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Flaherty v. CNH Industrial America, LLC

Court of Appeals of Kansas

June 28, 2019

Duane Edward Flaherty, Appellant,
v.
CNH Industrial America, LLC, Appellee, and Straub International, Inc., Defendant.

         SYLLABUS BY THE COURT

         1. Discovery orders will not be disturbed on appeal in the absence of a clear abuse of discretion.

         2. Evidentiary privileges in the law are not favored because they operate to deny the fact-finder access to relevant information.

         3. Evidentiary privileges are to be strictly construed.

         4. Parties objecting to discovery on the basis of an evidentiary privilege bear the burden of establishing that it applies.

         5. The work-product privilege only applies to documents and tangible things. K.S.A. 2018 Supp. 60-226(b)(4)(A).

         6. The non-testifying expert privilege in K.S.A. 2018 Supp. 60-226(b)(5)(D) applies to an in-house expert who has been specially employed in anticipation of litigation or to prepare for trial and who is not expected to be called as a witness at trial.

         7. The party claiming waiver of an evidentiary privilege bears the burden of proof to establish the waiver.

         8. Waiver is the intentional relinquishment of a known right. Intention may be inferred from conduct.

         9. In the case of a corporation, the power to claim or waive a privilege generally rests with corporate management. A corporate employee cannot waive the corporation's privilege.

          Appeal from Saline District Court; Paul J. Hickman, judge.

          Cynthia J. Sheppeard and N. Larry Bork, of Goodell, Stratton, Edmonds & Palmer LLP, of Topeka, for appellant.

          Patrick A. Edwards, of Stinson Leonard Street LLP, of Wichita, and D. Christopher Robinson, pro hac vice, of Frost Brown Todd LLC, of Louisville, Kentucky, for appellee.

          Before Arnold-Burger, C.J., Hill, J., and Stutzman, S.J.

          ARNOLD-BURGER, C.J.

         Duane Edward Flaherty brought claims for breach of express and implied warranty against CNH Industrial America, LLC (CNH) after his 2014 Case IH Patriot 2240 Sprayer (Sprayer), manufactured by CNH, caught fire. The district court granted summary judgment to CNH, finding that Flaherty failed to prove that the Sprayer had a defect which caused the fire. Flaherty appealed.

         Flaherty makes two arguments on appeal.

         First, Flaherty argues that the district court erred in refusing to allow him to depose CNH's in-house expert and employee, Robert Hawken. A party ordinarily may not "discover facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or to prepare for trial and who is not expected to be called as a witness at trial." K.S.A. 2018 Supp. 60-226(b)(5)(D). Whether an in-house expert like Hawken is "retained or specially employed" is an issue of first impression in Kansas. Because Hawken only inspected the Sprayer at the request of CNH's legal department in anticipation of litigation, we find that CNH specially employed him for the purposes of the privilege. And we find that Flaherty has failed to prove that CNH waived the privilege at any time.

         Second, Flaherty argues that he did not have to show specific evidence of a defect in the Sprayer to survive a summary judgment motion and, even if he did, there was enough circumstantial evidence to prove the existence of a defect. We disagree. To prevail on his claims, Flaherty had to show that the Sprayer had a defect. Moreover, while a party may use circumstantial evidence to show a defect, Flaherty does not have enough circumstantial evidence here to prove a defect.

         Accordingly, the district court's grant of summary judgment to CNH is affirmed.

         Factual and Procedural History

         Flaherty bought the Sprayer from Straub International, Inc. (Straub) in February 2014. CNH manufactured the Sprayer. Straub is an authorized dealer of CNH products. Prior to making the purchase, Flaherty reviewed materials about the Sprayer on CNH's website. He also discussed the Sprayer with Straub sales representative Eric Everhart who told Flaherty "that the Sprayer was a good product that would do what [Flaherty] needed it to do and that Straub would stand behind its product." The Sprayer came with a Warranty and Limitation of Liability Agreement (Warranty Agreement) which provided: "If a defect in material or workmanship is found in a unit and reported during the Warranty Period, [CNH] will pay parts and labor costs to repair the defect if the services are performed by an authorized [CNH] dealer at the dealer's location." A limitations and exclusions provision in the Warranty Agreement stated that the Warranty Agreement contained the entire warranty, and that CNH made no other express or implied warranties.

