Evraz Inc. v. Williams, Civ. No. 3:08-cv-00447-AC

• Decision Date: 21 November 2013
• Docket Number: Civ. No. 3:08-cv-00447-AC
• Parties: EVRAZ INC., N.A., a Delaware Corporation, Plaintiff, v. RIDDELL WILLIAMS P.S. v. THE CONTINENTAL INSURANCE COMPANY, a Pennsylvania Corporation; CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, a Nebraska Corporation; CENTURY INDEMNITY COMPANY, a Pennsylvania Corporation; GRANITE STATE INSURANCE COMPANY, a Pennsylvania Corporation; AMERICAN HOME ASSURANCE COMPANY, a New York Corporation; HARTFORD FIRE INSURANCE COMPANY, a Connecticut corporation; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, a Pennsylvania corporation; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH PA, a Pennsylvania company; RLI INSURANCE COMPANY, an Illinois corporation; STONEWALL INSURANCE COMPANY, a Nebraska corporation; WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation; WESTPORT INSURANCE CORPORATION, a Missouri corporation; ZURICH-AMERICAN INSURANCE COMPANY, a New York corporation; Defendants, THE CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation, Third-Party Plaintiff, v. INSURANCE COMPANY FOR THE STATE OF PENNSYLVANIA, a Pennsylvania corporation; and AMERICAN HOME ASSURANCE COMPANY, a foreign insurance company, Third Party Defendants, CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation, Counterclaimant, v. EVRAZ OREGON STEEL MILLS, INC., a Delaware corporation Counter Defendant, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, a Pennsylvania corporation; and AMERICAN HOME ASSURANCE COMPANY, a foreign insurance company, Third-Party Plaintiffs, v. TIG INSURANCE COMPANY; Third-Party Defendant, TIG INSURANCE COMPANY; Counterclaimant, v. CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation, Counterdefendant.
• Court: U.S. District Court — District of Oregon

EVRAZ INC., N.A., a Delaware Corporation, Plaintiff, v. RIDDELL WILLIAMS P.S. v. THE CONTINENTAL INSURANCE COMPANY, a Pennsylvania Corporation;

CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, a Nebraska Corporation;

CENTURY INDEMNITY COMPANY, a Pennsylvania Corporation;

GRANITE STATE INSURANCE COMPANY, a Pennsylvania Corporation;

AMERICAN HOME ASSURANCE COMPANY, a New York Corporation;

HARTFORD FIRE INSURANCE COMPANY, a Connecticut corporation;

INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, a Pennsylvania corporation;

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH PA, a Pennsylvania company;

RLI INSURANCE COMPANY, an Illinois corporation;

STONEWALL INSURANCE COMPANY, a Nebraska corporation;

WESTCHESTER FIRE INSURANCE COMPANY, a New York corporation;

WESTPORT INSURANCE CORPORATION, a Missouri corporation;

ZURICH-AMERICAN INSURANCE COMPANY, a New York corporation; Defendants,THE CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation, Third-Party Plaintiff, v. INSURANCE COMPANY FOR THE STATE OF PENNSYLVANIA, a Pennsylvania corporation;and AMERICAN HOME ASSURANCE COMPANY, a foreign insurance company, Third Party Defendants,CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation, Counterclaimant, v. EVRAZ OREGON STEEL MILLS, INC., a Delaware corporation Counter Defendant,INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, a Pennsylvania corporation;and AMERICAN HOME ASSURANCE COMPANY, a foreign insurance company, Third-Party Plaintiffs, v. TIG INSURANCE COMPANY; Third-Party Defendant,TIG INSURANCE COMPANY; Counterclaimant, v. CONTINENTAL INSURANCE COMPANY, a Pennsylvania corporation, Counterdefendant.

Civ. No. 3:08-cv-00447-AC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

DATED: November 21, 2013

OPINION AND ORDER

ACOSTA, Magistrate Judge:

Introduction

This case arises from a contract dispute between plaintiff Evraz, Inc. ("Evraz"), and its insurers over an alleged breach of the insurers' contractual duty to provide for Evraz's legal defense in the Portland Harbor Superfund litigation. Evraz now moves for leave to substitute its counsel in this case; specifically, Evraz seeks to substitute Stoel Rives LLP as counsel of record in place of Gorden Tilden Thomas & Cordell LLP. Defendant Continental Insurance Company ("Continental") opposes Evraz's motion on three grounds: first, Stoel Rives' representation of Evraz against Continental would create a current-client conflict of interest; second, an attorney-client relationship existed between Continental and Stoel Rives in the underlying Portland Harbor Superfund litigation; and third, Stoel Rives lawyers are fact witnesses Continental may call to testify at trial. Defendants American Home Assurance Company, Granite State Insurance Company, and National Union Fire Insurance Company join with Continental in opposing Evraz's motion to substitute counsel, although only on the ground that Stoel Rives attorneys are fact witnesses who may be called to testify at trial.

The court finds that no attorney-client relationship existed between Continental and Stoel Rives under controlling Oregon Supreme Court precedent and, alternatively, under the Oregon State Bar ethics opinions upon which Continental relies. The court also finds no representational conflict would be created by allowing Stoel Rives to represent Evraz in its coverage litigation against Continental. Accordingly, Evraz's motion is granted.

Factual Background

I. Origins of the Present Dispute

Plaintiff Evraz, Inc., a Delaware corporation that operates steel mills, owns several parcels of property in the Portland metropolitan area. (Decl. of Joan Snyder ("Snyder Decl.") at ¶3.) In 1999 and 2000, the Oregon Department of Environmental Quality ("DEQ") and the United States Environmental Protection Agency ("EPA") notified Evraz that it was potentially liable for investigating and cleaning up environmental contamination at the Portland Harbor Superfund Site. (Id.) Evraz has cooperated significantly with DEQ and the EPA, but has nonetheless incurred significant legal defense costs since the case began. (Id. at ¶6.)

