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Ajose v. Interline Brands, Inc.

United States District Court, M.D. Tennessee, Nashville Division

November 23, 2016

JACQUELYN D. AJOSE, et al., Plaintiffs,
v.
INTERLINE BRANDS, INC., Defendant.

          Sharp Judge

          ORDER

          Joe B. Brown United States Magistrate Judge

         This matter is before the Court on the Plaintiffs' motion to compel production of four categories of documents withheld by the Defendant on claims of attorney-client privilege and the work-product doctrine. (Doc. 145). The Plaintiffs' motion to compel is GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND

         Through a class action complaint, the Plaintiffs seek relief for damages caused by allegedly defective DuraPro brand toilet connectors distributed by Defendant Interline Brands, Inc. (“Interline”) beginning in 2002. (Docs. 1, 81). The toilet connectors were allegedly supplied to Interline by Linx, Ltd (“Linx”) and MTD (USA) Corp. (“MTD”). (Doc. 81, pp. 11-12 ¶¶ 33, 38). The original complaint was filed on August 20, 2014. (Doc. 1). During discovery, Interline produced nearly 14, 000 documents and withheld over 4, 700 relevant documents. (Doc. 146, p. 1). The Plaintiffs take issue with the large number of documents withheld and seek an order compelling production of four categories of documents. (Doc. 145). The documents are identified by two privilege logs. (Docs. 151-1, 151-2). Interline later gave the Plaintiffs a chart identifying the name and title of individuals in the privilege logs (Doc. 149-4)[1] and a declaration from Interline's Quality Assurance Manager, Joseph Cangelosi III (“Cangelosi declaration”) (Doc. 149-7). The adequacy of Interline's privilege log (Doc. 151-1) was first addressed by the parties in June 2016. (Doc. 134, p. 3). The issue was again raised in a telephone conference with the Magistrate Judge in October 2016. (Doc. 141, p. 2). To resolve this issue, the Magistrate Judge granted the parties leave to brief the issue and requested that the challenged items be submitted for in camera review. (Doc. 141, p. 2). The parties have submitted their respective briefs (Docs. 145, 146, 150), and Interline has submitted materials for this Court's in camera review. The matter is ripe for decision.

         II. LEGAL STANDARD

         Discovery may be compelled by a court order upon motion and notice to the parties and affected persons. Fed.R.Civ.P. 37(a)(1), (a)(3)(B); Local Rule 37.01. Where a party seeks to withhold otherwise discoverable information under a claim of privilege or the work-product doctrine, the withholding party must expressly assert the claim and “describe the nature of the documents, communications, or tangible things not produced or disclosed-and do so in a manner that, without revealing information itself privileged or protected, will enable other parties to assess the claim.” Fed.R.Civ.P. 26(b)(5)(A). The withholding party may present this information in the form of a privilege log, but Rule 26(b)(5)(A)(ii) does not explicitly require a privilege log so long as the necessary information is conveyed. Genesco, Inc. v. Visa U.S.A., Inc., 302 F.R.D. 168, 191 (M.D. Tenn. 2014). The party withholding items under a claim of privilege or the work-product doctrine bears the burden of establishing the item should be withheld. United States v. Roxworthy, 457 F.3d 590, 593 (6th Cir. 2006) (citations omitted); Ross v. City of Memphis, 423 F.3d 596, 606 (6th Cir. 2005) (citation omitted).

         Where information has been withheld under claims of privilege in a federal question case, the presiding court applies federal common law to determine whether privilege applies. Fed.R.Evid. 501. The Sixth Circuit Court of Appeals set forth the following elements of the attorney-client privilege:

(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) unless the protection is waived.

Reed v. Baxter, 134 F.3d 351, 355-56 (6th Cir. 1998) (citation omitted).

         The federal work-product doctrine, codified at Rule 26(b)(3) of the Federal Rules of Civil Procedure, protects from discovery “(1) documents and tangible things; (2) prepared in anticipation of litigation or for trial; (3) by or for another party or its representative.” In re Professionals Direct Ins. Co., 578 F.3d 432, 438 (6th Cir. 2009) (internal quotations omitted) (quoting Fed.R.Civ.P. 26(b)(3)). As this Court has recognized, the work-product doctrine “does not intend to bar discovery of facts, but rather ‘the work product of the lawyer' where disclosure of the documents reveals counsel's ‘mental impressions, personal beliefs, ' and reflections of what counsel believes to be important.” John B. v. Goetz, 879 F.Supp.2d 787, 896 (M.D. Tenn. 2010) (quoting Hickman v. Taylor, 329 U.S. 495, 510-11 (1947)).

