Rli Ins. Co. v. Conseco, Inc.

• Decision Date: 07 March 2007
• Docket Number: No. 3:06MC11.,3:06MC11.
• Citation: 477 F.Supp.2d 741
• Court: U.S. District Court — Eastern District of Virginia
• Parties: RLI INSURANCE COMPANY, Plaintiff, v. CONSECO, INC., et al.,

477 F.Supp.2d 741

RLI INSURANCE COMPANY, Plaintiff, v. CONSECO, INC., et al.,

No. 3:06MC11.

United States District Court, E.D. Virginia, Richmond Division.

March 7, 2007.

COPYRIGHT MATERIAL OMITTED

James W. Riley, Riley Bennett Egloff LLP, Indianapolis, IN, Kevin T. Streit, Midkiff Muncie & Ross PC, Richmond, VA, William C. Morison, Morison Knox Holden Prough LLP, Walnut Creek, CA, for Plaintiff.

Brian C. Riopelle, Brian E. Pumphrey, McGuireWoods LLP, Richmond, VA, for Defendant.

MEMORANDUM OPINION

PAYNE, District Judge.

This matter is before the Court on Defendant Conseco's Motion To Compel John J. Rasmussen To Answer Certain Questions (Docket No. 8) filed by Conseco, Inc. ("Conseco") against RLI Insurance Company ("RLI"). For the reasons set forth below, the motion will be granted.

BACKGROUND

RLI insured Conseco and its officers and employees against costs resulting from shareholder lawsuits. Thereafter, Conseco's shareholders filed a securities class action suit (the "First Action") against it which resulted in a settlement. Conseco and RLI disagreed whether the insurance contract covered the First Action, but they settled that dispute by agreeing that RLI would pay the costs of the First Action in exchange for a release from other actions (the "Release Agreement").

At about the same time the First Action was pending, Conseco was a defendant in a related action (the "Russell Action"). RLI took the position that the Release Agreement released it from all liability to provide indemnity to Conseco for the Russell Action. Nonetheless, RLI agreed to defend the Russell Action while reserving the right to seek reimbursement for all sums expended after the Russell Action was concluded. Conseco settled the Russell Action for approximately $10 million, and incurred around $1 million in attorneys' fees. Subsequently, Conseco submitted to RLI a claim for payment of the costs and fees from the Russell Action.

Anticipating that it would be in litigation with Conseco over the effect of the Release Agreement on RLI's liability for the Russell Action, RLI retained Morison-Knox Holden Melendez & Prough, LLP ("Morison-Knox") as the liaison between RLI and Conseco for all communications regarding the Russell Action. John J. Rasmussen, of Morison-Knox, requested from Conseco, or Conseco sent to Rasmussen, various documents, including:

1. An expert report (and background data) that Conseco had prepared analyzing Conseco's potential exposure should it lose the. Russell Action on appeal (Conseco had prevailed at trial);

2. A list of cases that Conseco claimed supported its view that the Russell Action trial verdict would be overturned on appeal;

3. The invoices from litigating the Russell Action submitted by Conseco's defense counsel, Kirkland & Ellis LLP.

Thereafter, RLI refused to reimburse Conseco for the Russell Action expenses. Conseco and RLI then engaged in the litigation in the Southern District of Indiana (the "Coverage Litigation") which is pending trial in April 2007. In the Coverage Litigation, RLI seeks a declaration that, for two reasons pertinent here, it is not liable to Conseco. First, RLI claims that the Release Agreement completely released it from liability for the Russell Action, and it is not obliged to indemnify Conseco for expenses incurred in the Russell Action at all.¹

Second, and alternatively (presuming that RLI is obliged to indemnify Conseco for the Russell Action), RLI claims it is not liable to Conseco to the extent that:

1. Kirkland & Ellis charged unreasonable fees;

2. Conseco's settlement with the Russell plaintiffs was unreasonable; and

3. Conseco failed to cooperate in the defense and investigation of the Russell claim.²

Conseco answers that the Release Agreement did not release RLI from liability for the Russell Action. Conseco counterclaims that RLI breached its contract to insure Conseco, and that RLI acted in bad faith because it failed properly to investigate Conseco's claim submission in the Russell Action.³

As part of the discovery respecting these claims and counterclaims, Conseco deposed Rasmussen in Richmond, Virginia. During the deposition, Rasmussen refused to answer nine questions⁴ on grounds of work product protection or attorney-client privilege.

