United States District Court, D. Kansas
BRIDGEBUILDER TAX LEGAL SERVICES, P.A. Plaintiff,
v.
TORUS SPECIALTY INSURANCE COMPANY, nka StarStone Specialty Insurance Company, Defendant.
MEMORANDUM AND ORDER
GWYNNE
E. BIRZER United States Magistrate Judge.
This
matter is before the Court on Defendant's Motion to
Compel Plaintiff to provide responses to Defendant's
discovery requests (ECF No. 29). On January
3, 2017, the Court convened an in-person hearing to address
the pending motion. Plaintiff BridgeBuilder Tax Legal
Services, P.A. (“BridgeBuilder”) appeared through
counsel, David L. Marcus. Defendant StarStone Specialty
Insurance Company[1] (“StarStone”) appeared through
counsel, M. Courtney Koger. After consideration of both the
arguments of counsel and the parties' briefing,
Defendant's Motion (ECF No. 29) is GRANTED in
part and DENIED in part for the reasons outlined
below.
I.
Background[2]
A.
Underlying Action in Johnson County District Court
The
current case stems from an underlying state action in Johnson
County, Kansas between a client named John Grissinger and his
attorney (“Grissinger
action”).[3] The state court matter, filed August 5,
2015, involved a malpractice action against BridgeBuilder, a
tax and legal office located in Johnson County. BridgeBuilder
is owned and operated by licensed attorney and certified
public accountant, Kevan Acord.
Grissinger
claimed BridgeBuilder/Acord convinced him to loan a total of
$6 million to an “online, fee-based lending”
company called NorthRock, LLC, (Mem., ECF No. 30, at 2 n.
2.). Two promissory notes (one for $4 million and one for $2
million) were executed during the NorthRock transaction.
After NorthRock defaulted on the notes, Grissinger filed the
malpractice action, claiming in part that Acord “failed
to disclose the lending risks” and “provided
inaccurate information to Grissinger regarding the strength
of collateral and personal guarantees for the loan.”
(See ECF No. 33 at 2; ECF No. 1-1, at 13.)
BridgeBuilder/Acord and Grissinger ultimately reached a
confidential settlement and the case was terminated in
October 2015. (ECF No. 1-1, at 9.)
B.
Current Case
After
conclusion of the Grissinger action, BridgeBuilder
filed the instant suit against its legal malpractice insurer,
StarStone, in Johnson County District Court, alleging
StarStone breached its contract by failing to defend the
Grissinger action and failing to pay out the
settlement proceeds according to its policy. Under that
policy, Plaintiff claims Defendant had the duty to defend it
in the Grissinger action. However, Defendant refused
defense or payment, asserting the Policy did not provide
coverage for Grissinger's claims. Defendant removed the
case to federal court on April 11, 2016.
Defendant
relies upon “Exclusion Q” of its policy to deny
Plaintiff's claim. Exclusion Q states the policy does not
apply to a claim against an insured “based upon,
arising out of, directly or indirectly resulting from, or in
any way involving any actual or alleged investment advice,
promotion, sale, solicitation, or recommendation of any
securities, real estate or other investments” by the
insured.” (Pet., ECF No. 1-1, at 13-14.) Contending
Plaintiff provided investment advice or recommendations to
Grissinger, Defendant refused to defend the claim.
Plaintiff
claims Grissinger did not make the loan because
BridgeBuilder/Acord recommended he do so, which is prohibited
by Exclusion Q. He asserts Grissinger made the loan because
he was unaware Acord represented other clients with competing
financial interests and did not appreciate the full extent of
the risks. (ECF No. 1-1 at 13.) Because it did not provide
investment advice or recommendations to Grissinger, Plaintiff
believes the denial of coverage was wrongful, and Defendant
failed to properly investigate the claim.
C.
Current Procedural Posture
This
case followed a conventional progression since its filing,
until the parties encountered a discovery dispute. On
September 30, 2016, the Court held a telephone conference to
discuss the parties' dispute regarding documents withheld
by Plaintiff on the basis of attorney-client privilege. As a
result of the conference, the parties were instructed to file
written briefing, and all pretrial deadlines were stayed
pending resolution of the discovery issues. (ECF No. 28.) The
Court has now had the opportunity to review the written
briefing and to hear argument from the parties at the January
3, 2017 hearing, and is prepared to rule.
II.
Defendant's Motion to Compel Production of Documents (ECF
No. 29)
Defendant
propounded First and Second discovery requests to Plaintiff
in August 2016 (ECF Nos. 16, 22) to which Plaintiff timely
responded in part and objected in part on September 12 and
16, 2016 (ECF No. 30, Exs. 2, 3). After multiple letters and
at least one telephone conference between counsel, and a
telephone conference with this Court, the parties could not
agree upon the proper scope of production to 11 categories of
documents.
A.
Compliance with D. Kan. Rule 37.2
Throughout
the briefing, and during the in-person hearing, the parties
demonstrated their multiple attempts to resolve their
differences on the pending discovery issues. Therefore, the
Court is satisfied they have sufficiently conferred as
required by D. Kan. Rule 37.2 and Fed.R.Civ.P. 37(a)(1).
