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Liberty Int'l Underwriters Canada v. Scottsdale Ins. Co.

United States District Court, D. New Jersey, Camden Vicinage Division

December 10, 2014





JOEL SCHNEIDER, United States Magistrate Judge.

This Opinion addresses the parties' discovery dispute involving defendants' request for documents plaintiff claims are protected by the attorney-client privilege and/or work-product doctrine.[1] Plaintiff Liberty International Underwriters Canada (" Liberty") is seeking to recover from Scottsdale $1 million plus attorney's fees that Liberty paid in November 2011 to settle a lawsuit wherein it was alleged that Liberty's insured, Tractel, Inc., started a fire at the Borgata. Defendants insist, inter alia, that this lawsuit is barred by the terms of the Settlement Agreement Tractel entered into with the Borgata. The subject discovery dispute centers on defendants' insistence that they are entitled to see Liberty's communications with its attorneys and the attorneys representing Tractel regarding negotiations over the terms of the Tractel/Borgata Settlement Agreement. Liberty argues the requested documents are protected and do not have to be produced. As will be discussed, the Court decides that some but not all of the documents at issue should be produced.


On September 23, 2007, a fire occurred at the Borgata construction site in Atlantic City, New Jersey. At the time, the owners of the Borgata had hired Tractel to install window washing scaffolding. Tractel, in turn, subcontracted the work to Infinity. After the fire Borgata filed a complaint seeking damages from the parties allegedly responsible for the fire, including Tractel. (Hereinafter " Borgata litigation.") Liberty insured Tractel and paid its defense costs in the underlying litigation ($769, 383.58). Eventually, Borgata and Tractel settled for $1 million and Liberty paid the settlement sum. In this action Liberty seeks to recover $1, 769, 383.58 from Infinity and Infinity's insurer, Scottsdale, which represents the indemnity and defense costs Liberty paid on Tractel's behalf in the Borgata litigation.

In August 2011, Liberty agreed in principal to pay $1 million to settle Borgata's claim against Tractel.[2] From that time until November 2011, the attorneys for Borgata and Tractel exchanged different drafts of a " Confidential Mutual Release and Settlement Agreement." Liberty was kept abreast of the negotiations by Tractel's attorneys and its own counsel that it separately retained. The final Settlement Agreement between Tractel and the Borgata was signed on November 22, 2011.

Defendants allege that pursuant to the terms of the Agreement Tractel assigned its claims and causes of action arising from the Borgata fire to the Borgata.[3] Defendants also cite to the language in the November 30, 2011 " Joint Stipulation of Dismissal With Prejudice and Assignment of Claims Between Plaintiff and Defendant Tractel, Ltd." filed with the Superior Court which reads:

Tractel and its insurers assign all claims and causes of action they have or may have against any defendant, cross-defendant and/or third-party defendant as a result of, arising from or related to the September 27, 2007 fire at The Water Club, including, but not limited to, the facts alleged in the Complaint, as amended, Tractel's responsive pleadings and/or Third-Party Complaints.

Based on the Tractel/Borgata assignment language, defendants argue that Liberty lacks standing to pursue this case since the rights of Liberty's insured, Tractel, were assigned to the Borgata. Not unexpectedly Liberty denies this assertion and argues, inter alia, it was not a party to the assignment and/or Settlement Agreement and that Tractel lacked the authority to assign Liberty's rights to Borgata. Defendants respond by arguing, inter alia, that although Liberty was not a party to the Settlement Agreement that contained the assignment, Liberty was aware of and acquiesced in the execution of the Agreement.

On June 28, 2013, the Honorable Noel L. Hillman denied defendants' Motion for Judgment on the Pleadings. 955 F.Supp.2d 317 (D.N.J. 2013). Judge Hillman held, inter alia, that it was unclear whether Tractel had the authority and permission to include Liberty in the assignment provision. Id. at 333. Judge Hillman also held that " the text of the actual assignment provision itself is unclear as to its intended scope." Id. As such, Judge Hillman noted, " the import of the assignment clause" was not yet ripe for decision. Id. Judge Hillman anticipated that discovery on these issues would be taken. (" The fog of ambiguity surrounding the drafting of the assignment provision may no doubt clear during further discovery when the parties--and the Court--have more information available to them." Id.)

