Case Number: BC676824    Hearing Date: July 31, 2018    Dept: 78

Superior Court of California

County of Los Angeles

Department 78

CORE HEALTH & FITNESS, LLC;

 

Plaintiff,

 

vs.

 

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, ET AL.;

 

Defendants.

Case No.: BC 676824
Hearing Date: July 31, 2018
   
RULING RE:

 

PLAINTIFFS CORE HEALTH & FITNESS, LLC, CORE FITNESS, LLC, AND CORE INDUSTRIES, LLC’S MOTION TO COMPEL FURTHER RESPONSES TO REQUESTS FOR PRODUCTION, SET ONE; DEFENDANT BASSI EDLIN HUIE & BLUM’S MOTION TO COMPEL FURTHER RESPONSES TO REQUEST FOR PRODUCTION, SET ONE.

 

Plaintiffs Core Health & Fitness, LLC, Core Fitness, LLC, and Core Industries, LLC’s Motion to Compel Further Responses to Requests for Production, Set One, is GRANTED.

Defendant Bassi Edlin Huie & Blum’s Motion to Compel Further Responses to Request for Production, Set One, is DENIED.

FACTUAL BACKGROUND

This is an action for bad faith breach of contract and legal malpractice.  The Complaint alleges as follows. Plaintiffs Core Health & Fitness, LL, Core Fitness, LLC, and Core Industries, LLC (collectively “Core”) entered into a liability policy with Defendant National Union Fire Insurance Company of Pittsburgh, PA (“Union”) on or before August 1, 2013. (Complaint ¶ 8.)

On January 10, 2014, Manuel Rodiguez filed a complaint against LA Fitness Interenationl, LLC (“LA Fitness”) for a traumatic brain injury he sustained using a Core exercise machine at an LA Fitness facility. (Complaint ¶ 11.) LA Fitness, an Additional Insured per the terms of Core’s policy, was a large customer of Core. (Complaint ¶ 12.)

On May 20, 2014, LA Fitness tendered the Rodriguez lawsuit to Core, who tendered it to Union per the policy. (Complaint ¶ 13.) on January 26, 2015, Rodriguez added Core as a defendant in the lawsuit. (Complaint ¶ 14.) On March 30, 2016, LA Fitness filed a cross-complaint against Core seeking defense and indemnity. (Complaint ¶ 15.) Core once more tendered the cross-complaint to Union, who declined to extend coverage to LA Fitness based on an erroneous interpretation of its Core policy. (Complaint ¶ 16.)

On November 30, 2015, Defendant Bassi Edlin Huie & Blum, LLP (“BEHB”) substituted into the Rodriguez case to defend Core against the Rodriguez complaint and the LA Fitness cross-complaint. (Complaint ¶ 17.)

Throughout the Rodriguez litigation, Core advised Union and BEHB of the importance of extricating both itself and LA Fitness from the suit before trial, both to preserve Core’s reputation in the fitness community and to maintain its business relationship with LA Fitness. (Complaint ¶ 18.)

On September 6, 2016, the court imposed evidentiary and issue sanctions against Core and its counsel which crippled its ability to defend itself. (Complaint ¶ 19.) However, BEHB falsely reported to Union that issues effectively resolved by the sanctions order remained unresolved. (Complaint ¶ 19.) In the same report, BEHB did not mention the sanctions order. (Complaint ¶ 20.) That day, when a partner in BEHB provided Union with a report and valuation of the case, he misrepresented the character of the sanctions order. (Complaint ¶ 21.) Neither Union nor BEHB timely advised Core of the sanctions order. (Complaint ¶ 22.)

BEHB and Union conspired to undervalue the case and prevent a global settlement of the Rodriguez matter. (Complaint ¶ 25.) BEHB provided Union with a report valuating the case at between $50,000 and $250,000, but then advised Core that the case value was between ten and $30 million. (Complaint ¶ 25.) When Core submitted this higher valuation to Union, BEHB then insisted that its previous lower valuation was accurate. (Complaint ¶ 25.) BEHB later admitted that it had adopted lower estimations of value at Union’s request, owing to a false assumption that Rodriguez would be unable to prove traumatic brain injury or that Core had acted with recklessness. (Complaint ¶ 25.)

On October 12, 2016, when Core requested $900,000 in settlement authority from Union to resolve the Rodriguez case, BEHB undercut the request by arguing once more that the case value was lower. (Complaint ¶ 26.)

