Kaarup v. St. Paul Fire and Marine Ins. Co.

• Decision Date: 14 October 1988
• Docket Number: No. 15948,15948
• Citation: 436 N.W.2d 17
• Parties: Carol A. KAARUP and Darrell R. Kaarup, Plaintiff and Appellant, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Home Federal Savings and Loan, a corporation, and Curt Hepner, individually, Defendants and Appellees. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 17

436 N.W.2d 17

Carol A. KAARUP and Darrell R. Kaarup, Plaintiff and Appellant, v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Home Federal Savings and Loan, a corporation, and Curt Hepner individually, Defendants and Appellees.

No. 15948.

Supreme Court of South Dakota.

Considered on Briefs Oct. 14, 1988.

Decided Feb. 8, 1989.

Michael J. McGill, Beresford, for appellant.

Edwin E. Evans of Davenport, Evans, Hurwitz & Smith, Sioux Falls, for appellee, St. Paul Fire and Marine Ins. Co.

G.J. Danforth, Jr. of Danforth, Danforth & Johnson, Sioux Falls, for appellee, Home Federal Sav. and Loan Ass'n.

Blaine O. Rudolph, Canton, for appellee, Curt Hepner.

AMUNDSON, Circuit Judge.

This appeal stems from an intermediate order that denied Carol and Darrell Kaarup's motion to compel discovery. We affirm in part, reverse in part and remand.

In 1979 Carol Kaarup purchased a home that she and her husband Darrell occupied at all material times. On July 24, 1980, First Federal Savings and Loan Association of Canton (First Federal) loaned Kaarups $50,000. Both Carol and Darrell signed the promissory note, and the note was secured by a mortgage on the home. Prior to making the loan, First Federal consulted with an attorney regarding the validity of taking a mortgage without Darrell's signature. The attorney advised First Federal that such a mortgage would be valid, and provided First Federal with a title opinion to that effect. First Federal relied upon the attorney's advice, issued the loan, and recorded the mortgage signed only by Carol Kaarup.

Kaarups defaulted on the note and, in April 1983, filed a Chapter 11 bankruptcy. In July 1983 First Federal brought a malpractice action against the attorney and his law firm who provided the title opinion. St. Paul Fire and Marine, (St. Paul) the attorney's liability carrier, settled with First Federal, and the note and mortgage were assigned to St. Paul.

In June 1984 First Federal and St. Paul filed a mortgage foreclosure action in Lincoln County. On January 9, 1986, Kaarups obtained summary judgment in that action. Following the trial court's decision, the complaint was amended to seek recovery on the promissory note only.

The trial court's decision in the mortgage foreclosure action was appealed to this court. On March 9, 1988, we affirmed the invalidity of the mortgage in St. Paul Fire and Marine Ins. v. Kaarup, 420 N.W.2d 364 (S.D.1988). During the pendency of that appeal, Darrell and Carol Kaarup filed a lawsuit in Minnehaha County alleging various causes of action against St. Paul and Home Federal, the successor in interest to First Federal, because of their attempts to enforce the mortgage.

In their suit against St. Paul and Home Federal, Kaarups requested the production of various documents, including:

5. All correspondence of St. Paul to and from its attorney and law firm, Robert E. Hayes and Davenport, Evans, Hurwitz & Smith relating to the incident alleged in or on the subject matter referred to in St. Paul's complaint, the assignment of the mortgage, the defense of the malpractice claim ..., the modification of the automatic stay, and the foreclosure of the invalid mortgage.

St. Paul responded:

St. Paul objects to production of any communication between itself and its attorney on the grounds of attorney/client privilege. SDCL 19-13-3.

Kaarups also requested production of copies of all legal bills that First Federal and St. Paul paid due to the motion to modify the automatic stay of bankruptcy and to foreclose the mortgage. In addition, Kaarups requested all files relating to the incidents alleged in their complaint. When St. Paul refused to produce some information, Kaarups brought a motion to compel discovery of all relevant documents and files relating to the incidents, acts and occurrences alleged in their complaint. Kaarups specifically alleged that St. Paul failed to produce the insurance claim file arising from the malpractice lawsuit that First Federal filed against the attorney who provided the title opinion. The trial court denied Kaarups' motion. In a subsequent motion for reconsideration, the trial court again denied Kaarups' motion for discovery. This appeal followed.

