N.J. Mfrs. Ins. Co. v. J. Scott Brady, Individually, & Brady & Grabowski, P.C.

• Court: U.S. District Court — Middle District of Pennsylvania
• Writing for the Court: JUDGE CAPUTO
• Decision Date: 20 January 2017
• Docket Number: CIVIL ACTION NO. 3:15-CV-02236
• Citation: N.J. Mfrs. Ins. Co. v. Brady, CIVIL ACTION NO. 3:15-CV-02236 (M.D. Pa. Jan 20, 2017)
• Parties: NEW JERSEY MANUFACTURERS INSURANCE COMPANY, Plaintiff, v. J. SCOTT BRADY, Individually, and BRADY & GRABOWSKI, P.C. Defendants.

NEW JERSEY MANUFACTURERS INSURANCE COMPANY, Plaintiff, v. J. SCOTT BRADY, Individually, and BRADY & GRABOWSKI, P.C. Defendants.

CIVIL ACTION NO. 3:15-CV-02236

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

January 20, 2017

(JUDGE CAPUTO)

MEMORANDUM

Presently before the Court is a Motion for Partial Summary Judgment (Doc. 18) filed by Plaintiff New Jersey Manufacturers Insurance Company ("NJM"), and a Motion to Compel Production of Documents (Doc. 31) filed by Defendants J. Scott Brady, Esquire ("Brady") and Brady & Grabowski, P.C. (collectively, "Defendants"). NJM's Complaint (Doc. 1) alleges that Brady committed legal malpractice when he represented NJM with respect to an Underinsured Motorist (UIM) claim brought by nonparty Gary Wells ("Wells") against his insurer, NJM (the "Wells claim"). Defendants' Answer (Doc. 10) raises multiple affirmative defenses, including a contributory negligence defense based on NJM's alleged bad faith handling of the Wells claim. In response, NJM filed the instant Motion for Partial Summary Judgment, seeking to strike this affirmative defense and preclude further discovery related to its alleged bad faith handling of the Wells claim. Defendants subsequently filed the instant Motion to Compel, seeking production of documents and communications related to the Wells claim that NJM contends are privileged. NJM's Motion for Partial Summary Judgment will be granted in part and denied in part. Because the Court finds that NJM's exposure to bad faith liability is relevant to the issue of damages, NJM will not be precluded from pursuing discovery on NJM's bad faith handling of the Wells claim. However, as explained below, the Court will strike Defendants' contributory negligence defense only to the extent that the defense is based on conduct that is not causally related to the arbitration award. Additionally, after conducting an in camera review of the NJM file, the Court finds that, with the few exceptions noted below, the documents are properly withheld from discovery on the basis of the privilege claimed. Moreover, the Court finds that NJM has not waived its attorney-client privilege or work-product protection with respect to the withheld documents in the NJM file. However, NJM's privilege log entries for the Curtin & Heefner file are insufficiently detailed for the Court to determine whether the documents withheld on the basis of attorney-client privilege and/or work-product protection are actually privileged from discovery. NJM therefore must supplement its privilege log as detailed below. Defendants' Motion to Compel thus will be granted in part and denied in part.

I. Relevant Factual Background

The facts presented in the record, viewed in the light most favorable to Defendants, are as follows¹:

Plaintiff NJM is a New Jersey corporation authorized to issue automobile insurance policies in Pennsylvania. (Compl. ¶ 1, Doc. 1.) Defendant J. Scott Brady is a licensed Pennsylvania attorney who practiced at the law firm Defendant Brady & Grabowski, P.C. when he represented NJM. (Id. ¶¶ 2-3.) The instant dispute arises out of Brady's representation of NJM with respect to a UIM claim brought by one of its insureds, Gary Wells. Specifically, NJM contends that Brady negligently handled the arbitration between NJM and Wells (the "Wells arbitration") and continued to act negligently in the steps he tookafter the arbitration panel issued its award. (See id. ¶¶ 61-63, 74-76.) NJM also claims that Brady breached his fiduciary duties in his handling of the Wells claim, including his handling of the Wells arbitration. (Id. Count II.)

Nonparty Gary Wells was injured in a car accident on February 20, 2012. (Pl.'s Statement of Undisputed Facts ("PSUF") ¶ 1, Doc. 19.) NJM provided automobile insurance to Mr. Wells, including Underinsured Motorist (UIM) coverage. (Id. ¶ 2.) Under the policy, UIM coverage was limited to $2 million. (Id. ¶ 3.) Mr. Wells was represented by the law offices of Lenahan & Dempsey, who submitted a claim on behalf of Mr. Wells to NJM under the UIM provisions of his policy. (Id. ¶ 5.) On March 11, 2014, Defendant J. Scott Brady and his firm, Defendant Brady & Grabowski, P.C., were retained to represent NJM with respect to the Wells claim. (Id. ¶ 7.) The parties agreed to a common law arbitration before a three-person arbitration panel. (Id. ¶ 8; see Ex. F, at 4:2-6, Doc. 19.) The arbitration was scheduled to take place on August 19, 2014 in Lackawanna County, Pennsylvania. (PSUF ¶ 8.) On August 14, 2014, John Lenahan, Mr. Wells's attorney, sent Brady a letter that stated: "Enclosed you will find a submission I propose we give the arbitrators in a sealed envelope, to be opened after their deliberations have been completed." (Ex. G, Doc. 19.) The letter further stated that Lenahan was "including the UIM policy limit disclosure" in the proposed sealed envelope "without waiving [plaintiffs'] argument that the arbitrators should be advised of the UIM limits in advance of the arbitration proceedings. . . ." (Id.) However, the arbitrators were not made aware of the UIM policy limits prior to issuing their decision. (PSUF ¶ 13.)

