In re Nat'l Lloyds Ins. Co.

• Decision Date: 09 June 2017
• Docket Number: No. 15-0591,15-0591
• Citation: 532 S.W.3d 794
• Parties: IN RE NATIONAL LLOYDS INSURANCE COMPANY, Wardlaw Claims Service, Inc., and Ideal Adjusting, Inc., Relators
• Court: Texas Supreme Court

532 S.W.3d 794

IN RE NATIONAL LLOYDS INSURANCE COMPANY, Wardlaw Claims Service, Inc., and Ideal Adjusting, Inc., Relators

No. 15-0591

Supreme Court of Texas.

Argued February 7, 2017

OPINION DELIVERED: June 9, 2017

Rehearing Denied December 8, 2017

Victor V. Vicinaiz, Roerig Oliveira & Fisher LLP, McAllen, Wade C. Crosnoe, Thompson Coe Cousins & Irons, L.L.P., Austin, Zuleida Lopez-Habbouche, Roerig, Oliveira & Fisher, L.L.P., McAllen, for Amicus Curiae Germania Farm Mutual Insurance Association.

Jennifer Bruch Hogan, James C. Marrow, Richard P. Hogan Jr., Hogan & Hogan, Houston, Amber Lynn Anderson, John Steven Mostyn, Molly Kathleen Bowen, Mostyn Law Firm, Houston, Gilberto Hinojosa, Law Offices of Gilberto Hinojosa & Associates, P.C., Brownsville, Randal G. Cashiola, Cashiola & Bean, Beaumont, for Real Party in Interest.

R. Casey Low, Elizabeth K. Marcum, Pillsbury Winthrop Shaw Pittman LLP, Austin, Dale Wainwright, Greenberg Traurig, LLP, Austin, Greg C. Wilkins, Monica L. Wilkins, Orgain Bell & Tucker, LLP, Beaumont, Robert L. Florance IV, Pope Hardwicke Christie Schell Kelly & Taplett, L.L.P., Fort Worth, Alasdair A. Roberts, Scot Graves Doyen, Doyen Sebesta, Ltd., LLP, Houston, for Relator.

Justice Guzman delivered the opinion of the Court, in which Chief Justice Hecht, Justice Green, Justice Willett, Justice Devine, and Justice Brown joined.

The discovery dispute in this mandamus proceeding arises in the context of multidistrict litigation involving allegations of underpaid homeowner insurance claims. The issue is whether a party's attorney-billing information is discoverable when the party challenges an opposing party's attorney-fee request as unreasonable or unnecessary but neither uses its own attorney fees as a comparator nor seeks to recover any portion of its own attorney fees. We hold that, under such circumstances, (1) compelling en masse production of a party's billing records invades the attorney work-product privilege; (2) the privilege is not waived merely because the party resisting discovery has challenged the opponent's attorney-fee request; and (3) such information is ordinarily not discoverable.¹

To the extent factual information about hourly rates and aggregate attorney fees is not privileged, that information is generally irrelevant and nondiscoverable because it does not establish or tend to establish the reasonableness or necessity of the attorney fees an opposing party has incurred.² A party's litigation expenditures reflect only the value that party has assigned to litigating the matter, which may be influenced by myriad party-specific interests. Absent a fee-shifting claim, a party's attorney-fee expenditures need not be reasonable or necessary for the particular case. Barring unusual circumstances, allowing discovery of such information would spawn unnecessary case-within-a-case litigation devoted to determining the reasonableness and necessity of attorney-fee expenditures that are not at issue in the litigation. This is not a proper discovery objective. We therefore conditionally grant mandamus relief and direct the trial court to vacate its discovery order.

I. Factual and Procedural Background

Following two hail storms that struck Hidalgo County in 2012, insured homeowners sued various insurers and claims adjustors, alleging underpayment of insured property-damage claims. The lawsuits were consolidated into a single multidistrict litigation (MDL) court for pretrial proceedings, including discovery.³

The discovery dispute in this mandamus proceeding involves four MDL cases in which individual homeowners sued National Lloyds Insurance Co., Wardlaw Claims Service, Inc., and Ideal Adjusting, Inc. (collectively, the insurer),⁴ asserting statutory, contractual, and extra-contractual claims. Among other damages, the homeowners seek attorney fees incurred in prosecuting their statutory and contractual claims. In addition to assailing the merits of the homeowners' liability claims, the insurer asserts the homeowners' attorney-fee claims are excessive for a case of comparable complexity in the relevant locality.