On November 7, 2016, the parties obtained a mediator’s proposal for a $2,275 million global settlement of the case which would dismiss both Core and LA Fitness. (Complaint ¶ 27.) Core demanded that Union pay the sum, and Union denied the request based on BEHB’s false representations. (Complaint ¶ 27.)

Core settled directly with Rodriguez for $750,000, during trial, on November 29, 2016. (Complaint ¶ 29.) Union refused to settle the case as to LA Fitness. (Complaint ¶ 29.) A jury found in favor of Rodriguez against LA Fitness, awarding $5.8 million in compensatory damages and $17 million in punitive damages. (Complaint ¶ 30.) After trial concluded, LA Fitness demanded that Core remove all of its machines from all LA Fitness locations, and indicated that it would no longer do business with Core. (Complaint ¶ 31.)

PROCEDURAL HISTORY

Core filed the Complaint on September 22, 2017, alleging two causes of action:

  1. Insurance Bad Faith
  2. Legal Malpractice

On March 21, 2018, this court granted BEHB’s motion to strike as to Core’s request for attorney’s fees, but denied BEHB’s special motion to strike.

On July 12, 2018, this court granted Core’s Motion for Leave to File a First Amended Complaint.

PRE-FILING HISTORY

 

  • Core’s Motion to Compel Further Responses

 

On October 20, 2017, Core served Requests for Production, Set One, on BEHB. (Van Ackeran Decl. ¶ 2.) Requests No. 37 and 38 provided as follows:

No. 37: Any and all legal invoices and timesheets prepared by YOU in YOUR representation of CORE in the RODRIGUEZ LAWSUIT.

No. 38: Any and all DOCUMENTS and ESI REFERRING OR RELATING TO legal invoices and timesheets prepared by YOU in YOUR representation of CORE in the RODRIGUEZ LAWSUIT.

(Separate Statement Nos. 37–38.)

BEHB served responses on December 20, 2017. (Van Ackeran Decl. ¶ 3.)

After several meet-and-confer efforts through January 2018, BEHB agreed to provide redacted copies of its billing invoices. (Van Ackeran Decl. ¶¶ 4–11.) BEHB would not agree to serve unredacted copies of the invoices. (Van Ackeran Decl. ¶ 9.)

Core’s present Motion to Compel Further was filed on March 16, 2018.

BEHB filed an Opposition on June 28, 2018.

 

  • BEHB’s Motion to Compel Further Responses

 

BEHB propounded its Demand for Inspection and Production of Documents, Set One, on Core on October 13, 2017. (Furman Decl. ¶ 3.)

Core provided responses on November 13, 2017. (Furman Decl. ¶ 4.)

The parties met and conferred regarding Core’s responses and objections through May 2018. (Furman Decl. ¶ 6.)

Core served a privilege log at some point, claiming privilege as to 283 identified documents. (Furman Decl. ¶ 7.)

BEHB filed the present Motion to Compel Further Production on June 15, 2018.

Core filed an Opposition on July 18, 2018.

DISCUSSION

  1. JUDICIAL NOTICE

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)

BEHB asks this court to take judicial notice of the following items in support of its motion to compel further:

  • Core’s Complaint in this action filed on September 22, 2017
  • Stipulated Protective Order filed in this action on February 26, 2018
  • Washington Admission and Practice Rules 1(b), 3(c), and 8(f), and Washington Rules of Professional Conduct 5.5
  • Records from California Secretary of State for Core

The court takes judicial notice of the above items.

 

  • CORE’S MOTION TO COMPEL FURTHER RESPONSES

 

“A party may demand that any other party produce . . . a document that is in the possession, custody, or control of the party on whom the demand is made.” (Code Civ. Proc., § 2031.010(b).) The demanding party may move for an order compelling further response to the demand if the demanding party deems that (1) a statement of compliance with the demand is incomplete, (2) a representation of inability to comply is inadequate, incomplete, or evasive, or (3) an objection in the response is without merit or too general. (Code Civ. Proc., § 2031.310(a).) “The motion shall set forth specific facts showing good cause justifying the discovery sought by the demand,” and “[t]he motion shall be accompanied by a meet and confer declaration under Section 2016.040.” (Code Civ. Proc., § 2031.310(b).)

Core brings the present motion because, although BEHB has provided redacted copies of its billing invoices in the Rodriguez litigation, it has not provided unredacted copies disclosing attorney rates and invoice amounts. (Motion at p. 1.) BEHB objects to further production on this point on the grounds that no good cause exists for the production, and because the information is private. (Opposition at pp. 5–11.)