         The court determines whether a document or tangible item was prepared in anticipation of litigation or for trial by considering two factors: (1) whether the anticipated litigation or trial was the “driving force” for preparing the item as opposed to creating the item for an ordinary business purpose and (2) whether the party's subjective anticipation was objectively reasonable. In re Professionals Direct Ins. Co., 578 F.3d at 439 (quoting Roxworthy, 457 F.3d at 595). To establish the party anticipated litigation, the party seeking to withhold the materials may submit proof “such as affidavits made on personal knowledge, depositions, or answers to interrogatories.” Roxworthy, 457 F.3d at 597 (citations omitted). Conclusory statements will not satisfy this burden. Id. (citations omitted). Materials protected by the work-product doctrine may nevertheless be ordered disclosed where the requesting party establishes it has a substantial need for the materials and cannot obtain equivalent information through other means without undue hardship. Fed.R.Civ.P. 26(b)(3)(A). Even where disclosure is ordered, however, the court must protect against disclosure of opinion work product. Id. 26(b)(3)(B).

         Though privilege is generally waived by disclosure of a privileged communication to a third party, exceptions to this rule exist where: (1) multiple clients are represented by the same attorney in the same matter; (2) defendants share a common defense and share information to effect this defense (the “joint-defense” privilege); or (3) two or more clients share a common interest and exchange legal advice in support of this interest (the “common-interest” privilege). Reed, 134 F.3d at 357 (describing the common-interest privilege); Goetz, 879 F.Supp.2d at 897-98 (explaining the joint-defense privilege and common-interest privilege); Jones v. Nissan N. Am., Inc., No. 3:07-0645, 2008 WL 5114652, at *3 (M.D. Tenn. Dec. 2, 2008) (citations omitted) (explaining that an employer and its worker's compensation carrier shared a common interest in relation to worker's compensation claim); Broessel v. Triad Guar. Ins. Corp., 238 F.R.D. 215, 219-20 (W.D. Ky. 2006) (citations omitted).

         III. ANALYSIS

         The Plaintiffs challenge Interline's assertion of privilege as to the following categories of documents: “(1) documents related to Interline's adjusting of claims for property damage; (2) non-privileged communications between non-legal Interline employees and agents; (3) spreadsheets compiling factual data; and (4) drawings related to the design of the defective connectors.” (Doc. 145). Several documents from each category were provided for in camera review. The categories and the documents submitted in camera are addressed in turn.

         A. CLAIM FILES

         The Plaintiffs first argue that Interline has improperly invoked the work-product doctrine and attorney-client privilege to withhold documents related to Interline's adjusting of claims for property damage. (Doc. 146, pp. 1, 6). Claims received by Interline are divided into three categories: (1) direct claims from customers, (2) subrogation demands, and (3) notices of litigation. (Doc. 149-1, p. 4 of 7). Importantly for purposes of this analysis, the Plaintiffs only seek production of documents related to direct claims and subrogation demands, not notices of litigation. (Doc. 146, p. 8). The parties have not disputed the relevance of these documents.

         1. APPLICATION OF THE WORK-PRODUCT DOCTRINE TO CLAIM FILES

         The first issue presented is whether files created in response to direct claims and subrogation demands may be withheld as work product. The answer to this question turns on whether the files were prepared in anticipation of litigation. See In re Professionals Direct Ins. Co., 578 F.3d at 439 (citation omitted) (“Making coverage decisions is part of the ordinary business of insurance and if the ‘driving force' behind the preparation of these documents was to assist Professionals Direct in deciding coverage, then they are not protected by the work-product doctrine.”).

         Interline cites Young v. Chapman, No. 3:14-CV-666-JHM-CHL, 2016 WL 1717226 (W.D. Ky. Apr. 28, 2016) for the proposition that insurance claim files are discoverable where the withholding party has not established that they were prepared in anticipation of litigation. At issue in Young was the production of a statement made by a driver to his insurance provider after an automobile accident. Id. at *4, 6-7. As the Young court observed, the Sixth Circuit has rejected the assumption that every investigation into an insurance claim is done “in anticipation of litigation” because making coverage decisions is an ordinary business matter for insurers. Id. at *6 (citing In re Professionals Direct Ins. Co., 578 F.3d at 439). The Young court found the driver's statement to the insurer was not made in anticipation of litigation even though (1) four cars and multiple individuals were involved in the accident; (2) the accident received media coverage; and (3) the insurance representative gave sworn testimony that at the time the statement was taken the insurance company believed litigation may ensue. Id. at *7. The following statement supplied by the insurance representative was deemed conclusory: “[b]ased on the facts of the accident, apparently involving multiple collisions between several vehicles, Amerisure retained Specialty Claims . . . and obtained the recorded statement . . . due to its belief that the accident may result in litigation.” Id. (alterations in original). The court additionally noted that the claim was treated like other claims and found that a police report supported a finding that another driver was at fault which suggested litigation was less likely. Id.

