Brown v. Superior Court In and For Maricopa County

• Decision Date: 26 September 1983
• Docket Number: A-C,No. 16492-SA,16492-SA
• Citation: 670 P.2d 725,137 Ariz. 327
• Parties: Robert A. BROWN and Mary Ellen Brown, husband and wife, and Robert A. Brown Enterprises, Inc. d/b/a Cameo Label and Printing Company and Progressive Rent-ar, Petitioners, v. SUPERIOR COURT of the State of Arizona, In and For the COUNTY OF MARICOPA, and The Honorable Morris Rozar, a Judge thereof, Respondent Judge, CONTINENTAL NATIONAL ASSURANCE, INC., (CNA), a corporation, Continental Casualty Company, an Illinois corporation, James L. Weidner and Jane Doe Weidner, husband and wife, Philip Markis and Jane Doe Markis, husband and wife, W.A. DeWitt and Jane Doe DeWitt, husband and wife, Lloyd Foote and Jane Doe Foote, husband and wife, Don Brown and Jane Doe Brown, husband and wife, and John Doe, real parties in interest, Respondent Real Parties in Interest.
• Court: Arizona Supreme Court

Page 725

670 P.2d 725

137 Ariz. 327

Robert A. BROWN and Mary Ellen Brown, husband and wife, and Robert A. Brown Enterprises, Inc. d/b/a Cameo Label and Printing Company and Progressive Rent-A-Car, Petitioners, v. SUPERIOR COURT of the State of Arizona, In and For the COUNTY OF MARICOPA, and The Honorable Morris Rozar, a Judge thereof, Respondent Judge, CONTINENTAL NATIONAL ASSURANCE, INC., (CNA), a corporation, Continental Casualty Company, an Illinois corporation, James L. Weidner and Jane Doe Weidner, husband and wife, Philip Markis and Jane Doe Markis, husband and wife, W.A. DeWitt and Jane Doe DeWitt, husband and wife, Lloyd Foote and Jane Doe Foote, husband and wife, Don Brown and Jane Doe Brown, husband and wife, and John Doe, real parties in interest, Respondent Real Parties in Interest.

No. 16492-SA.

Supreme Court of Arizona, In Banc.

Sept. 26, 1983.

Patten, Montague & Arnett by Wayne C. Arnett, Tempe, for petitioners

Gallagher & Kennedy by Michael K. Kennedy, Michael J. Ahearn, Phoenix, for real parties in interest.

Langerman, Begam, Lewis & Marks by Samuel Langerman and William B. Revis, Phoenix, for amicus curiae Arizona Trial Lawyers Ass'n.

FELDMAN, Justice

Petitioners, Robert A. Brown and Mary Ellen Brown and Robert A. Brown Enterprises, Inc. (Brown), bring this special action against respondent insurers (Continental) and several of their employees, alleging that the trial judge abused his discretion and acted contrary to law in denying Brown's motion to compel production. Having concluded that the petition presents important issues of first impression in this state and that remedy by appeal is inadequate, we accepted jurisdiction. Ariz. Const. art. 6, § 5, and Ariz.R.Sp.Act. 4, 17A A.R.S.

The action arose out of a fire loss to Brown's businesses, Cameo Label and Printing Company and Progressive Rent-a-Car, on August 16, 1980. Brown was insured by Continental for fire damage and various extended coverages. After some negotiation, the physical damage loss was paid, but the company refused to pay the claim based on business interruption, loss of accounts receivable and loss of valuable papers (referred to hereafter as the "loss of earnings claim"). The issues pertaining to the loss of earnings claim were arbitrated by agreement of the parties, but Brown refused to accept the award of the arbitrator. Brown then filed an action in superior court on June 30, 1982, alleging that Continental and its agents had acted in bad faith and breached the implied covenant of good faith and fair dealing contained in the insurance policies which covered Brown's property. ¹ The bad-faith allegations pertained only to the handling of Brown's claim for loss of earnings.

On the same day the complaint was filed, Brown served Continental and the other defendants with a request for production pursuant to Ariz.R.Civ.P. 34. ² The portion of the request at issue in this case sought production of the entire claims file compiled by Continental in handling both the physical damages and loss of earnings claim. ³ Brown moved for an order compelling production of the file. The trial judge ordered Continental to submit the entire claims file for in camera inspection by the court, along with an itemization of the documents and a statement explaining Continental's position with respect to each item. The court also ordered Brown to submit an itemization of documents sought from the claims file, along with a statement of legal authority supporting Brown's position on each of those items. The Browns reported to the court that they were unable to submit such a document because it was not possible for them to determine which documents would be helpful by consulting an inventory prepared by Continental. ⁴

Continental objected to production of the file, claiming (1) the portions of the file relating to the property loss claims were irrelevant; (2) much of the file was prepared in anticipation of litigation and was therefore qualifiedly protected from discovery; (3) the file also contained the mental impressions, conclusions, opinions and legal theories of the insurer's agents and attorneys which were absolutely immune from discovery; and (4) the reports and correspondence of the certified public accountants were privileged and nondiscoverable pursuant to A.R.S. § 32-749.

