Frontier Refining, Inc. v. Gorman-Rupp Co., Inc.

Decision Date13 February 1998
Docket NumberNo. 96-8014,GORMAN-RUPP,96-8014
PartiesFRONTIER REFINING INC., a Wyoming corporation; Commercial Union Assurance Company, PLC; Ocean Marine Insurance Company, Northern Assurance Company, Ltd., Indemnity Marine Assurance Company, Ltd., Sirius (UK) Insurance PLC, Uni Storebrand Skadeforsikring, Codan Insurance, Houston Casualty Insurance Company, Gjensidege Forsikring, Hull and Company and Alexander Howden Energy, Inc., Plaintiffs-Appellants, v.COMPANY, INC., an Ohio corporation, Defendant-Appellee, Joe M. Teig and Holland & Hart, Movants.
CourtU.S. Court of Appeals — Tenth Circuit

John M. Palmeri, Thomas B. Quinn and Christopher P. Kenney, White and Steele, P.C., Denver, CO, for Plaintiffs-Appellants.

J.E. Vlastos, Vlastos & Duncan, Casper, WY; John M. Majoras, Jones, Day, Reavis & Pogue, Cleveland, OH; and John I. Henley and John C. Brooks, Brooks, Henley & Drell, P.C., Casper, WY, for Defendant-Appellee.

Before BRORBY, HENRY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

I. INTRODUCTION

Plaintiff Frontier Refining, Inc. ("Frontier") brought an action for equitable implied indemnity against Gorman-Rupp Co., Inc. ("Gorman-Rupp") in the United States District Court for the District of Wyoming. Frontier sought to recover approximately $19.25 million paid to settle personal injury claims made against Frontier and its affiliated companies after an explosion and fire at the Frontier Refinery in Cheyenne, Wyoming. Frontier appeals the district court's rulings allowing discovery, and receipt as trial evidence, of materials protected by the attorney-client privilege and work product doctrine. It also appeals the district court's ruling which allowed joinder of Frontier's liability insurers as real parties in interest. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we REVERSE and REMAND.

II. FACTS

Frontier operates a refinery in Cheyenne, Wyoming. In 1992, the refinery had a "slop system" to recover oil for recycling into crude tanks for future use. The slop system included two storage tanks, designated as Tank S5 and Tank S6. The slop system also included two centrifugal pumps, designated as Pumps 160-A and 160-B, manufactured by Gorman-Rupp. A fire originated in the refinery's slop system on June 8, 1992, causing extensive damage to the cast iron casing of pump 160-B.

The fire severely burned four contractors who were working in the area of the slop system. Three of the victims, Robin Torres, Merv Vowles, and Kee Elsisie, filed lawsuits against Frontier. Frontier and its liability insurers settled the Torres claim for $8.25 million, the Vowles claim for $6.75 million, and the Elsisie claim for $3.50 million. Frontier and its liability insurers also settled the claim of the fourth contractor, Sheldon Eike, for the sum of $750,000. Holland & Hart, and particularly attorney Joe Teig, represented Frontier in the defense of these claims.

Following settlement of the claims, Frontier filed this lawsuit seeking indemnification from Gorman-Rupp. Frontier obtained different counsel to prosecute the indemnity action. During the course of discovery, Gorman-Rupp filed a Motion to Compel Disclosure of the files of Frontier's counsel for the underlying claims. The district court granted the motion, ordering the production of Holland & Hart's files and the deposition of attorney Teig. The district court ruled that Frontier had waived the attorney-client privilege by filing a suit for equitable implied indemnity and that the work product doctrine did not apply.

Holland & Hart and Mr. Teig subsequently filed a motion for a protective order on their own behalf, arguing that the attorney-client privilege and work product doctrine shielded their files from discovery. The magistrate judge denied the motion and ordered that the files be produced. 1 Holland & Hart attempted to appeal the magistrate's Order on the first day of trial, but the district court refused to hear its appeal.

The case proceeded to trial before a jury. As some of the allegedly protected and privileged materials began to come into evidence, the court became concerned that it had erred in its previous rulings. 2 Accordingly, the district court scheduled a hearing before another district judge to hear Holland & Hart's appeal of the magistrate's Order. 3 The district court affirmed in part and reversed in part the magistrate's Order, limiting waiver to documents existing on and testimony relating to dates prior to the settlement of the underlying claims. 4 The trial proceeded and Gorman-Rupp continued to use Holland & Hart file materials in its case. It also called attorney Joe Teig as an adverse witness.