         As the Plaintiffs note, the Young decision is supported by other district court decisions within this circuit. See Cardinal Aluminum Co. v. Cont'l Cas. Co., No. 3:14-CV-857-TBR-LLK, 2015 WL 4483991, at *4 (W.D. Ky. July 22, 2015) (finding that the plaintiff had not established that documents prepared by an insurance broker in the ordinary course of business qualified as work product); Cowie v. State Farm Fire & Cas. Co., No. 1:07-CV-63, 2007 WL 2077619, at *2 (E.D. Tenn. July 17, 2007) (explaining that insurance investigatory materials may be work product if they were primarily created in anticipation of litigation and the fact-intensive inquiry should focus on who prepared the documents, the nature of the documents, and when the documents were created); Flagstar Bank v. Fed. Ins. Co., No. 05-CV-70950-DT, 2006 WL 6651780, at *5-6 (E.D. Mich. Aug. 21, 2006) (explaining that claims materials were not privileged where they were prepared by attorneys because a claims investigation was required in the ordinary course of business).

         The Plaintiffs contend that Interline is self-insured because it is responsible for a $75, 000 claim deductible and adjusts claims in the ordinary course of business. (Doc. 146, p. 7). Interline rejects the label “self-insured” because it maintains insurance through third-party carriers. (Doc. 150, p. 8 & n.4). Interestingly, both sides cite Interline's second amended complaint in another lawsuit for their competing definitions. See Amended Complaint for Declaratory Relief and Damages, Interline Brands, Inc. v. AIG Specialty Ins. Co., No. 3:14-cv-00426 (M.D. Fla. filed April 14, 2014) (Doc. No. 40). In the unrelated amended complaint, Interline alleged it maintained various liability policies with third-party insurers. Id. at 3-8. Having taken out insurance policies with other entities, Interline is not “self-insured.” See Self-Insurance, Black's Law Dictionary (10th ed. 2014) (defining self-insurance as “A plan under which a business maintains its own special fund to cover any loss. Unlike other forms of insurance, there is no contract with an insurance company.”). Like a self-insured company, however, Interline has internal procedures for resolving claims.

         Arguing it is not self-insured, Interline distinguishes this case from an order on a motion to compel in Trabakoolas v. Watts Water Technologies, Inc., No. 3:12-cv-01172 (N.D. Cal. dismissed Aug. 5, 2014) (Doc. No. 210).[2] While Interline is correct that the withholding party in Trabakoolas was described as self-insured, the court's order compelling production of documents was based on the fact that the party used an in-house team to investigate and adjust claims concerning failed toilet connectors in the ordinary course of business. Id. The court found it inconsequential that a risk management department be required to report to an attorney. Id. at 2. To establish an anticipation of litigation, the court explained, the withholding party “must identify a trigger event, ” which “could include the involvement of legal counsel on behalf of the claimant, or the denial of a claim.” Id. Because the withholding party had not identified a specific reason for anticipating litigation when claims were reviewed, the work-product doctrine did not apply. Id. at 2-3.

         Whether Interline is self-insured is not dispositive. The overall question is whether Interline created the withheld claims files in the ordinary course of business or whether these files were created “because of” an objectively reasonable subjective anticipation of litigation. As already stated, Interline divides its claims into three categories: (1) direct claims from customers, (2) subrogation demands, and (3) notices of litigation. (Doc. 149-1, p. 4 of 7). Ordinarily Interline account representatives handle direct customer claims and act as agents or brokers between customers and suppliers. (Doc. 149-1, p. 4 of 7). In this case, the supplier would be either Linx or MTD. (Doc. 149-1, p. 4 of 7). Subrogation demands and notices of litigation are directed to the legal department after Mr. Cangelosi makes product identifications. (Doc. 149-1, p. 4 of 7).

         To establish that this procedure changed due to a reasonable anticipation of litigation, Interline submitted the Cangelosi declaration. (Doc. 149-7). Mr. Cangelosi explained that before 2007 or 2008, Interline had only received a few claims regarding DuraPro brand toilet connectors and those claims were handled by Interline's Quality Assurance Team. (Doc. 149-7 ¶ 6). Interline noticed an increasing number of DuraPro brand toilet connector claims in 2007 or 2008. (Doc. 149-7 ¶ 7). Based on the “slight increase in the number of claims” and the filing of an individual lawsuit, Interline and its General Counsel's office were alerted to a potential threat of litigation. (Doc. 149-7 ¶ 8). Interline's General Counsel's office directed that DuraPro brand toilet connector claims be handled by the legal department which solicited Mr. Cangelosi's input. (Doc. 149-7 ¶ 9). The legal department continued to handle these claims as the threat of litigation grew in the following years. (Doc. 149-7 ¶ 10). Mr. Cangelosi stated that the “‘driving force' behind Interline's General Counsel's office's unique preparation of claims documents regarding the DuraPro Brand Toilet Connectors between around 2007 and 2012 was the threat of litigation.” (Doc. 149-7 ¶ 13).