Core’s theory of good cause is as follows. Its case rests upon BEHB’s and Union’s alleged bad faith efforts to decline coverage for a global settlement of the Rodriguez lawsuit, including Core’s then-co-defendant, LA Fitness. (Complaint ¶¶ 24–27.) Core argues that BEHB’s and Union’s proffered rationale for its settlement estimates included the costs of defense, and thus evidence of the actual costs of defense is relevant to show the reasonableness of BEHB’s and Union’s willingness or unwillingness to settle. (Motion at p. 6.)

BEHB objects that the true reason for seeking this discovery is to shape an argument that BEHB was biased against Core in favor of Union, by virtue of the negotiated fee arrangement that Union and BEHB had set up. (Opposition at pp. 5–9.) Because any tripartite insurance arrangement will involve fee negotiated fee structures of this type, BEHB argues that the actual amounts billed are irrelevant to prove bias. BEHB citesCovell v. Superior Court (1984) 159 Cal.App.3d 89, in which the court held that, in a malicious prosecution action, discovery could not be obtained about the plaintiff’s prior settlement offers in the underlying litigation, because the purpose of the discovery — to determine by reference to such settlement offers whether the litigation was actually without basis — was to prove an inference when “no such inference may reasonably be drawn.” (Id. at p. 43.) The court reasoned that “[a] defendant will often attempt to buy peace, for economic reasons, even in a frivolous lawsuit,” and thus the probative value of the settlement offers was minimal. (Ibid.)

BEHB also cites Snell v. Superior Court (1984) 158 Cal.App.3d 44, in which the court held that plaintiffs in a malpractice action against a hospital could not obtain information about whether the hospital inquired into the existence of its doctor’s insurance policies. This was because “the question of whether a hospital is negligent in investigating a physician’s background and competence, and in maintaining adequate evaluation procedures, is, at best, only tenuously connected to the question of whether it requires its physicians to carry malpractice insurance.” (Id. at p. 50.) The court relied on Health & Safety Code § 1319, which states that a health facility “may” require its medical staff to have insurance, thus inferring that the legislature intended this to be a discretionary decision on the part of hospitals, rather than an indicator of negligence. (Snellsupra, 158 Cal.App.3d at p. 50.)

BEHB’s arguments on this point are inapposite. The reason that Core offers to support its discovery request here is to better understand the relation between defense costs and the settlement offers that BEHB and Union were willing to entertain. The reasonableness of BEHB’s and Union’s settlement decisions are at issue in this litigation. (Complaint ¶¶ 25–27.) This is unlike the situation in Snell, in which hospital policies on doctor-insurance were held to be not probative of negligence, or Covell, in which settlement offers were sought to prove the reasonableness of the prior action. The court finds that good cause for the discovery has been shown.

BEHB next argues that its billing rates are private financial information. (Opposition at p. 9.) In determining whether privacy interests warrant restricting discovery, the court must perform a balancing of interests: “If there is a reasonable expectation of privacy and the invasion of privacy is serious, then the court must balance the privacy interest at stake against other competing or countervailing interests, which include the interest of the requesting party, fairness to the litigants in conducting the litigation, and the consequences of granting or restricting access to the information.” (Puerto v. Superior Court (2008) 158 Cal.App.4th 1242, 1251.) Although some courts have held that corporations do not have a right to privacy under the California Constitution, they have nonetheless subjected corporate privacy claims to the same balancing test. (SCC Acquisitions, Inc. v. Superior Court (2015) 243 Cal.App.4th 741, 756 [“Because the corporate privacy right is not constitutionally protected, the issue presented in determining whether Western’s requests for production infringe that right is resolved by a balancing test.”].)

Financial information can implicate privacy concerns. (See SCCsupra, 243 Cal.App.4th at p. 754.) However, balancing this interest against the good cause already shown by Core, the court concludes that the interests of discovery outweigh BEHB interest in maintaining the secrecy of its negotiated fee arrangements with Union. Although BEHB may have a legitimate interest in keeping this information safe from the public, Core has shown enough reason for seeking the production here such that it reasonably may request it, subject to the protective order already entered in this case.

The Motion to Compel Further is therefore GRANTED as to Requests No. 37 and 38.

