Public Service Co. of New Mexico v. Lyons

• Decision Date: 22 June 2000
• Docket Number: No. 20,575.,20,575.
• Citation: 129 N.M. 487,10 P.3d 166,2000 NMCA 77
• Parties: PUBLIC SERVICE COMPANY OF NEW MEXICO and Mellon Bank, N.A., Trustee of the Public Service Company of New Mexico Master Decommissioning Trust, Plaintiffs-Appellants, v. John LYONS, et al., Defendants-Appellees.
• Court: Court of Appeals of New Mexico

10 P.3d 166

129 N.M. 487

2000 NMCA 77

PUBLIC SERVICE COMPANY OF NEW MEXICO and Mellon Bank, N.A., Trustee of the Public Service Company of New Mexico Master Decommissioning Trust, Plaintiffs-Appellants, v. John LYONS, et al., Defendants-Appellees.

No. 20,575.

Court of Appeals of New Mexico.

June 22, 2000.

David G. Campbell, Osborn Maledon, P.A., Phoenix, Arizona, James O. Browning, Charles R. Peifer, Browning & Peifer, P.A., Albuquerque, NM, for Appellant Mellon Bank, N.A., Trustee.

David F. Cunningham, Kevin V. Reilly, White, Koch, Kelly & McCarthy, P.A., Santa Fe, NM, for Appellant Public Service Company of New Mexico.

John W. Boyd, Freedman, Boyd, Daniels, Hollander, Goldberg & Cline, P.A., Albuquerque, NM, Richard A. Rosen, Ronald P. Replogle, Paul, Weiss, Rifkind, Wharton & Garrison, New York, NY, for Appellee The Equitable Life Assurance Society of the United States.

Mel E. Yost, Christopher M. Grimmer, Scheuer, Yost & Patterson, P.C., Santa Fe, NM, for Appellee Lloyd Williams.

Jeffrey A. Brannen, Wesley G. Handy, Comeau, Maldegen, Templeman & Indall, L.L.P., Santa Fe, NM, for Appellee Kidder Peabody & Co., Inc.

John M. Eaves, Eaves, Bardacke & Baugh, Albuquerque, NM, David H. Paige, Nicoletti, Hornig & Sweeney, New York, NY, for Appellee John Lyons, Financial Marketing Services, Inc. and COMReP, Inc.

Lyman G. Sandy, Miller, Stratvert, Torgerson & Schlenker, Albuquerque, NM, Vaughn C. Williams, Skaaden, Arps, Slate, et al., New York, NY, Alan R. Fridkin, Springfield, MA, for Appellee Massachusetts Mutual Life Insurance Co. and Connecticut Mutual Life Insurance Co.

Luis G. Stelzner, Robert P. Warburton, Sheehan, Sheehan & Stelzner, Albuquerque, NM, for Appellee Bernard Spereman.

Marshall G. Martin, Stanley Kotovsky, Jr., Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P., Albuquerque, NM, for Appellee General American Life Insurance Co.

Rex D. Throckmorton, Charles K. Purcell, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM, Donald Wall, Squire Sanders & Dempsey, Phoenix, AZ, for Appellee New England Mutual Life Insurance Co. and Metropolitan Life Insurance Co.

William C. Madison, Madison, Harbour & Mroz, Albuquerque, NM, Ralph B. Levy, Daniel R. King, King & Spalding, Atlanta, GA, for Appellee Towers, Perrin, Forster & Crosby, Inc.

John B. Pound, Herrera, Long & Pound, P.A., Santa Fe, NM, Frank B. Vanker, Richard D. Bernstein, Sidley & Austin, Chicago, IL, for Appellee Deloitte & Touche USA LLP.

Norman S. Thayer, Sutin, Thayer & Browne, Albuquerque, NM, Edward G. Warin, McGrath, North, Mullin & Kratz, P.C., Omaha, NE, for Appellee Kutak Rock & P. Thomas Pogge.

OPINION

APODACA, Judge.

{1} In this interlocutory appeal, Public Service Company of New Mexico (PNM) and Mellon Bank (Bank) challenge the trial court's order concerning discovery requested by Defendants of various documents in Plaintiffs' possession. The court's order determined that Plaintiffs had implicitly waived their attorney-client privilege and work product protection by affirmatively pleading fraudulent concealment, equitable tolling, and equitable estoppel as pled in Plaintiffs' first amended complaint in anticipation of Defendant raising a statute of limitations defense. Specifically, we consider Plaintiffs' claim that they never made any offensive or direct use (as opposed to defensive or passive use) of protected information and therefore should not be deemed to have waived their attorney-client privilege or work product protection. We agree with Plaintiffs that no waiver of the attorney-client privilege has occurred at this juncture in the litigation. We therefore reverse the trial court on the issue of the attorney-client privilege and remand for further proceedings.

{2} Based on our review of the record and the parties' briefs, the work product protection issue was essentially subsumed in the trial court as part of the attorney-client waiver issue. We thus limit our discussion to the attorney-client privilege issue and instruct the trial court on remand to address any independent work product protection issue under Rule 1-026 NMRA 2000.