After reviewing the files, the trial court denied the motion to compel in its entirety, stating that the court had inspected the three volumes of the claims file "page by page and line by line" and had concluded that a substantial portion of the file contained items readily available to Brown and the remainder of the file contained items "which the court feels are not discoverable."

Since the request for production had included all written communications between Brown and Continental, the trial court undoubtedly presumed that Brown had copies of such material and was well within its discretion in denying production of those items. Rules 26(c) and 37(a). It is conceded, however, that the files also contained a large number of items to which Brown would have no access except by utilization of the discovery rules. With respect to these items, the trial court failed to state the reason for denying production, except for the comment that the court "feels" the material was "not discoverable." Of course, this tells us nothing with respect to the grounds for denying production. Since the trial court did not specify the reasons for finding that the requested material was not discoverable, we must presume that the judge denied the motion to compel discovery on one or all of the grounds asserted by Continental. Continental has not suggested to us that the trial court based its decision on any ground other than those which it had raised. ⁵ Throughout our review, we are mindful of the principle that in matters of discovery a trial court has broad discretion which will not be disturbed absent a showing of abuse. Cornet Stores v. Superior Court, 108 Ariz. 84, 86, 492 P.2d 1191, 1193 (1972); Jackson v. American Credit Bureau, Inc., 23 Ariz.App. 199, 203,

531 P.2d 932, 936 (1975). The discretion, however, is a legal discretion. It includes the right to decide controverted factual issues, to draw inferences where conflicting inferences are possible and to weigh competing interests. It does not include the privilege of incorrect application of law or a decision predicated upon irrational bases. Richas v. Superior Court of Arizona, 133 Ariz. 512, 652 P.2d 1035 (1982).

RELEVANCY

Brown requested production of the "complete and entire claims file" compiled by Continental concerning Brown's policies. A portion of this file deals with the property damage claims. Continental argued that since the property damage claims were satisfied as of October 30, 1980, information pertaining to those claims was irrelevant to a bad-faith action based on Continental's dealings with the loss of earnings claim.

Rule 26(b)(1) permits discovery of information "relevant to the subject matter involved in the pending action." The requirement of relevancy at the discovery stage is more loosely construed than that required at trial. For discovery purposes, the information sought need only be "reasonably calculated to lead to the discovery of admissible evidence." Id.; Cornet Stores, 108 Ariz. at 86-87, 492 P.2d at 1193-94; 8 C. Wright & A. Miller, Federal Practice and Procedure § 2008, at 41 (1970).

In this case, the trial court conducted an in camera inspection of the claims file after Continental provided an itemization of the documents and the reasons it believed some of them were irrelevant. This procedure placed the trial judge in the best position to determine questions of relevancy. See Jolly v. Superior Court of Pinal County, 112 Ariz. 186, 192, 540 P.2d 658, 664 (1975). While it is possible, if not probable, that information relating to the property damage and loss claims could lead to the discovery of admissible evidence in the bad-faith action concerning the loss of earnings claim, we were not provided access to the material in question and must defer to the trial court. Accordingly, we cannot find that the trial court abused its discretion in denying production of that portion of the claims file relating to the property damage and loss claims.

Continental did not argue that the relevancy objection was applicable to the portion of the claims file dealing with the loss of earnings claim. Further, as discussed below, it is apparent that the items in the file which deal with that portion of the claim are relevant. We proceed, therefore, to examine the propriety of the trial court's order relating to these portions of the file in light of the other objections raised by Continental.

TRIAL PREPARATION MATERIALS--QUALIFIED IMMUNITY

The major objection which Continental raised to production was that much of the files consisted of "material prepared in anticipation of litigation." Continental argued that after August 21, 1981, its dealings with Brown over the loss of earnings question made the possibility of litigation clear. Thereafter, Continental argues, all subsequent material in the claims file was "prepared in anticipation of litigation." Continental argues that such material is entitled to a qualified immunity from discovery. Rule 26(b)(3) does grant such an immunity; it provides that discovery of relevant documents and tangible things which have been "prepared in anticipation of litigation or for trial" may be discovered "only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the materials by other means."

We have not before had occasion to formulate the test to determine when materials are "prepared in anticipation of litigation" and thus entitled to the protection of Rule 26(b)(3). One of the leading texts states the problem as...