 

  • BEHB’S MOTION TO COMPEL FURTHER

 

BEHB moves to compel the production of all 283 documents identified in Core’s privilege log on the grounds that the privilege does not apply or has been waived. BEHB divides the documents into three categories as follows:

  1. Communications among Core employees: Nos. 1, 2, and 275
  2. Communications among Core employees where Baker Hostetler attorneys were copied in: Nos. 40, 126, 197, 218, 220–222, 244–45
  3. Communications between Plaintiffs’ In-House Counsel Reed Brown and attorneys at Baker Hostetler: Nos. 3–36, 38–39, 41–85, 88–101, 102–125, 127–150, 152–196, 198–214, 215–217, 219, 223–235, 246–264, 267–272, 276–283.

(Separate Statement at p. 4.)

The attorney-client privilege applies to “a confidential communication between client and lawyer.” (Evid. Code § 954.) Such confidential communications are elsewhere defined as

“[I]nformation transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.”

(Evid. Code § 952.)

“The party claiming the privilege has the burden of establishing the preliminary facts necessary to support its exercise, i.e., a communication made in the course of an attorney-client relationship. Once that party establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply.” (Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 733, internal citations and quotation marks omitted.)

The court will address the applicability of the privilege with regard to the three categories set out by BEHB.

 

  • Items No. 1, 2, and 274

 

Items No. 1 and 2 are communications between a Core employee and Tiffany Dietzler, also at Core. (Furman Decl. Exh. 1.) Item No. 275 is a communication between Core’s in-house counsel Reed Brown and individuals who apparently are also Core employees, and Dietzler. (Furman Decl. Exh. 15 at p. 14.)

Core notes that Reed Brown (“Brown”) is its in-house general counsel. (Opposition at p. 8; Brown Decl. ¶ 1.) Communications by a corporation with its general counsel are covered by the privilege. (See Alpha Beta Co. v. Superior Court (1984) 157 Cal.App.3d 818, 826.) Statements by a non-litigant corporate employee to a corporation’s counsel may be privileged if the communication constitutes information which emanates from the corporation (as distinct from the non-litigant employee), and the communicating employee is such a person who would ordinarily be utilized for communication to the corporation’s attorney.” (See D.I. Chadbourne, Inc. v. Superior Court (1964) 60 Cal.2d 723, 736–37.) The privilege also covers communications not necessarily made to an attorney directly, but “to persons to whom disclosure is reasonably necessary for the transmission of the information, and those to whom disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer is consulted.” (Zurich American Ins. Co. v. Superior Court (2007) 155 Cal.App.4th 1485, 1495.)

Brown has declared that Dietzler is a paralegal in Core’s legal department who worked closely with him throughout the course of the underlying Rodriguez lawsuit. (Brown Decl. ¶ 7.) The parties to whom Dietzler communicated are also declared to have been involved in assisting with Core’s defense in that action at Brown’s direction. (Brown Decl. ¶ 8.) Core argues that communications with and between these individuals were thus necessary to carry out Core’s legal strategy. (Opposition at p. 9.)

The court concludes that Core has carried its initial burden to show the applicability of the privilege to these communications. As BEHB points out, these emails involve the machine that was the subject of the underlying lawsuit. (Separate Statement at p. 6.) Thus there is a high probability that these communications were made for the purpose of preparing Core’s legal defense.

BEHB argues that Core has waived the privilege as to these items by placing them at issue, since BEHB’s representation of Core in the underlying action is the subject of the present dispute. (Separate Statement at p. 6.) It is true that “fundamental fairness may require disclosure of otherwise privileged information or communications where plaintiff has placed in issue a communication which goes to the heart of the claim in controversy.” (Mitchell v. Superior court (1984) 37 Cal.3d 591, 604, internal quotation marks omitted.) However, such a doctrine is “limited in its application to the one situation in which a client has placed in issue the decisions, conclusions, and mental state of the attorney who will be called as a witness to prove such matters.” (Id. at p. 605.) Although the communications named in the privilege log involve an original “install report” and invoice for the machine that created the underlying controversy, and thus might be relevant to the present dispute, BEHB does not explain how these matters go to the heart of the controversy, or how any of the figures involved in the communication will be expected to testify to such matters. (Separate Statement at p. 6.)

