Aerojet-General Corp. v. Transport Indemnity Insurance

• Decision Date: 14 September 1993
• Docket Number: AEROJET-GENERAL,No. A057580,A057580
• Citation: 22 Cal.Rptr.2d 862,18 Cal.App.4th 996
• Parties: CORPORATION, et al., Plaintiffs and Appellants, v. TRANSPORT INDEMNITY INSURANCE, et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

Page 862

22 Cal.Rptr.2d 862

18 Cal.App.4th 996

AEROJET-GENERAL CORPORATION, et al., Plaintiffs and Appellants, v. TRANSPORT INDEMNITY INSURANCE, et al., Defendants and Respondents.

No. A057580.

Court of Appeal, First District, Division 5, California.

Sept. 14, 1993.

Certified for Partial Publication. ^*

Moses Lasky, Richard Haas, John E. Munter, Lasky, Haas, Cohler & Munter, Professional Corp., San Francisco, for Lasky, Haas, Cohler & Munter.

Alan J. Lazarus, Gary T. Walker, Kevin G. McCurdy, Bronson, Bronson & McKinnon, San Francisco, for Intern. Ins. Co., et al.

Richard L. Seabolt, Hancock, Rothert & Bunshoft, San Francisco, for Cheshire and Companies.

Steven M. Crane, Morris, Polich & Purdy, Los Angeles, for Fidelity & Cas. Co. of New York.

Jeffrey N. Haney, Arthur E. Fisher, Bishop, Barry, Howe, Haney & Ryder, San Francisco, for Commercial Union Ins. Co.

HANING, Associate Justice.

The law firm of Lasky, Haas, Cohler & Munter (appellant) appeals from an order imposing monetary sanctions against it in connection with its representation of Aerojet-General Corporation and Cordova Chemical Company (collectively, Aerojet or plaintiffs) in the underlying action. The sanction order is based on the conduct of Scott DeVries, an attorney who at all times relevant to this action was a member of appellant law firm. DeVries was an innocent recipient of privileged documents prepared by counsel representing several of the defendants. The sanction order was based on the trial court's conclusion that DeVries acted unethically and in bad faith in failing to immediately notify opposing counsel of his receipt of the documents, and using information contained therein to his own advantage.

FACTS

This lawsuit by Aerojet against several of its liability insurers involves an insurance coverage dispute arising from widespread contamination of property at and near Aerojet's Sacramento facility. (See Aerojet-General Corp. v. Superior Court (1989) 211 Cal.App.3d 216, 257 Cal.Rptr. 621, 258 Cal.Rptr. 684.)

Sometime between July 1988 and August 1989, when all discovery was stayed because of a writ petition pending in this court, DeVries received a packet of documents concerning the Aerojet litigation from David Strode, an Aerojet employee. Strode, who was Aerojet's Director of Risk Management, received the documents from Aerojet's insurance brokers, Emett & Chandler. When Strode was deposed he could not remember who at Emett & Chandler had sent him the documents, and no discovery was conducted of Emett & Chandler to determine how it obtained the documents.

According to DeVries, the only item he was interested in was a memorandum revealing the existence of a witness, Warren Michaels. Michaels was a Sacramento-based independent insurance adjustor who investigated a prior industrial accident at the Aerojet facility. The memorandum by an attorney with Bronson, Bronson & McKinnon (Bronson), opposing counsel herein, described an interview with Michaels and contained the attorney's assessment of Michaels's "witness potential" in the litigation. DeVries initially contacted Michaels by telephone and spoke with him about the case. When the stay was lifted and discovery resumed, DeVries took Michaels's deposition.

Curiosity developed about how DeVries had learned of Michaels's existence because his name had not been divulged during the discovery process. In a telephonic discovery hearing on November 1, 1990, DeVries revealed that he learned of Michaels from a document that had originated from the Bronson firm, which represented a number of the defendant insurers. At this point the Bronson firm assumed there Almost a year later, Bronson searched its records to find the document naming Michaels. At this point it was discovered that the memorandum naming Michaels was part of a larger packet of documents that had presumably been sent to Bronson's client, Crum & Forster, the parent corporation for the insurers represented by Bronson. No discovery was directed to Crum & Forster to determine whether or how copies of the documents may have been forwarded to Emett & Chandler, but it appears that Emett & Chandler, as broker not only for Aerojet but also for several of the defendants' reinsurers, was in a chain of distribution of some documents from Crum & Forster. The record contains insurance certificates with the names of both entities printed thereon. Although a substantial portion of the documents contained information known to plaintiffs, such as a listing of correspondence to and from plaintiffs' counsel, a schedule of future court appearances and a recitation of rulings at recent court hearings, some of the information was privileged.

was a single document naming Michaels which had been mistakenly copied and sent to appellant.