However, despite their attempts, the parties could not
resolve all disputes, leading to Defendant's motion to
compel Plaintiff's discovery responses.
B.
Discovery Disputes
Notwithstanding
the parties' efforts, three primary issues remain: 1)
whether Plaintiff must produce information relating to the
NorthRock transactions withheld on the basis of
attorney-client privilege; 2) whether documents related to
other transactions between Plaintiff and Grissinger-beyond
the NorthRock transactions-are relevant to establish a
pattern and practice of investment advice; and 3) if
documents related to the other transactions are deemed
relevant, whether privilege will prohibit their production.
(ECF No. 30 at 3.) Each topic is addressed in turn.
1.
Attorney-Client Privilege
The
primary disagreement, which led to the first discovery
conference, is whether Defendant is entitled to the
production of communications relating to the NorthRock
transaction. Following the September 30, 2016 conference with
the Court, Plaintiff provided a privilege log (ECF No. 30,
Ex. 7) identifying 42 documents it withheld on the basis of
attorney-client privilege. All documents identified on the
log are emails (or documents discussed in emails) to or from
Plaintiff which it argues contain legal advice. Plaintiff
contends the communications between it and Grissinger are
clearly protected by the attorney-client privilege, and
because no communications were disclosed in the
Grissinger action, no waiver occurred from the mere
filing of the underlying suit.
Defendant
initially argues Plaintiff's assertion of privilege was
insufficiently supported in its privilege log. And, even if
the log supported its objection, any attorney-client
privilege asserted by Plaintiff either does not exist, or was
waived in the filing of the underlying lawsuit. Finally,
Defendant argues the characterization of communications
between Plaintiff and Grissinger-whether Acord provided
investment “advice” or
“recommendations” under Exclusion Q, or merely
“convinced” Grissinger to make the loan-lies at
the heart of this dispute, and is crucial to its defense.
a.
Applicable Law: Attorney-Client Privilege
The
attorney-client privilege is “the oldest of the
privileges for confidential communications known to the
common law. Its purpose is to encourage full and frank
communication between attorneys and their clients and thereby
promote broader public interests in the observance of law and
administration of justice.”[4] The attorney-client
privilege “should be strictly confined within the
narrowest possible limits, ”[5] because “it deprives
the factfinder from otherwise relevant
information.”[6]
In
federal court, Federal Rule of Evidence 501 determines what
law applies to an analysis of privilege.[7] In a diversity
case such as this one, FRE 501 requires a decision on
privilege be made according to state law.[8] Though Kansas law
necessarily provides the starting point, at least one court
in this district indicated “whether the court applies
federal or Kansas law generally makes no difference in
determining whether the attorney-client privilege
applies.”[9]
Under
K.S.A. § 60-426 and interpreting caselaw, the essential
elements of privilege are:
(1) Where legal advice is sought (2) from a professional
legal advisor in his capacity as such, (3) the communications
made in the course of that relationship (4) made in
confidence (5) by the client (6) are permanently protected
(7) from disclosures by the client, the legal advisor, or any
other witness (8) unless the privilege is
waived.[10]
Generally,
confidential communications made between a client and his
attorney-acting in the capacity of legal advisor-in the
course of obtaining legal assistance are
protected.[11] However, communications between client
and counsel may lack protection if they fall into one of
three categories: 1) statutory exception to privilege, or the
2) voluntary, or 3) implied waiver of the privilege. In this
dispute, Defendant claims the communications between
Grissinger and Plaintiff fall into any one of these
categories; therefore, each is considered.
i.
Demonstrating Privilege
Before
addressing the merits of the privilege, the Court must decide
whether it has adequate information to do so. When a party
withholds documents on the basis of attorney-client
privilege, that party bears the burden of establishing the
privilege applies.[12] To meet its burden, the objecting party
must describe in detail the information it deems protected,
and must provide precise reasons for its
objection.[13]
Generally,
the withholding party makes this showing by submitting a
privilege log. The contents of a privilege log vary, but
courts in the District of Kansas commonly require a privilege
log to include:
(1) A description of the document explaining whether the
document is a memorandum, letter, e-mail, etc.;
(2) The date upon which the document was prepared;
(3) The date of the document (if different from # 2);
(4) The identity of the person(s) who prepared the document;
(5) The identity of the person(s) for whom the document was
prepared, as well as the identities of those to whom the
document and copies of the document were directed, including
an evidentiary showing based on competent evidence supporting
any assertion that the document was created under the
supervision of an attorney;
(6) The purpose of preparing the document, including an
evidentiary showing, based on competent evidence,
“supporting any assertion that the document was
prepared in the course of adversarial litigation or in
anticipation of a threat of adversarial litigation that was
real and imminent;” a similar evidentiary showing that
the subject of communications within the document relates to
seeking or giving legal advice; and a showing, again based on
competent evidence, “that the documents do not contain
or incorporate non-privileged underlying facts;”
(7) The number of pages of the document;
(8) The party's basis for withholding discovery of the
document (i.e., the specific privilege or protection being
asserted); and
(9) Any other pertinent information necessary to establish
the elements of each asserted privilege.[14]
The
objecting party must provide enough information in the
privilege log to enable the other party, and the Court, to
assess each element of the privilege and determine its
applicability.[15] Mere conclusions are insufficient, and a
failure to provide supporting details in the privilege log
may result in denial of the privilege.[16]
After
hearing the arguments of counsel during the January 3, 2017
hearing, and having reviewed Plaintiff's initial
privilege log (ECF No. 30, Ex. 7), the Court agreed the log
was lacking under this district's precedent discussed
above.[17] However, acknowledging the effort of
Plaintiff to support its objection, and the meritorious
dispute regarding the applicability and scope of the
privilege, the Court declined to overrule Plaintiff's
objection on that basis, preferring to decide the issue on
the merits. Plaintiff was ordered to prepare and serve a
revised privilege log on Defendant within five days of that
hearing. As ordered, Plaintiff produced a more detailed
privilege log (ECF No. 36), and the Court accepts the amended
log and turns to the merits of the privilege issue.