BEHB further argues that the communications involving Brown, including Item No. 275, is not privileged because Brown is not licensed to practice law in Washington, where Core is located, and because the definition of “lawyer” in Evidence Code § 950 applies only to persons “authorized, or reasonably believed by the client to be authorized, to practice law in any state or nation.” (Separate Statement at p. 7.) But Brown is licensed to practice law in Utah, where he is located. (Brown Decl. ¶ 2.) Even if Brown was not authorized to serve as Core’s in-house lawyer in Washington, it thus does not appear that this failure of authorization deprives Core’s communications with him of their privileged character.

BEHB also argues that Core has waived any privilege for communications between its employees and Brown by naming him as a witness to various aspects of the case, including BEHB’s alleged acts of negligence and bad faith in refusing to settle as desired by Core. (Separate Statement at pp. 7–9.) “When a client calls that party’s attorney to testify at trial to information the attorney could have only learned through the attorney-client privilege, the privilege is waived.” (DeLuca v. State Fish Co., Inc. (2013) 217 Cal.App.4th 671, 689.) It is not apparent, however, that Brown’s testimony regarding BEHB’s alleged negligence could only be learned from the privileged communications sought here.

BEHB also argues that the privilege does not apply to an action in legal malpractice. (Separate Statement at p. 9; Evid. Code § 958.) However, this statute “only authorizes disclosure of relevant communications between a client . . . and an attorney charged with professional wrongdoing.” (Brockway v. State Bar (1991) 53 Cal.3d 51, 63.) It does not apply to communications between the plaintiff-client and their other attorneys.

BEHB argues that communications with Brown cannot be protected by the privilege because Brown’s role as Core’s legal counsel was so intertwined with other corporate roles that demarcation of confidential “legal” communications from other communications is impossible. (Separate Statement at pp. 11–12.) BEHB relies on Chicago Title Ins. Co. v. Superior Court (1984) 174 Cal.App.3d 1142, in which the court held that attorney-client privilege did not apply to communications between a company and its regional counsel, where that counsel had acted in dual capacities as legal counsel for the corporation and as its business agent, and where that attorney’s testimony was essential to prove the “reliance” element of a company’s fraud claim. (Id. at p. 1152–53.) The communications at issue in that case, however, involved an attorney’s interactions with an alleged check-fraudster in various commercial transactions, which formed the basis for the later fraud lawsuit. Here, there is no question that Brown’s communications involving the underlying lawsuit involved an underlying lawsuit, which plainly implicate his role as Core’s legal counsel. Likewise, BEHB has not identified any claims involving a similar “reliance” element for which Brown is uniquely situated to testify.

The Motion is therefore DENIED as to Items No. 1 and 2, and 274B.

 

  • Items No. 40, 126, 197, 218, 220–222, 244–45

 

This category of communications includes emails among Core employees (Dietzler and Brown) in which Joseph Chairez, coverage counsel for Core during the underlying lawsuit, was copied. (Separate Statement at p. 12.) The messages were also copied to Chairez’s associates Marcus McCutcheon and Dennis Loomis. (Separate Statement at p. 12.)

BEHB once more argues that Chairez, McCutcheon, and Loomis have been named as witnesses in support of Core’s legal malpractice allegations against BEHB, and thus that their privilege has been impliedly waived. (Separate Statement at pp. 13–15.) The argument here suffers from the same defect as the argument as relates to Brown himself: namely, a party does not waive the attorney-client privilege by naming an attorney as a witness unless that witness will testify “to information the attorney could have only learned through the attorney-client privilege.” (DeLucasupra, 217 Cal.App.4th at p. 689.) There is no showing and no required presumption that the testimony of these witnesses as to BEHB’s behavior will depend upon the communications at issue here.

The Motion is therefore DENIED as to Items No. 40, 126, 197, 218, 220–222, 244–45.

 

  • Items No. 3–36, 38–39, 41–85, 88–101, 102–125, 127–150, 152–196, 198–214, 215–217, 219, 223–235, 246–264, 267–272, 276–283

 

BEHB frames these items as involving communications between Brown and Core’s coverage counsel. (Separate Statement at p. 15.) BEHB argues that these communications are not protected for the same reasons of implied waiver described above. (Separate Statement at p. 16.) The court rejects this argument for the same reason.

The Motion is therefore DENIED as to Items No. 3–36, 38–39, 41–85, 88–101, 102–125, 127–150, 152–196, 198–214, 215–217, 219, 223–235, 246–264, 267–272, 276–283.

DATED:  July 31, 2018                                  ________________________________

Hon. Robert S. Draper

Judge of the Superior Court

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