When deposed in connection with respondents' motion for sanctions, DeVries acknowledged that he had no reason to believe that Bronson or its clients had consented to the disclosure of the documents. Nevertheless, he reviewed them, and did not immediately notify any opposing counsel, the special discovery master, or the trial court that he had received them. DeVries did not mention the documents to his colleagues who were working on the Aerojet litigation, nor to anyone else in appellant's office. He kept the documents for a period "of weeks to months" on his desk or credenza, and did not put them in the Aerojet case file. The documents were ultimately destroyed "during a routine housecleaning."

DeVries indicated his belief that Michaels's identity should have been disclosed in discovery. The record before us on this aspect of the case does not indicate whether plaintiffs had propounded discovery inquiries that would have required Michaels's disclosure. However, it is clear that had such discovery been initiated, Michaels's existence and identity would have to be disclosed.

The sanction order was not based on DeVries' failure to advise opposing counsel of his receipt of the documents, but for his failure to do so in a timely fashion. It recites that the documents given to DeVries were "undeniably a privileged communication between opposing counsel and his client detailing pretrial and trial strategies." Furthermore, "[n]either the Bronson office nor Crum & Forster had knowledge of or had consented to Aerojet's possession of these documents." The court summarized the conduct that it found to be "unethical and in bad faith ...: [p] ... [p] Upon receipt of the documents, Mr. DeVries failed to contact opposing counsel. Mr. DeVries failed to investigate how his client obtained the documents. Mr. DeVries failed to tell his partners he had received the documents from Aerojet. Mr. DeVries looked at the documents and used the information contained therein to his own advantage. Finally, Mr. DeVries destroyed the documents."

However, the trial court did not sanction DeVries. Rather, the sanction order directed appellant law firm to pay all expenses, including attorney fees and costs, incurred by defendant insurers in bringing the sanction motion and in conducting discovery to determine how the disclosure occurred. Several defendant insurers (hereafter respondents) ¹ submitted declarations

detailing their expenses, and the monetary sanctions eventually awarded by the court totalled $22,499.74. It was further ordered that Warren Michaels be precluded from testifying during any phase of the trial. The court denied respondents' motion to foreclose plaintiffs from seeking recovery under an insurance policy as an additional sanction. Although appellant originally resisted barring Michaels's testimony at trial, this aspect of the court's order is not challenged in this appeal, since the trial has long since been concluded, and a separate appeal is pending from the final judgment.

DISCUSSION

I ^**

II

This is one of those cases where it is helpful at the outset to emphasize what is not at issue. This case does not involve an attempt to introduce privileged communications into evidence, nor to obtain such information through formal discovery. DeVries did not violate any laws, statutory or decisional, or any rules of court or rules of professional conduct in the manner by which he obtained the subject information. It is undisputed that DeVries is free of any wrongdoing in his initial receipt of the documents.

The issue concerns the duty of an attorney who, without misconduct or fault, obtains or learns of a confidential communication (Evid.Code, § 952) among opposing counsel, or between opposing counsel and opposing counsel's client. Assuming there to be such a duty, it becomes more difficult to define when the confidential communication reveals a relevant and potentially helpful witness, such as occurred here, regardless of whether the witness should have been revealed through discovery. There is no State Bar rule of professional conduct, no rule of court nor any statute specifically addressing this situation and mandating or defining any duty under such circumstances.

In response to respondents' argument that DeVries should not even have read the documents at issue, which they support with an American Bar Association ethics opinion, we note that this complex litigation involves hundreds of insurance policies and parties, numerous law firms, scores of individual attorneys and a great number of documents. The files were voluminous--the attorneys were swamped with pleadings, correspondence, discovery and other documents. Their job entailed careful review and cataloging of the documents coming across their desks, and one cannot identify, let alone analyze, many of these documents until they have been reviewed. In this case the documents at issue were not all contained on legal letterhead. The telephone logs were simply labeled "Aerojet" and were on plain paper with no identifying characteristics. The Michaels memorandum was on plain paper; it was identified as a memo "To: Aerojet File [p] From: RAC." Given the number of...