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PRUDENTIAL INS. CO. OF AMERICA v. NELSON

July 8, 1998

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, Plaintiff,
v.
RENWICK T. NELSON, II, Defendant.



The opinion of the court was delivered by: WOLIN

OPINION

 WOLIN, District Judge

 This case is before the Court on the motion of plaintiff The Prudential Insurance Company of America ("Prudential") to modify the Consent Decree between the defendant Renwick T. Nelson, II ("Nelson") and Prudential to add procedures governing Nelson's testimony. Nelson and Prudential entered into the Consent Decree that restrained Nelson from disclosing privileged information unless and until ordered otherwise by a court of competent jurisdiction. Because the scope and vitality of the Consent Decree have been challenged by a California court, this Court must further interpret the Consent Decree, particularly the provision "a court of competent jurisdiction." For the reasons stated herein, the Court will resolve the concomitant issues of due process and attorney-client privilege and will grant Prudential's application.

 BACKGROUND

 A. The Renwick Nelson Action

 Nelson is a former in-house Prudential attorney. On October 18 and 19, 1996, Nelson provided privileged and confidential information in a deposition to representatives of the Florida Department of Insurance and Attorney General. On March 27, 1997, Prudential initiated this action seeking, among other things, temporary and permanent injunctive relief prohibiting Nelson from making disclosures of Prudential's confidential, proprietary and privileged information. This Court entered a Temporary Restraining Order ("TRO") on March 27, 1997 and, thereafter, a Preliminary Injunction on May 23, 1997, enjoining Nelson from making disclosures of Prudential's confidential, proprietary and privileged information including information protected by Prudential's attorney-client, work product or other privileges.

 On May 22, 1998, Prudential and Nelson stipulated to the entry of a Consent Decree which permanently enjoins and restrains Nelson from disclosing any confidential, proprietary or privileged information belonging to Prudential. The Consent Decree provides, in relevant part, that:

 
in the event Nelson is requested or required to give any testimony or provide information in connection with any judicial, investigative or governmental proceeding regarding the business of, or claims against or concerning, Prudential that he (i) first promptly notify Prudential's General Counsel . . . (ii) cooperate with Prudential as necessary so that Prudential's counsel may participate in any proceeding or other setting in which information or testimony is being requested or required; and (iii) follow all instructions given by Prudential's counsel regarding the assertion of the attorney-client privilege, work product doctrine, and any other privileges or doctrines, unless and until ordered otherwise by a court of competent jurisdiction;

 (May 22, 1998 Consent Decree at 2-3.) Finally, and most important to the resolution of the jurisdiction issue, the parties consented that "this Court shall retain exclusive jurisdiction to construe the Consent Decree and enforce its terms and provisions in all respects." (Id. at 3.) (emphasis added).

 The Consent Decree was supplemented by the Court's June 10, 1998 Explanatory Order. This Order construed the Consent Decree to the extent that it prohibited Nelson from traveling outside the jurisdiction (Florida) wherein he is subject to compulsory process to another jurisdiction (i.e., California) for the purpose of providing deposition testimony to private litigants in a civil action where he is under no legal compulsion to do so. No limitation on deposition testimony, except as to the circumscribed privileges, subject to compulsory process was prohibited. Moreover, prior to the entry of the Consent Decree and the Explanatory Order, Nelson was represented by counsel who was afforded an opportunity to argue the scope of the relief granted.

 B. The Jacobson Action

 On October 10, 1997, Samuel Jacobson and Jerry Kayle (the "Jacobson plaintiffs") *fn1" filed the action Samuel Jacobson and Jerry P. Kayle v. The Prudential Insurance Company of America, George Alexopoulos, Mark Gitig, and Does 1 through 500, Los Angeles Superior Court Case No. BC 179323 (the "Jacobson action"). The Jacobson plaintiffs bring claims relating to the purchase of two life insurance policies in 1985 and seek to depose Nelson. Apparently Nelson was asked by the Jacobson plaintiffs to make an agreement to travel to California and give a deposition. Prudential believed such an agreement would violate the May 22, 1998 Consent Decree and applied to this Court for an order applying the Consent Decree to the Jacobson plaintiffs' proposed agreement. Nelson, through his counsel, stipulated and this Court agreed that an agreement by Nelson to voluntarily submit to a deposition in California would violate the Consent Decree. (June 10, 1998 Order.) Thereafter, the Jacobson plaintiffs served Nelson with a Florida deposition subpoena.