A mere two months before trial, and nearly a year after the parties served MDL master discovery requests, the homeowners requested a trial continuance and sought leave to serve additional discovery regarding the insurer's attorney-billing information. Though the insurer is not making a claim for attorney fees,⁵ the homeowners submitted (1) three interrogatories requesting hourly rates, total amount billed, and total reimbursable expenses; and (2) four requests for production seeking all billing invoices; payment logs, ledgers, and payment summaries; audits; and any documents pertaining to flat-rate billing.⁶ The homeowners asserted additional discovery was warranted "in light of" expert testimony in Amaro v. National Lloyds Insurance Co. ,⁷ the first MDL hailstorm case to proceed to a jury verdict.

According to the homeowners, the insurer's attorney fees and billing information are discoverable in the present cases because the insurer's counsel, Scot Doyen, testified as an attorney-fee expert in Amaro and admitted on cross-examination—albeit over objection—that an opposing party's fees could be considered as "a factor" in determining a reasonable fee recovery. Doyen also used his law firm's billing practices as an example of a proper way to allocate attorney fees to avoid an artificially inflated fee claim in MDL cases.⁸ Prior to Doyen's testimony in Amaro , he had been designated in the underlying MDL case as a testifying expert in opposition to the homeowners' attorney-fee requests.

Based on the record in Amaro , the homeowners contend Doyen's expert testimony in these cases will necessarily be based on his experience as the insurer's attorney in the same proceedings and, more to the point, he has admitted that an opposing party's fees are relevant to the disputed attorney-fee issues. Accordingly, the homeowners argue that information about the insurer's attorney-fee expenditures is discoverable and relevant to the attorney-fee dispute.

The insurer objects on the basis that the requested discovery is overly broad and seeks information that is both irrelevant and protected by the attorney-client and work-product privileges. With regard to relevancy, the insurer principally relies on its stipulation that it "will not use its own billing invoices received from its attorneys; payment logs, ledgers, or payment summaries showing payments to its attorneys; or the hourly fees or flat rates being paid to its attorneys; audits of the billing and invoices of its attorneys to contest the reasonableness of [the homeowners'] attorney's fees."

After two non-evidentiary hearings, a discovery special master recommended that (1) an opponent's attorney-billing information is, as a general proposition, relevant to the reasonableness of an attorney-fee request in the same case; (2) to the extent the discovery requests in this case seek material from an expert witness on the attorney-fee issue, the information falls within the scope of permissible discovery under Texas Rule of Civil Procedure 192.3(e) ; (3) some of the discovery requests should be more narrowly tailored, but the insurer's objections to the discovery requests as modified should be overruled; and (4) "[s]pecific records may be redacted for content protected by an appropriate privilege." Adopting these recommendations, the MDL pretrial court ordered the insurer to respond to the discovery requests.

The court of appeals denied the insurer's petition for mandamus relief.⁹ While the court acknowledged that an opposing party's attorney-billing information may be irrelevant in a given case,¹⁰ the court concluded the discovery order was not an abuse of discretion in the underlying cases because (1) an opposing party's attorney fees are germane to at least two factors that inform the "reasonable and necessary" attorney-fee inquiry, as set forth in Arthur Andersen & Co. v. PerryEquipment Corp. ;¹¹ (2) the Arthur Andersen factors are explicitly nonexclusive;¹² (3) the insurer's designated expert witness previously testified he based his opinion on his own personal experience in defending the same case in which he was testifying as an expert;¹³ (4) the requested information is within the permissible scope of expert-witness discovery, as provided by Rule 192.3(e) ;¹⁴ and (5) the insurer produced no evidence that redaction would be insufficient to protect its privileges.¹⁵

In this original proceeding, the insurer primarily relies on several lower-court cases declaring information about a party's attorney-fee expenditures is "patently irrelevant" to an opposing party's attorney-fee claim.¹⁶ The insurer maintains that the Arthur Andersen factors do not contemplate discovery of an opposing party's attorney-billing information, arguing those factors are textually directed only to evidence about the claimant's attorney fees. The insurer also reasserts its privilege objections and disputes that its attorney fees are at issue in this litigation by virtue of the Amaro litigation.

Relying on authority from other jurisdictions, the homeowners argue trial courts have discretion to order disclosure of an opposing party's attorney-fee information and could permissibly compel production in this case. In addition to citing counsel's role as a testifying expert in this case and Amaro as supporting the trial court's discovery order, the homeowners rely on the concurring opinion in El Apple I, Ltd. v. Olivas ,¹⁷ which describes an opposing party's attorney fees as a "surer indicator[ ]" of the reasonableness of a fee request. With regard to privilege, the homeowners point to a dearth of evidence that redaction would be ineffective to protect any applicable privileges and argue, in the alternative, that attorney-billing information is not privileged as a matter of law or on the record before the Court.

Germania Farm Mutual Insurance Association filed an amicus brief supporting...