant law, and being fully advised, the court GRANTS in part and DENIES in part MKB's motion. Within 10 days, American Zurich must produce to MKB a new privilege log that complies with the requirements set forth in this order. If any discovery disputes remain following American Zurich's compliance with this order, the court directs the parties to confer and proceed in a manner consistent with the court's local rules and this order.

         II. BACKGROUND

         A. Factual Background

         This case is about an insurance dispute. MKB is a Washington joint venture comprised of Derian, Inc. and R. Scott Constructors, Inc. (Am.Compl. (Dkt.# 35) ¶ 1.) American Zurich issued MKB a “Builders Risk” policy for the period June 15, 2012, to October 31, 2012. (Id. ¶ 8.) MKB contracted with the Lower Yukon School District (“LYSD”) for a project, which included “the procurement, delivery and placement of gravel fill” for a new building pad and driveway upon which a school building would be built. (Id. ¶ 6.)

         MKB alleges that, by August 2012, it realized that the fill volume set forth in the contract was significantly less than the amount required to bring the gravel foundation to finish grade. (Id. ¶ 15.) A subsequent survey confirmed that significant ground settlement caused the planned volume of fill to fail to reach finish grade. (Id.) On November 8, 2012, LYSD terminated MKB's contract over this issue. (Id. ¶ 18.)

         MKB notified American Zurich of the ground settlement problem. (Id. ¶ 16.) On December 28, 2013, MKB sent American Zurich documentation of its costs related to the ground settlement beneath the school building pad. (Id. ¶ 18.) On January 22, 2013, MKB supplemented its claim to American Zurich by providing a copy of LYSD's counterclaim for breach of contract. (Ans. to Am. Compl. (Dkt.# 39) ¶ 18.) On March 26, 2013, American Zurich sent MKB a letter denying coverage for any of MKB's claims. (Am. Compl. ¶ 20 .) American Zurich contends that MKB's loss is not covered because MKB used distorted drawings and miscalculated the amount of gravel required for the project. (Resp. (Dkt.# 47.) at 2, 4.)

         MKB initially sued American Zurich for breach of contract. (Compl. (Dkt # 1) ¶ 20.) MKB subsequently amended its complaint to bring additional claims for violation of Washington's Insurance Fair Conduct Act, RCW 48.30.015, breach of the duty of good faith and fair dealing, and violation of Washington's Consumer Protection Act, RCW 19.86. (See generally Am. Compl.)

         B. Procedural Background

         MKB brought this motion to compel the production of documents that American Zurich either withheld entirely or redacted in response to MKB's discovery requests. (See generally Mot.) In June 2013, MKB served American Zurich with an initial request for the production of documents. (Resp. at 6.) In August 2013, American Zurich served MKB responsive documents and a privilege log. (Id. at 6-7.)

         In October 2013, MKB re-served its earlier interrogatories and requests for production after it amended its complaint to add a claim for bad faith. (Mot. at 2.) At that time, MKB directed American Zurich to the Washington Supreme Court's recent decision in Cedell v. Farmers Insurance Company of Washington, 176 Wash.2d 686, 295 P.3d 239 (Wash.2013), asserting that American Zurich's redactions based on the attorney-client privilege and work product doctrine were no longer appropriate following Cedell. (Id.) American Zurich's initial response to MKB's renewed requests for production contained no additional documents and did not include a revised privilege log addressing Cedell. (Id. at 3.)

         On Friday, March 14, 2014, attorneys for the parties held a conference (as is required under the court's local rules) concerning American Zurich's initial response to MKB's demand for additional documents under Cedell. (Id.); see Local Rules W.D. Wash. LCR 37(a)(1). MKB filed this motion on March 27, 2014. (See Mot.) On or about April 3, 2014, just four days before its response to MKB's motion was due, American Zurich served MKB with additional documents and a supplemental privilege log.[1](Resp. at 10.) As a result, many of the disputes described in MKB's motion are now moot. (See Resp. at 1; Reply (Dkt.# 49) at 1-2.) In its reply memorandum, MKB asks the court to address two remaining issues: (1) American Zurich's redaction of certain documents based on attorney-client privilege and the work product doctrine, and (2) the adequacy of American Zurich's supplemental privilege log. (Reply at 1-2.) MKB also requests that the court order production of certain documents related to George Shumsky, American Zurich's subrogation counsel, and David Edsey, American Zurich's coverage counsel.[2] (Id. at 2.)

         Nine redactions that American Zurich made on eight pages of documents that it produced to MKB remain in dispute. (Resp. at 12.) American Zurich argues that these nine redactions are justified under both the attorney-client privilege and the work product doctrine. (Id.) MKB replies that American Zurich has failed to meet its burden under Cedell, that “the privileges are waived under Cedell, ” and that the court should compel American Zurich to produce all nine redactions. (Reply at 3, 4, 2.) MKB also argues that American Zurich's April 2014, supplemental privilege log is inadequate under Cedell.

         MKB asks the court to order American Zurich to produce a revised privilege log that provides enough information with respect to each document to determine “whether: (1) an attorney was engaged in quasi-fiduciary tasks, (2) an attorney's mental impressions are directly at issue in the insurer's performance of quasi-fiduciary tasks, or (3) the document is otherwise related to an issue for which a foundation for a bad faith claim exists.” (Id. at 5, 2.)

         III. ANALYSIS

         A. The Attorney-Client Privilege and the Work Product Doctrine

         American Zurich withholds or redacts documents under claims of attorney-client privilege and the work product doctrine. (Resp. at 14; see generally Gross Decl. Ex. U (Dkt.# 48-2).) “The attorney-client privilege has been recognized as ‘the oldest of the privileges for confidential communications known to the common law.' ” Gomez v. Vernon, 255 F.3d 1118, 1131 (9th Cir.2001) (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981)). “Practicing attorneys recognize the importance of the privilege and the safe harbor that it provides to encourage ‘full and frank communication between attorneys and their clients and thereby promote broader public interest in the observance of law and administration of justice.' ” Id. (quoting Upjohn Co., 449 U.S. at 389).

         The work-product doctrine shelters the mental processes of attorneys, recognizing that without “a certain degree of privacy ... [i]nefficiency, unfairness and sharp practices would inevitably develop in the giving of legal advice and in the preparation of cases for trial, ” thus demoralizing the legal profession and poorly serving the interests of clients and the cause of justice. Hickman v. Taylor, 329 U.S. 495, 510-11, 67 S.Ct. 385, 91 L.Ed. 451 (1947). The work product doctrine is a qualified protection limiting discovery of “documents and tangible things” prepared by a party or his or her representative in anticipation of litigation or trial. Admiral Ins. Co. v. U.S. Dist. Court for Dist. of Ariz., 881 F.2d 1486, 1494 (9th Cir.1989); see Upjohn Co., 449 U.S. at 397-402; see Fed.R.Civ.P. 26(b)(3). The party claiming work product protection bears the burden of establishing that the work product doctrine applies. United States v. Richey, 632 F.3d 559, 566 (9th Cir.2011).

         Under Federal Rule of Civil Procedure 26(b)(3)(A)(ii), a party can obtain discovery of work product only on a showing of “substantial need” and an inability to obtain equivalent information from other sources. Fed.R.Civ.P. 26(b)(3)(A)(ii). Even when a court orders disclosure of work product, “it must protect against disclosure of the mental impressions, conclusion, opinions, or legal theories of a party's attorney or other representative concerning the litigation.” Fed.R.Civ.P. 26(b) (3)(B). These materials-otherwise known as “opinion” work product-represent the “core types of work product” that the doctrine was ...


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