In this action before this Court, Conseco moves to compel Rasmussen to answer the nine questions, arguing that neither work product protection nor attorney client privilege permit him to demur. RLI counters first that Conseco is barred from succeeding on this motion because it failed to meet and confer. Second, RLI argues that the motion should be denied because Conseco failed to serve Rasmussen. Third, RLI argues that work-product protection and attorney-client privilege do indeed shield the answers to Conseco's questions from discovery.

For the reasons set out below, the Court rejects RLI's arguments, and grants Conseco's Motion to Compel.

DISCUSSION

A. Meet-and-Confer

RLI's first contention is that Conseco's motion should not be considered because Conseco failed to meet and confer with RLI to resolve the privilege dispute, pursuant to Fed. Civ. P. 37(2)(A). This position lacks merit.

Conseco has submitted the affidavit of Glen G. Mastroberte, one of its attorneys in the Coverage Litigation. Mastroberte avers that he contacted RLI's lawyers about the dispute on November 21, 2006 and suggested that the matter be reviewed by a magistrate judge familiar with the case. On November 28, he offered RLI a compromise. RLI wrote a letter on November 30 stating that it did not think that Conseco had met its meet-and-confer obligations. Mastroberte replied that Conseco would wait until December 4 to file this motion so that RLI could consider the compromise offer. Also on December 4, RLI requested a list of the specific questions Conseco would be seeking to compel. Mastroberte sent a list of the questions the same day, and gave RLI until December 6 to consider the compromise offer. By December 6, RLI had not replied. Conseco then filed this motion.

Rule 37(a)(2)(A) requires that a movant in good faith confer or attempt to confer with the party not making the disclosure in an effort to secure the disclosure without court action. Mastroberte's averments are not controverted and the record shows that Conseco's actions qualify as a goodfaith effort to attempt to resolve the discovery dispute out of court.

B. Failure To Serve Rasmussen

RLI also argued Conseco's motion should not be considered because Conseco had failed to serve Rasmussen, RLI's attorney who asserted the work product and attorney-client privileges on behalf of RLI. Conseco admitted this oversight (Dkt. No. 13) and sent copies to Rasmussen, who subsequently submitted a brief opposing Conseco's Motion to Compel (Dkt. No. 15). No party, or Rasmussen, appears to have been prejudiced by Conseco's failure to serve the motion on Rasmussen originally. The Court therefore rejects RLI's contention.

C. Work-Product Doctrine — Anticipation Of Litigation

Conseco argues that Rasmussen should be forced to answer the questions to which RLI claimed work-product protection because the questions were not directed at work that Rasmussen would have done in anticipation of litigation.⁵ Under the circumstances presented by this record, this argument is correct.

1. "Because Of" Litigation

Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947)⁶ and its progeny establish the principal that the material which reflects an attorney's efforts to investigate and prepare a case are protected from discovery if such material was created in "anticipation of litigation." Id. at 508-10, 67 S.Ct. 385; United States v. Nobles, 422 U.S. 225, 237-38, 95 S.Ct. 2160, 45 L.Ed.2d 141 (1975). However, otherwise identical work by an attorney is not protected by the work-product doctrine if it was created in the "ordinary course of business." See Sandberg v. Va. Bankshares, Inc., 979 F.2d 332, 355 (4th Cir.1992).⁷

To help distinguish between "anticipation of litigation" and "ordinary course of business," several courts of appeals,⁸ including the Fourth Circuit, have held that an attorney's work is protected when it was created "because of the prospect of litigation. National Union Fire Ins. Co. v. Murray Sheet Metal Co., Inc., 967 F.2d 980 (4th Cir.1992). The "because of' standard is designed to help district courts determine the "driving force" behind the preparation of the work product. Id. at 984.

National Union's "because of standard operates on two related principles. First, it, protects "work product" that is created because of litigation when that litigation is a real likelihood, but not "work product" that is created "because of litigation when that litigation is merely a possibility. National Union explained that, "because litigation is an ever-present possibility in American life, it is more often the case than not that events are documented with the general possibility of litigation in mind. Yet the mere fact that litigation does eventually ensue does not, by itself, cloak materials with work product immunity." National Union, 967 F.2d at 984. Therefore, to receive protection, the "work product" must be prepared "because of the prospect of litigation when the preparer faces an actual claim or a potential claim following an actual event or series of events that reasonably could result in litigation." Id. The preparation of work merely because an attorney "anticipates the contingency" of litigation is not sufficient to qualify the work for the protection afforded by the work-product doctrine. Id. (internal quotations omitted).

Second, the "because of standard is designed to protect only work that was conducted because of for litigation, not work that would have been done in any event. National Union noted that "materials prepared ... pursuant to regulatory requirements or for other non-litigation purposes are not documents prepared in anticipation of litigation ..." 967...