After Kaarups requested production of documents in Kaarup v. St. Paul Fire and Marine, they served a request for production of documents in First Federal and St. Paul's lawsuit to recover on the promissory note in Lincoln County. This request for production of documents mirrored in many respects the request served by Kaarups in their lawsuit against St. Paul and First Federal. Kaarups sought production, among other things, of all legal bills from Davenport, Evans, Hurwitz & Smith to St. Paul since October 1, 1982, and all correspondence between First Federal and St. Paul relating to the legal malpractice action, the assignment of the note and mortgage to St. Paul, and all other acts and occurrences alleged to and referred in their complaint.

In response to Kaarups' request for production of documents in the Lincoln County action, St. Paul produced for inspection and copying: (1) the legal bills paid by St. Paul in connection with the malpractice and mortgage foreclosure actions; (2) all correspondence between St. Paul and First Federal; (3) St. Paul's claim file from the legal malpractice action; (4) all inter-office memorandums relating to the malpractice and foreclosure actions; and (5) all correspondence between Davenport, Evans, Hurwitz & Smith and St. Paul and First Federal regarding the validity of the mortgage.

St. Paul claims it has produced all of the information Kaarups requested except for the correspondence between attorney Robert Hayes and St. Paul. According to St. Paul, this correspondence is barred by the attorney/client privilege and the work product doctrine. Kaarups claim that St. Paul has failed to produce other information in its request for production of documents and that the information received in the Lincoln County action is not admissible in the Minnehaha County action.

For purposes of this appeal, the issues before this court are:

(1) Did the trial court properly deny Kaarup's motion to compel discovery?

(2) Is discovery of the correspondence between attorney Hayes and St. Paul barred by the attorney/client privilege or work product doctrine?

DID THE TRIAL COURT PROPERLY DENY KAARUPS' MOTION TO COMPEL

DISCOVERY?

The scope of pretrial discovery is, for the most part, broadly construed. Bean v. Best, 76 S.D. 462, 80 N.W.2d 565 (1957). SDCL 15-6-26(b) provides, "Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action...." A broad construction of the discovery rules is necessary to satisfy the three distinct purposes of discovery: (1) narrow the issues; (2) obtain evidence for use at trial; (3) secure information that may lead to admissible evidence at trial. 8 C. Wright and A. Miller, Federal Practice and Procedure, Sec. 2001 (1970).

We previously concurred with the United States Supreme Court's construction of the discovery rules set forth in the seminal case of Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947). State By and Through Dept. of Transp. v. Grudnik 90 S.D. 571, 243 N.W.2d 796 (1976). The Supreme Court stated in Hickman, supra:

... the deposition-discovery rules are to be accorded a broad and liberal treatment. No longer can the time-honored cry of "fishing expedition" serve to preclude a party from inquiring into the facts underlying his opponent's case. Mutual knowledge of all the relevant facts gathered by both parties is essential to proper litigation. To that end, either party may compel the other to disgorge whatever facts he has in his possession. The deposition-discovery procedure simply advances the stage at which the disclosure can be compelled from the time of trial to the period preceding it, thus reducing the possibility of surprise. But discovery, like all matters of procedure, has ultimate and necessary boundaries.

329 U.S. at 507, 67 S.Ct. at 392, 91 L.Ed. at 460.

Our position on the scope of discovery has not changed. All relevant matters are discoverable unless privileged. In this regard, the trial court erred by denying Kaarups' discovery request on the basis that the materials sought by them could not legally become a part of the Kaarups' action against St. Paul and Home Federal.

The proper standard for ruling on a discovery motion is whether the information sought is "relevant to the subject matter involved in the pending action...." SDCL 15-6-26(b)(1). This phraseology implies a broad construction of "relevancy" at the discovery stage because one of the purposes of discovery is to examine information that may lead to admissible evidence at trial. 8 C. Wright and A. Miller, supra, Sec. 2008.

Apparently some of the information Kaarups requested in their suit against St. Paul and Home Federal was produced by St. Paul in the Lincoln County action. We find it unnecessary for St. Paul to once again produce this same information in response to Kaarups' discovery request in Kaarup v. St. Paul Fire and Marine and Home Federal. To hold otherwise would result in the unnecessary duplication of discovery, especially when the same attorney has represented Kaarups in both actions. We also find that Kaarups have failed to show the information sought in the insurance claim file from the malpractice action is relevant to the subject matter of this action or will lead to the discovery of admissible evidence. We affirm the trial court's denial of discovery in this regard.

IS DISCOVERY OF CORRESPONDENCE BETWEEN ATTORNEY AND CLIENT

BARRED BY THE ATTORNEY CLIENT PRIVILEGE OR WORK

PRODUCT DOCTRINE?

Kaarups alleged various causes of action against St. Paul and Home Federal because of their attempts to foreclose on the mortgage. In response, St. Paul raised as one of its affirmative defenses that it acted in good faith and...