         On September 11, 2014, Flaherty brought the Sprayer to Straub for scheduled maintenance and a spray hose adjustment intended to reinforce the Sprayer's boom supports. Several months earlier, Straub had received a general Product Improvement Program (PIP) bulletin to inspect the routing of 2014 Case IH Patriot 2240 Sprayers, particularly the right-hand side hydrostatic drive hoses at the engine starter to make sure they do not come in contact with the battery terminal on the engine starter. Flaherty left the Sprayer at Straub with the door unlocked and the keys in the ignition. A Straub mechanic was present and aware that the keys were in the Sprayer when Flaherty left. The Sprayer had a full tank of diesel fuel and a full tank of diesel exhaust fluid. The mechanic told Flaherty that he would move the Sprayer into the shop when he was ready to work on it.

         Three days later, at 2 a.m. on September 14, 2014, a passerby saw the Sprayer engulfed in flames and reported the fire to the Saline County Sheriff's Office. No one from Straub had interacted with the Sprayer from the time Flaherty dropped it off.

         Lieutenant Jeremiah Hays investigated the scene of the fire that night and prepared an incident report. He reported: "At this time, the cause of the fire is unknown. There is no evidence of an arson at this time. It is possible the fire started due to a faulty electrical system."

         Captain Jim Hughes went to the scene of the fire the following morning to try to determine the cause of the fire. He reviewed surveillance video from Straub. While there were several cameras, none were directed at the scene of the fire. Hughes observed no foot or vehicle traffic in the two hours preceding the fire. Troy Long, a fire investigator with the Salina Fire Department, accompanied Hughes because Hughes had no fire expertise. But Long was not there in an official capacity and conducted no formal investigation. After inspecting the Sprayer, Long told Hughes that the battery box on the rear left side of the Sprayer was the origin of the fire and he "suspected some type of electrical issue was more than likely the cause."

         Flaherty had two experts inspect the Sprayer. David Higday, a certified fire investigator, examined the Sprayer on September 17, 2014. In his report, he opined that the fire originated in the cab of the Sprayer. He could not determine the cause of the fire. He stated: "It is possible there was an electrical short within the cab, although it is a remote possibility. It is also possible that someone intentionally set the cab of the sprayer on fire." He noted that because the cameras were not facing the Sprayer, "[a] person on foot could have gained access to the sprayer without being detected by the security cameras." He discovered that Straub installed the cameras because there had been several incidents of theft on the property. Because of a disability, Higday was unable to continue working on the case. Kent Grier, President and Chief Investigator at Kent Grier Fire Investigations, Inc., reviewed and adopted Higday's opinions. During a deposition, Grier was clear that he was not offering an opinion that a defect in the design or manufacture of the Sprayer caused the fire. He had no evidence to suggest that a defect caused or contributed to the fire.

         Ghattas Bitar investigated the scene of the fire on September 22, 2014, on behalf of Flaherty's insurance company. Bitar is a senior technical consultant with Independent Forensic Investigations Corporation. After examining the Sprayer, Bitar concluded that the cause of the fire in the cab was undetermined. He believed it would not be possible to conclusively determine the cause of the fire because of the extent of the damages.

         Robert Hawken, a product safety specialist for CNH, investigated the Sprayer over a month later. In an affidavit, Hawken stated that he inspected the Sprayer at the request of CNH's legal department and in anticipation of litigation against CNH.

         Flaherty sued CNH and Straub. The suit listed several causes of action, including negligence, strict liability, breach of express warranty, breach of implied warranty of merchantability, failure to warn, violations of the Kansas Consumer Protection Act (KCPA), and negligent misrepresentation. Flaherty designated Grier and Bitar as his expert witnesses. During discovery, Flaherty filed a notice of deposition duces tecum informing the other parties of his intention to depose Hawken. CNH replied with a motion to quash and asked the court for a protective order prohibiting Flaherty's discovery of documents and information related to Hawken's inspection of the Sprayer based on two statutory privileges. The district court granted CNH's motion and did not allow Flaherty to depose Hawken. This will be addressed in more detail later.

         CNH subsequently moved for summary judgment, mainly arguing that Flaherty failed to prove that a defect in the Sprayer caused the fire. Flaherty settled with Straub while the motion for summary judgment was pending.