Evraz maintained insurance policies which covered liabilities due to environmental damages caused by its operations, including a policy with Continental.¹ (Id. at ¶8.) Evraz eventually informed Continental and its other insurers that they each were responsible for financing Evraz's legal defense in the Portland Harbor Superfund litigation. (Id. at ¶9.) Continental shared the responsibility of financing the defense with Evraz's other insurers, but over time Evraz exhausted all of its policies except the Continental policy. (Id. at ¶10.) Continental eventually stopped payment as well, and Evraz now brings the present action againstContinental, claiming that Continental violated its statutory and contractual obligations to finance its legal defense. (Id. at ¶18.)

II. The Parties' Relationships with Stoel Rives

Stoel Rives has represented Evraz since the early 1990s and when the environmental contamination claims arose in 1999 and 2000, Evraz asked Stoel Rives to represent it, with Snyder serving as lead defense counsel. (Id. at ¶4.) Sometime between 2002 and November 2004, Evraz tendered defense of the claims to Continental. (Id. at ¶¶9-10.) In November 2004, Continental agreed to participate in Evraz's defense "pursuant to a reservation of all our rights under the policies," and to "share in the reimbursement of reasonable defense costs and at rates typically paid . . . for similar defense work in the Oregon area." (Id. at ¶11; Snyder Decl., Ex. 1, at 1.) Continental did not specifically contact or hire Stoel Rives in connection with the defense. (Snyder Decl. ¶11.) Evraz was responsible for paying Stoel Rives's invoices, and Continental reimbursed Evraz for its expenses in the beginning stages of the representation. (Id. at ¶19.) In 2008, Continental began sending some, but not all, reimbursement payments to Stoel Rives, who either endorsed and forwarded the checks to Evraz, or deposited each check in its client trust account for the benefit of Evraz.² (Id. at ¶¶20, 22.) Also in 2008, Evraz filed this lawsuit against Continental for failure to defend Evraz in the Portland Harbor Superfund litigation. (Compl. (Dkt. No. 1).)

At several points during Stoel Rives's representation of Evraz, it explained to Continental that it was acting on Evraz's behalf, and not on behalf of Continental. In a March 25, 2010, letter, Snyder wrote to Continental, "[t]his is not a matter on which Stoel Rives was directly retained by [Continental], so we are responding on behalf of your insured Evraz Inc. N.A."(Snyder Decl. Ex. 4 at 1.) Snyder subsequently used identical language in a letter to Continental sent September 17, 2010, and again in a letter to Continental sent November 16, 2010. (Snyder Decl., Exs. 5-6.) Further, during a deposition taken in this case, Snyder testified, "I was performing - my perspective is that we were hired by Evraz . . . and so I was performing under my agreement with Evraz." (Snyder Decl., Ex. 8 at 8.) Continental also served Snyder with a subpoena duces tecum for production of documents in Stoel Rives's possession. (Snyder Decl. at ¶¶24-26.)

Legal Standard

The primary responsibility of regulating the conduct of lawyers in federal practice lies with the district courts, governed by the rules of professional conduct of the state in which that district lies. Gas-A-Tron of Az. v. Union Oil Co. of Cal., 534 F.2d 1322, 1325 (9th Cir. 1976). The Ninth Circuit has held that when a party wishes to disqualify opposing counsel on the basis of a conflict of interest or abuse of professional confidence, "the right of an attorney freely to practice his profession must, in the public interest, give way in cases of doubt." Chugach Elec. Ass'n v. United States Dist. Court, 370 F.2d 441, 444 (1967). Because of the potential for tactical use of disqualification, however, courts have established a "high standard of proof" for the party moving to disqualify substitute counsel. Smith v. Cole, No. CV 05-372-AS, 2006 WL 1207966, at *2 (D. Or. Mar. 2, 2006), adopted by Smith v. Cole, No. CV 05-372-AS, 2006 WL 1280906, at *1 (D. Or. Apr. 28, 2006). To this end, the Ninth Circuit usually will grant disqualifications due to prior representation conflicts only if a party may be prejudiced by the subsequent representation. See Gas-A-Tron, 534 F.2d at 1325 n.2 (denying motion to disqualify because there was no basis for an inference that the attorney gained sensitive information that could prejudice the prior client).

At the same time, the rules of professional ethics serve the important functions of preserving the moral integrity of the legal system and preventing the appearance of impropriety. Smith, 2006 WL 1207966, at *2. Courts, including courts in the District of Oregon have held that in conflict cases, "any doubts must be resolved in favor of disqualification." Id. (citing Sauer v. Xerox Corp., 85 F. Supp. 2d 198, 199 (W.D.N.Y. 2000)). The competing interests involved in conflicts of interest cases require the court to strike a delicate balance that prevents unreasonable restrictions on an attorney's ability to practice law while nonetheless upholding the system's integrity. See In re Huffman, 328 Or. 567, 589-90 (1999). Thus, it makes sense for the court to operate under a legal standard which is closely tied to the rationales for rules of ethics, particularly when guarding against tactical disqualifications. Cf. United States v. Leon, 468 U.S. 897, 918 (1984) (tying application of the exclusionary rule to the rationales and purposes of the rule's creation). If the party seeking disqualification cannot cite facts that invoke one of the rationales for the conflict rule, a court should be skeptical of the party's motives and should apply a high standard.

Under the Oregon Rules of Professional Conduct ("RPC") an attorney may not represent a client if doing so would create a conflict of interest. RPC 1.7(a). A current conflict of...