For purposes of the arbitration, NJM stipulated that the driver who caused Wells's injuries was negligent. (PSUF ¶ 10.) The only issues before the arbitration panel were the scope and extent of Wells's injuries. (Id. ¶ 11.) The issue of NJM's alleged bad faith handling of Wells's UIM claim was not at issue in the arbitration. (Id. ¶ 12.) Brady never requested the arbitration panel to mold an award in excess of the $2 million policy limit to match that limit. (Id. ¶ 14.) On August 20, 2014, the arbitration panel issued an award in favor of Mr. Wells for $5,921,117. (Id. ¶ 15; Ex. J, Doc. 19.) This award was for compensatory damages only,and exceeded the $2 million policy limit by $3,921,117.² (PSUF ¶ 16.) The award did not encompass extra-contractual damages, including damages related to any bad faith on the part of NJM. (Id.)

On September 2, 2014, Brady filed a Petition with the arbitration panel seeking reconsideration, correction, modification, and/or clarification of the award pursuant to 42 Pa. Cons. Stat. Ann. § 7311. (Id. ¶ 17; see Ex. K, Doc. 19.) The Petition sought to modify the award, arguing that the amount was arbitrary. (PSUF ¶ 17.) The Petition did not provide the UIM policy limits or expressly request the arbitration panel to mold the award to the policy limits. (See Ex. K, Doc. 19.) On September 15, 2014, Brady sent a letter to NJM in which he opined that, because he had "no doubt" that a court would interpret Wells's policy language as calling for a common law arbitration rather than a statutory arbitration, NJM had very narrow grounds on which to appeal the arbitration award, none of which he believed applied to the Wells arbitration. (Ex. V, Doc. 25-1.) Brady thereafter withdrew the Petition on September 16, 2014 (Ex. L, Doc. 19) and filed an appeal of the award in the Court of Common Pleas of Monroe County, Pennsylvania on September 19, 2014. (PSUF ¶¶ 19-20.) The appeal did not explicitly use the term "molding" in its request for modification of the Wells arbitration award. (See Ex. M, Doc. 19.) On September 23, 2014, Lenahan filed a Petition to Confirm Common Law Arbitration Award and Enter Judgment in the Court of Common Pleas of Lackawanna County-the same county where the arbitration took place. (PSUF ¶ 22.) Around this time, NJM discharged Brady and retained new counsel, Curtin & Heefner, to handle the challenge to the Wells arbitration award. (See Stein Aff. ¶ 3, Doc. 36-1.) On October 14, 2014, Curtin & Heefner on behalf of NJM filed an Amended Petition in Monroe County requesting the award be molded to the $2 million policy limits, as well as a Motion to Transfer Venue from Monroe County to Lackawanna County. (Ex. 7, p. 3598, Doc.23.)

Lenahan had also drafted a complaint that alleged NJM acted in bad faith in handling the Wells claim. (PSUF ¶ 23; Ex. O, Doc. 19.) Lenahan sent the draft bad faith complaint to Bonnie Stein of Curtin & Heefner on October 23, 2014. (Ex. 13, Doc. 23.) In this email, Lenahan informed Stein that he was "likely" to file the complaint before the end of the following day (October 24, 2014). (Id.) On October 26, 2014, Stein emailed Nathan Buurma and Jeffrey Bartolino, members of NJM's in house legal team, a copy of the bad faith complaint. (Ex. 3, Doc. 23.) In that email, Stein stated that she wanted to meet "ASAP" to "speak about some significant developments" and "go over major concerns and the possible benefits of this going [to] the October 30, 2014 Mediation." (Id.) Additionally, an email from Buurma concerning the Wells claim sent on October 27, 2014 demonstrates that NJM's legal team was actively strategizing over its ability to mold the arbitration panel's award to the policy limits, as well as its potential exposure to bad faith liability. (Ex. 4, Doc. 23.) On October 28, 2014, Buurma sent a notice to Brady informing him that NJM planned to file a malpractice suit against him in connection with his handling of the Wells arbitration. (Ex. 5, Doc. 23.) A mediation between NJM and Wells was scheduled for October 30, 2014. (Id. Exs. 6-7.) Both parties' mediation memoranda dealt extensively with the issue of NJM's bad faith handling of the Wells claim before and after the arbitration. (See id.)

On November 10, 2014, NJM and Wells executed a release and settlement agreement. (Ex. P, Doc. 19.) NJM contends that it reasonably believed Brady's failure to submit the policy limits to the arbitration panel or otherwise request a molding of the award would have resulted in the full amount of the arbitration award being confirmed in court, and that its pending motions seeking to reduce the award would have been futile. (See PSUF ¶ 24.) NJM therefore agreed to pay Wells the full arbitration award plus interest in exchange for the release of all claims against NJM relating to this matter, including...