         The district court granted CNH's motion for summary judgment. The court first held that Flaherty's product liability and implied warranty claims failed because Flaherty could not show that a defect in the Sprayer caused the fire. In doing so, the court noted that the Kansas Product Liability Act (KPLA) governed the claims. The purpose of the KPLA, the court held, was "to consolidate all product liability actions into one theory of legal liability." This included Flaherty's claims for negligence, strict liability, implied warranty, and failure to warn. In order for Flaherty to succeed on his defective product claims, he had to prove that the Sprayer was defective. The existence of a defect could not be inferred from the mere fact that the Sprayer was involved in a fire. The court held that Flaherty failed to prove that there was a defect in the Sprayer because Flaherty's experts "were unable to reach a conclusion as to the origin or the cause of the Fire, and neither expert could offer testimony that the Sprayer was defective in any way."

         The district court also relied on the economic loss doctrine to reject Flaherty's tort claims. The court explained that this "doctrine precludes buyers of allegedly defective goods from suing under negligence or strict liability theories where the only injury consists of damage to the goods themselves." When a claim is purely for economic loss, the damages are the same as they would be in a contract action. Thus, the court found that "when the actual damages that could be recovered under a tort claim are the same as those that could be recovered for breach of contract, the economic loss doctrine precludes the tort claim."

         The district court also rejected Flaherty's express warranty claim. Flaherty argued that express warranties were created by the Warranty Agreement, claims on CNH's website, and statements by a Straub sales representative. But the district court noted that the Warranty Agreement stated that it contained the entire warranty, and that CNH made no other representations or warranties, express or implied. The district court held that the Warranty Agreement controlled, and "where an express warranty provides that a product is free of defect in material and workmanship, the claimant must identify evidence of a defect in the material or workmanship to overcome a motion for summary judgment." As with the previous issue, Flaherty failed to demonstrate that a defect in the material or workmanship of the Sprayer caused the fire.

         Finally, the district court rejected Flaherty's claim that CNH violated the KCPA in its Warranty Agreement by excluding, modifying, or limiting the implied warranty of merchantability or fitness. The limitations and exclusions clause did state that it "SPECIFICALLY EXCLUDES THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE." That said, it then acknowledged that some states may not allow such a limitation, and that the stated limitation would not apply if applicable state law did not allow such limitations. Because CNH's implied warranty disclaimer only applied if state law permitted it, and Kansas law does not permit it, the district court held that CNH did not violate the KCPA.

         Flaherty appealed.

         Analysis

         There are three primary issues in this appeal: whether the district court erred in granting summary judgment to CNH on Flaherty's express warranty claims; whether the district court erred in granting summary judgment to CNH on Flaherty's implied warranty claims; and whether the district court erred in prohibiting discovery on Hawken's inspection of the sprayer. Because the discovery issue impacts whether summary judgment was premature here, we will begin with it.

         I. The district court did not err in granting CNH's motion to quash the notice of depositions duces tecum and request for protective order.

         A. We examine the facts giving rise to this claim of error.

         Hawken, a product safety specialist for CNH, examined the Sprayer over a month after the fire and after Flaherty's experts had already inspected it. In an affidavit, Hawken stated that he inspected the Sprayer at the request of CNH's legal department and in anticipation of litigation against CNH. He also said that he only reported his findings to CNH's legal department and outside counsel. However, in Straub's answer to CNH's interrogatory, Straub stated that "[d]uring the post-fire inspection of the Sprayer performed by CNH's representative, CNH's representative told Straub General Manager Bruce Spidle that it was his opinion that the fire started in the starter area, based on what he saw from the pattern of the burn and the damage to the machine."

         Flaherty filed a notice of deposition duces tecum informing the other parties of his intention to depose Hawken. CNH replied with a motion to quash and asked the court for a protective order prohibiting Flaherty's discovery of documents and information related to Hawken's inspection of the Sprayer. CNH claimed that this information was protected from discovery for two reasons. First, K.S.A. 2018 Supp. 60-226(b)(5)(D) protected information gathered by Hawken because he is a non-testifying expert who prepared his mental impressions and opinions in anticipation of litigation. Second, Hawken's materials and opinions were protected by the work-product doctrine codified at K.S.A. 2018 Supp. 60-226(b)(4)(A) because Hawken inspected the Sprayer at the direction of CNH's in-house counsel and only reported his findings to members of CNH's legal department. Flaherty replied that CNH waived any work-product privilege related to Hawken's inspection and report because Hawken disclosed his opinions to Spidle. Flaherty added that CNH had waived any consulting expert privilege under K.S.A. 2018 Supp. 60-226(b)(5) in two ways: First, Hawken's disclosure of his opinions to Spidle, and second, by having Hawken sign its interrogatory answers. After a telephonic hearing in which the parties presented oral argument, the district court granted CNH's motion for the reasons provided in CNH's motion (work-product privilege and non-testifying witness privilege) and did not allow Flaherty to depose Hawken, nor serve him with a subpoena duces tecum.