ii.
Statutory Exception to Attorney-Client Privilege
Along
with the definition of privilege found in K.S.A. §
60-426, the statute includes multiple exceptions. One such
exception found in § 60-426(b)(3) is applicable when
communications between a client and his attorney “are
relevant to a breach of duty by the lawyer to his
client.” The statute does not broadly expose any
communication to disclosure “simply because it is
raised in litigation;” rather, it requires
“either the attorney or client [to] charge the other
with a breach of duty arising from their professional
relationship.”[18] The underlying rationale for the
exception is, when either an attorney or client accuses the
other of a breach of duty, “it would be unjust for a
party to that relationship to maintain the privilege so as to
preclude disclosure of confidential communications relevant
to the issue of breach.”[19]
Relying
on this section, Defendant argues the communications between
Grissinger and Plaintiff are not privileged at all. The
communications between Grissinger and Plaintiff regarding
NorthRock were clearly “relevant to a breach of duty by
the lawyer to his client.”[20] Though Plaintiff admits
the exclusion may have applied in the Grissinger
action-where Grissinger claimed malpractice against Acord and
Bridgebuilder-the Court agrees the exclusion may not apply in
this action, where Grissinger is not a party and neither
party to this case claims malpractice. Neither party
provides any authority for extending the statutory exclusion
in the underlying case to the current action, and the Court
declines to do so.
iii.
Waiver by Voluntary Disclosure (Explicit Waiver)
Even if
information is protected by attorney-client privilege, the
privilege may be waived, either through voluntary disclosure
or by implied waiver. Dealing first with voluntary waiver,
two statutes discuss explicit waiver of the privilege: K.S.A.
§ 60-437 and K.S.A. § 60-426a.
Kansas
evidence rule K.S.A. § 60-437 describes the waiver of
privilege by previous disclosure, explaining a person who
otherwise holds a privilege has no privilege “if the
judge finds that such person . . . without coercion, or
without any trickery, deception, or fraud practiced against
him or her, and with knowledge of the privilege, made
disclosure of any part of the matter or consented to such a
disclosure made by anyone.”[21] Defendant claims
Grissinger, as the holder of the privilege, waived the
privilege by filing the underlying lawsuit. But Plaintiff
argues Grissinger did not disclose any communications to a
third party during the underlying suit-the suit was settled
early on, and no public filings contained details of
communications. Plaintiff contends the act of filing the
lawsuit itself, without detailed disclosure, does not
constitute explicit waiver. Arguably, Grissinger disclosed
“part of the matter”[22] as contemplated by the
statute. However, because the Court finds § 60-426a more
applicable, it is unnecessary to decide the ultimate issue on
K.S.A. § 60-437.
If
voluntary disclosure of privileged information occurs in a
court proceeding, both K.S.A. § 60-426a and Fed.R.Evid.
502 offer parameters on the scope of the waiver. Both the
state and federal rules, in nearly identical language,
contemplate “subject matter waiver, ” explaining
how partial waiver of the privilege will constitute a
complete waiver of the privilege as to the entire subject
matter if the following elements are shown:
(1) the waiver is intentional;
(2) the disclosed and undisclosed communications or
information concern the same subject matter; and
(3) they ought in fairness be considered
together.[23]
Both
K.S.A. § 60-426a and FRE 502 are relatively recent
adoptions. A review of legislative history reveals nothing
regarding the legislature's intent in adopting K.S.A.
§ 60-426a in 2011, [24] nor does a review of caselaw reveal
any Kansas state cases analyzing the topic. But FRE 502 was
adopted three years prior to the state rule.[25] Not only are
FRE 502 and K.S.A. § 60-426a practically identical,
[26]
but FRE 502 “applies even if state law provides the
rule of ...