I. FACTUAL AND PROCEDURAL BACKGROUND

{3} PNM, a public utility company, is partial owner of the Palo Verde Nuclear Generating Station located in Maricopa County, Arizona. The company is required by federal regulations to assure that there will be sufficient funds to decommission the three units of the plant when those units have reached the end of their useful lives. In 1986, estimates projected that PNM would need to assure the availability of $500 million for its share of decommission costs in the years 2024, 2025, and 2027.

{4} On July 31, 1987, PNM created a settlor-directed, revocable trust to meet its decommissioning obligations. Bank is trustee of the decommissioning trust. The corpus of the trust was invested in a corporate-owned life insurance (COLI) program called the Cost of Money Reduction Program (COMReP). COLI programs are designed to provide tax-free money to fund corporate obligations by using life insurance policies to insure corporate employees. Between 1987 and 1988, PNM used the decommissioning trust corpus to purchase 1729 life insurance policies issued by a number of Defendants and their predecessors.

{5} Plaintiffs have alleged in their amended complaint that these investments were made based on representations from numerous Defendants that the returns would be sufficient to satisfy PNM's decommissioning obligations under federal law. Plaintiffs have also alleged that the complexity of the COMReP insurance investment scheme made it necessary to rely on Defendants for their expertise in monitoring and evaluating the program relating to PNM's funding obligations. Plaintiffs later discovered that the COMReP insurance investment scheme would not yield sufficient funds for PNM to meet its future obligations. Plaintiffs place the blame on various alleged misrepresentations, material omissions, and other improper conduct on the part of Defendants. Plaintiffs claim that they first discovered the alleged improper conduct and breaches in 1997 after hiring a consultant to review the program. By the end of 1997, Plaintiffs had invested almost $19 million in cash into the COMReP program, but their investment allegedly had a surrender value after taxes of only $13.4 million in 1998. Plaintiffs' complaint alleged that this difference would have left the trust short of the decommissioning obligations by some $372 million in date-of-license expiration dollars.

{6} Plaintiffs sued Defendants under numerous theories. Their original complaint was filed on March 31, 1998. Plaintiffs' theories included fraud, constructive fraud, deceptive insurance practices under NMSA 1978, Section 59A-16-30 (1990), unfair trade practices under NMSA 1978, Section 57-12-10 (1987), breach of contract, breach of fiduciary duty, negligence, negligent misrepresentation, and promissory estoppel.

{7} By the end of April 1999, Plaintiffs had produced 70,000 pages of documents in the lawsuit. They also submitted a log book of documents they claimed were protected by the attorney-client privilege and the work product doctrine. Defendants responded by filing a motion to compel production of documents relevant to Plaintiffs' assertion that they did not discover the alleged improper conduct until 1997. Defendants based their motion on the argument that, "by claiming equitable tolling based on prior ignorance of its claims, a plaintiff waives attorney-client privilege and work product protection for any communications whose contents may shed light on whether the plaintiff is or is not being truthful about its ignorance." At the hearing on the motion, Defendants presented their argument on the assumption that, for purposes of the trial court's ruling on their motion, the documents in question were in fact privileged or otherwise protected.

{8} The trial court granted Defendants' motion, ruling that:

PNM, by asserting claims of fraudulent concealment, equitable estoppel, and equitable tolling in the First Amended Complaint, in order to avoid statutory limitations, implicitly waived the attorney-client privilege and the protection of the work product doctrine as to its and its attorneys' knowledge, documents and communications from January 1, 1985 through May 2, 1997[,] which relate to the issues of fraudulent concealment, equitable tolling, or equitable estoppel as pled in Plaintiffs' First Amended Complaint.

{9} The trial court characterized any documents pertaining to Plaintiffs' knowledge as relevant and vital to the disposition of the statute of limitations issue. On this basis, the trial court ordered a special master appointed for discovery purposes to review the documents listed in the privilege log and to submit a report to the court on any documents satisfying the court's definition of relevancy. Plaintiffs filed an application for interlocutory appeal from this order. This Court granted the application and assigned the case to our general calendar. Uncertain whether or not the underlying order was subject to Rule 12-503 NMRA 2000, allowing direct appeals from collateral orders, Plaintiffs also filed a petition for writ of error. This Court granted the petition and consolidated the appeals without resolving the appropriate procedure for seeking appellate review of the trial court's order. The parties have since informed this Court that, after the docketing of this appeal, the special master provided the trial court with a list of documents believed to satisfy the court's criteria for production. We should note, however, that any order requiring production has been stayed by the trial court pending disposition of this appeal.

II. DISCUSSION

A. Standard of Review

{10} As a general matter, we review discovery orders for abuses of discretion. See Hartman v. Texaco, 1997-NMCA-032, ¶ 20, 123 N.M. 220, 937 P.2d 979. In this appeal, however, the question presented requires our review of ...