 Pursuant to a motion by the Jacobson plaintiffs in California Superior Court, a Referee issued a Fourth Report and Recommendation to the Superior Court ("Fourth Report"). *fn2" The Fourth Report recommended that while the Florida deposition would proceed in Florida, the California Superior Court Referee could telephonically rule on privilege objections raised during Nelson's deposition and order Nelson to answer the questions before any judicial review of the privilege claimed. Specifically, the Fourth Report provides that if "Prudential's counsel instructs Mr. Nelson not to answer a question, then either party may call the Referee "to have the objection ruled upon," and that Nelson could be "ordered to answer any question to which Prudential's objection has been overruled by the referee . . . ." (Fourth Report at 3:22-4:12.) Additionally, the Fourth Report permits Prudential to object to the Referee's rulings after Nelson testified over a privilege claim and to petition the Superior Court to "strike and seal any answer made over Prudential's objection that was improperly overruled by the Referee." (Id. at 4:9-12.) Thus, the Fourth report permits disclosure before Prudential can seek judicial review of the Referee's rulings.

 On June 17, 1998, Prudential applied to this Court for a TRO to enjoin Nelson from being deposed in the Jacobson action. Prudential contended that the procedures for privilege objections in the Fourth Report violated the Court's May 22, 1998 Consent Decree. The Court issued a TRO enjoining Nelson from being deposed until further order of the Court and scheduled a hearing for June 26, 1998. On June 18, 1998, Nelson complied with the Florida subpoena and appeared at the designated time and place for the deposition. Nelson abided by the terms of this Court's TRO and declined to be deposed. At the Florida proceeding, the Jacobson plaintiffs' counsel served Nelson with a summons naming him as a Doe defendant in the Jacobson action with a notice of deposition to Nelson, now a party, for June 24, 1998, two days prior to the Court's June 26 hearing.

 On June 19, 1998, the Jacobson plaintiffs brought an ex parte application before the Referee, to shorten the time in which to schedule a deposition, so that Nelson's deposition could be taken on June 24, 1998. The Jacobson plaintiffs also requested sanctions against Prudential for obstructing the Nelson deposition with the June 17 TRO. On June 19, 1998, the Referee issued a Fifth Report and Recommendation to the Superior Court ("Fifth Report") granting the Jacobson plaintiff's application and ordering Nelson's deposition to proceed on Wednesday, June 24, 1998. The Fifth Report provides that Nelson's deposition proceed "in accordance with the findings, rulings and recommendations" in the Fourth Report. (Fifth Report at 2:3-2:10.) The Fifth Report recommends "that the Superior Court approve this Report of the referee no later than June 22, 1998." (Id. at 3:13-3:16) The Referee found that:

 
Judge Wolin's attempts to interfere with the jurisdiction of this Court, interfere with the enforcement of California's Discovery Act and other laws, and interfere with this Court's inherent power to control proceedings before it, are ineffective and without power to bind or otherwise control these proceedings or the parties' duty to abide by this Court's orders. The plaintiffs in this case were not parties to Judge Wolin's proceedings, not parties to the consent decree he seeks to enforce, and not otherwise subject to the jurisdiction of his court. Given those facts, his orders cannot bind the right of plaintiffs in this case to conduct all necessary discovery as [prescribed] by California law, and cannot excuse the duty of Prudential to comply with Orders to facilitate such discovery.

 (Id. at 2:23-3:10.)

 On June 23, 1998 the Superior Court adopted and signed the Fourth and Fifth reports over Prudential's objections, and also issued an order which modifies but effectively reaffirms the procedures of the Fourth Report. Thus, Nelson was subject to the conflicting orders of this Court and the California Superior Court.

 Subsequently, Prudential filed a Petition For Peremptory Writ of Prohibition to the California Court of Appeal, seeking a stay of the Nelson deposition and review of the Superior Court's orders. The Court of Appeal declined to accept the case. On June 24, 1998, Nelson again abided by this Court's TRO and declined to be deposed.

 On June 29, 1998, this Court held a hearing at which it commented on the heightened tone of the rhetoric that had caused two courts to issue orders in direct conflict with each other, and to place Nelson, the subject of the deposition, in a most difficult position. During that proceeding, the Court expressed its desire to cooperate with the California court and likewise anticipated that the California court would cooperate with this Court. Moreover, the Court noted that principles of due process could be recognized and respected without compromising the powers of either this Court or the California court. To ensure the preservation of Prudential's privileges, the Court will resolve jurisdictional standards and determine deposition procedures in accordance with notions of due process and fairness.

 OVERVIEW

 The deposition testimony of Nelson has become a lightning rod of contention that has ignited the legal flames of at least two jurisdictions and has the potential to engulf a host of others. At the very outset, it is important to recognize that Nelson is not the ordinary witness possessed of privileged information. Rather, he is an attorney who prior to his separation from employment, served Prudential in a meaningful capacity and has information beyond that of the ordinary witness who may have been exposed to privileged information during his employment. Because of the trust and confidence that Prudential reposed in Nelson and because of his free access to information that strikes at the very core of this litigation, this Court must subject his potential testimony to a heightened level of scrutiny. *fn3" ...


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