The case was submitted to the jury on claims of product liability, misrepresentation, and negligence. The jury returned a verdict for the defense on all claims. The court entered judgment in favor of Gorman-Rupp on the verdict. Frontier filed a Motion for New Trial, which the court denied. This appeal followed.

III. ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE
1. Standard of Review

Frontier contends the district court erred in concluding that Frontier waived the protections of the attorney-client privilege and work product doctrine when it brought an indemnity action against Gorman-Rupp. This court has previously held that we will not reverse a trial court's order denying discovery absent an abuse of discretion. See Motley v. Marathon Oil Co., 71 F.3d 1547, 1550 (10th Cir.1995), cert. denied, 517 U.S. 1190, 116 S.Ct. 1678, 134 L.Ed.2d 781 (1996). Although this case involves an order compelling discovery rather than denying it, we see no meaningful distinction between the two in articulating a standard of review. 5 Thus, we review the district court's determinations regarding waiver of attorney-client privilege and work product protection for abuse of discretion. In this context, however, we review the court's underlying factual determinations for clear error and review de novo purely legal questions. See United States v. Anderson (In re Grand Jury Subpoenas), 906 F.2d 1485, 1488 (10th Cir.1990).

2. Attorney-Client Privilege

Rule 501 of the Federal Rules of Evidence provides that state law supplies the rule of decision on privilege in diversity cases. Wyoming law thus controls this issue. 6 See Wylie v. Marley Co., 891 F.2d 1463, 1471 (10th Cir.1989).

Courts generally employ some version of one of the three following general approaches to determine whether a litigant has waived the attorney-client privilege. The first of these general approaches is the "automatic waiver" rule, which provides that a litigant automatically waives the privilege upon assertion of a claim, counterclaim, or affirmative defense that raises as an issue a matter to which otherwise privileged material is relevant. See Independent Prods. Corp. v. Loew's Inc., 22 F.R.D. 266, 276-77 (S.D.N.Y.1958) (originating "automatic waiver" rule); see also FDIC v. Wise, 139 F.R.D. 168, 170-71 (D.Colo.1991) (discussing Independent Productions and "automatic waiver" rule). The second set of generalized approaches provides that the privilege is waived only when the material to be discovered is both relevant to the issues raised in the case and either vital or necessary to the opposing party's defense of the case. See Black Panther Party v. Smith, 661 F.2d 1243, 1266-68 (D.C.Cir.1981) (balancing need for discovery with importance of privilege), vacated without opinion, 458 U.S. 1118, 102 S.Ct. 3505, 73 L.Ed.2d 1381 (1982); Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D.Wash.1975) (setting forth three-factor test, which includes relevance and vitality prongs). Finally, several courts have recently concluded that a litigant waives the attorney-client privilege if, and only if, the litigant directly puts the attorney's advice at issue in the litigation. See, e.g., Rhone-Poulenc Rorer Inc. v. Home Indem. Co, 32 F.3d 851, 863-64 (3d Cir.1994) (adopting restrictive test and criticizing more liberal views of waiver).

The district court here adopted the intermediate test set out in Hearn to analyze whether Frontier had waived its attorney-client privilege in bringing this indemnity action against Gorman-Rupp. This court reviews de novo the district court's determination of state law. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1220-21, 113 L.Ed.2d 190 (1991).

Frontier contends that the Wyoming Supreme Court has adopted the most restrictive view of waiver: the bringing of an indemnity suit does not impliedly waive the attorney-client privilege unless the plaintiff asserts reliance on the advice of counsel to prove the reasonableness of the underlying settlement. Frontier cites Oil, Chemical & Atomic Workers International Union (OCAW) v. Sinclair Oil Corp., 748 P.2d 283 (Wyo.1987), in support of its argument.

Sinclair involved a union decertification election in which a letter critical of the union and its officers was circulated among Sinclair employees. The union lost the election and thereafter brought an action for libel and civil conspiracy against officers and representatives of Sinclair. See id. at 287. During the course of discovery, Sinclair asserted attorney-client privilege in response to nearly all questions eliciting communications made in the presence of Sinclair's attorney. See id. at 289. The union argued that Sinclair had waived the attorney-client privilege by pleading the absence of malice as an affirmative defense and by asserting that the decision to circulate the letter had been made with the advice of counsel. See id. at 290. The Wyoming Supreme Court concluded that malice was an element of the plaintiff's case and thus "became an issue when [plaintiff's] filed their complaint." Id. 7 Directing its attention to reliance on the advice of counsel, the court noted:

We recognize that reliance upon a defense of advice of counsel has, in some circumstances, been held to constitute a waiver of the...

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