         Flaherty challenges both grounds of the order. If we find the district court erred in prohibiting discovery, then summary judgment would be premature, and we would need to remand the case for further discovery. So we begin with this claim of error.

         B. Our standard of review for discovery error is abuse of discretion.

         "[A] trial court is vested with broad discretion in supervising the course and scope of discovery." Miller v. Johnson, 295 Kan. 636, 688, 289 P.3d 1098 (2012). "[O]rders concerning discovery will not be disturbed on appeal in the absence of a clear abuse of discretion." In re Tax Appeal of City of Wichita, 277 Kan. 487, 513, 86 P.3d 513 (2004). A judicial action constitutes an abuse of discretion if (1) no reasonable person would take the view adopted by the trial court; (2) it is based on an error of law; or (3) it is based on an error of fact. Wiles v. American Family Life Assurance Co., 302 Kan. 66, 74, 350 P.3d 1071 (2015).

         C. Privileges in the law must be strictly construed.

         "Privileges in the law are not favored because they operate to deny the factfinder access to relevant information." Adams v. St. Francis Regional Med. Center, 264 Kan. 144, Syl. ¶ 3, 955 P.2d 1169 (1998). "Because they are exceptions to the general rule that parties may obtain discovery regarding any matter that is relevant to a party's claim or defense, evidentiary privileges are to be strictly construed." Rockhill Pain Specialists v. Hancock, 55 Kan.App.2d 161, Syl. ¶ 7, 412 P.3d 1008 (2017). But as Justice Powell wrote in United States v. Nobles, 422 U.S. 225, 237, 95 S.Ct. 2160, 45 L.Ed.2d 141 (1975):

"In performing his various duties, however, it is essential that a lawyer work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel. Proper preparation of a client's case demands that he assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference."

         He went on to point out that "attorneys often must rely on the assistance of investigators and other agents in the compilation of materials in preparation for trial." 422 U.S. at 238. Thus, we have two statutory privileges in Kansas that seek to protect this information from disclosure so that an attorney can properly represent his or her client: the work-product privilege and the non-testifying expert privilege. Parties objecting to discovery based on an evidentiary privilege bear the burden of establishing that it applies. Cypress Media, Inc. v. City of Overland Park, 268 Kan. 407, 425, 997 P.2d 681 (2000).

         We will explain the application of each in turn.

         D. The work-product privilege protected the disclosure of any documents or tangible things Hawken produced in anticipation of litigation.

         The work-product privilege protects "documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative, including the other party's attorney, consultant, surety, indemnitor, insurer or agent." K.S.A. 2018 Supp. 60-226(b)(4)(A). There is an exception when a "party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means." K.S.A. 2018 Supp. 60-226(b)(4)(A)(ii). But Flaherty does not assert that this exception applies.

         The work-product privilege only applies to "documents and tangible things." K.S.A. 2018 Supp. 60-226(b)(4)(A). Thus, as Flaherty notes, it would not "apply to testimony about [Hawken's] inspection, what he told Spidle, the basis for what he said, or whether the statements Spidle attributes to him are correct." To the extent the district court relied on the work-product privilege to prohibit Hawken's statements about his investigation, this was error. But the privilege clearly extends to any documents or tangible things that would have been the subject of the requested subpoena duces tecum.

         Yet Flaherty argues that the privilege does not apply to any documents or tangible things prepared by Hawken because CNH's legal department did not supervise their preparation in anticipation of litigation. But Hawken submitted an affidavit stating that he inspected the Sprayer in anticipation of litigation. We find that it was not an abuse of discretion for the district court to accept this testimony. As CNH notes, Flaherty had already had two of his own ...


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