Although Liberty vigorously denies defendants' defense that the assignment language bars its claim, there is no question that defendants are entitled to relevant discovery on the issue. See Fed.R.Civ.P. 26(b)(1)(parties may obtain discovery regarding any non-privileged matter relevant to any party's claim or defense). The parties recognize this fact since defendants deposed Robert Philpott (August 15, 2013, October 23, 2013), Martin Premru (October 24, 2013) and Scott Ford (October 24, 2013), about the assignment language.[4] Nevertheless, defendants want more. They argue the deposition testimony they obtained regarding the assignment language is incomplete, evasive, " and left unanswered multiple questions concerning the critical facts surrounding the negotiations and drafting of the Settlement Agreement, and in particular, the assignment provision." April 9, 2014 Letter Brief (" LB") at 2. Defendants want to see the emails exchanged between and amongst Philpott, Tractel's counsel, and Infinity's counsel, to get a complete picture of what Liberty knew and did not know, and what Liberty authorized and did not authorize. Liberty argues the deposition testimony to date is complete and defendants are not entitled to additional discovery regarding the execution of the Settlement Agreement. Although the parties do not dispute that the documents at issue are protected by the attorney-client privilege and/or the work-product doctrine, defendants contend the emails are still discoverable.[5]

In connection with this discovery dispute the Court reviewed in camera the documents Liberty is withholding on the grounds of privilege and work-product. These documents are the emails and draft agreements the interested parties exchanged from August to November 2011 regarding the terms of the Settlement Agreement that was eventually signed on November 22, 2011. It is evident from the documents that Robert Philpott played the key role for Liberty regarding Liberty's input into the Tractel/Borgata settlement terms. During the key time period Philpott exchanged emails and draft agreements with various individuals regarding the settlement terms, including Tractel's assigned defense counsel, Infinity's counsel, and Liberty's own counsel. These are the documents the Court reviewed in camera.[6]


Even though the parties agree the subject documents are covered by the attorney-client privilege and/or the work-product doctrine, that does not end the discussion as to whether the documents are discoverable. Exceptions exist that have to be analyzed in this context.

1. Attorney-Client Privilege

A court sitting in a diversity action applies state law with regard to the attorney-client privilege. The burden of establishing that a communication or document is privileged is on the party asserting the privilege. Torres v. Kuzniasz, 936 F.Supp. 1201, 1208 (D.N.J. 1996). The attorney-client privilege protects communications when: (1) the asserted holder of the privilege is or sought to become a client, (2) the person to whom the communication was made (a) is a member of the bar of a court, or his subordinate and (b) in connection with the communication is acting as a lawyer, (3) the communication relates to a fact of which the attorney was informed (a) by his client (b) without the presence of strangers (c) for the purpose of securing primarily either (i) an opinion on law or (ii) legal services or (iii) assistance in some legal proceeding, and (d) not for the purpose of committing a crime or tort, and (4) the privilege has been (a) claimed and (b) not waived by the client. Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, 862 (3d Cir. 1994). The attorney-client privilege does not apply merely because a statement was made by or to an attorney. Nor does the privilege apply simply because a communication conveys advice that is legal in nature. HPD Laboratories, Inc. v. Clorox Co., 202 F.R.D. 410, 414 (D.N.J. 2001). Instead, the privilege " protects only those disclosures - necessary to obtain informed legal advice - which might not have been made absent the privilege." Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414, 1423-24 (3d Cir. 1991)(emphasis in original) (citation omitted).

Importantly, however, under New Jersey law the attorney-client privilege is qualified. In re Kozlov, 79 N.J. 232, 398 A.2d 882 (1979). It is now well settled that the attorney-client privilege may be pierced where there are " other important societal concerns." United Jersey Bank v. Wolosoff, 196 N.J.Super. 553, 563, 483 A.2d 821 (App.Div. 1984)(citation omitted). Pursuant to Kozlov the attorney-client privilege may be pierced where (1) there is a legitimate need for the requested information, (2) the information ...

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