         From the parties' representations, the Magistrate Judge finds that in the ordinary course of business claim files would be created by Interline quality assurance employees or in-house counsel upon receipt of direct claims and subrogation demands. The fact that direct claim files were prepared by in-house counsel once Interline was alerted to a potential threat of litigation does not detract from the fact that this was standard practice. To the extent that Interline's in-house attorneys went beyond the investigative and negotiation functions formerly performed by the quality assurance employees upon receipt of direct claims, those efforts may constitute work product. Additionally, if the in-house attorneys' treatment of subrogation demands changed based on an anticipation of litigation, that factor may lead to a finding of work-product protection. The information submitted to the Court is not enough to reach these conclusions.

         Beyond asserting that in-house counsel had a “unique” method of preparing claim documents and that the threat litigation was the “driving force” for these unidentified methods, the Cangelosi declaration does not provide specific or detailed information required for the undersigned to determine that the direct claim and subrogation demand files were prepared outside the ordinary course of business. Additionally, Interline claims it subjectively anticipated litigation upon a “slight increase in the number of claims” and the filing of an individual lawsuit. (Doc. 149-7 ¶ 8). Receipt of summons may reasonably trigger an anticipation of litigation for related claims. As of the date of this order, Interline has not provided the requisite details to evaluate the “individual lawsuit, ” such as the date of service. Interline has not met its burden of establishing that the withheld direct claim files and subrogation demand files were prepared in anticipation of litigation. Until this is established, the Magistrate Judge cannot conclude, categorically, that the direct claim files and subrogation demand files constitute protected work product.

         The following documents were submitted for in camera review:

• ESI-0000019 (Log Entry 18) - PRIVILEGED o This is an email from Chuck Roche at Linx to Mark Allen and copied to two Linx email accounts on August 5, 2014, titled “Re: Watts Taizhou Shida Claims.” It is withheld as an attorney-client communication and/or work product “regarding indemnification/joint defense/common interest for claims and/or litigation involving the DuraPro brand toilet connectors.” (Doc. 151-2, p. 1).
o Mark Allen is a Global Sourcing Director at Interline. (Doc. 149-4, p. 5).
o This document is properly withheld under the work-product doctrine and attorney-client privilege. Legal strategies are solicited through this email. Privilege is not waived by disclosure to Linx employees pursuant to the common-interest privilege.
• ESI-0000080 (Log Entry 72) - NOT PRIVILEGED o This document is described as “Wequp to MTD Comparison Photos.pdf” created on June 28, 2013. It is withheld as work product “regarding claims involving the DuraPro brand toilet connectors.” (Doc. 151-2, p. 4).
o The Cangelosi declaration states this entry “contains Interline's own photographs regarding a toilet connector that was the subject of an active claim.” (Doc. 149-7 ¶ 12).
o This nine-page document consists of pictures of various connectors. The privilege log explanation does not distinguish between ordinary claims handling and preparing materials in anticipation of litigation. Likewise, the Cangelosi declaration explains these photographs were taken in response to a claim, not in an anticipation of litigation. Interline has not satisfied its burden of establishing work-product protection.
• ESI-0001420 (Log Entry 1164) - NOT PRIVILEGED o This is an email from Vickie Coughlin to Joe Cangelosi on May 31, 2012, titled “Confidential: FW: State Farm a.s.o. Castro (water claim).” It is withheld as an attorney-client communication and work product “regarding claims involving the DuraPro brand toilet connectors.” (Doc. 151-2, p. 50).
o The Cangelosi declaration states this document is a communication between legal personnel and himself involving legal issues with the DuraPro brand toilet connectors. (Doc. 149-7 ¶ 11).
o Vickie Coughlin is a Senior Paralegal at Interline. (Doc. 149-4, p. 7).
o This one-page email is not privileged. The Rule 30(b)(6) deposition of Interline revealed that Mr. Cangelosi makes product identifications for complaints sent to Interline's in-house counsel in the ordinary course of business. (Doc. 149-1, p. 4 of 7). In this email, Ms. Coughlin requests that Mr. Cangelosi identify a product and review an expert report regarding a claim. The privilege log description of the document, the Cangelosi declaration, and the contents of this email do not suggest that an anticipation of litigation as opposed to an ordinary business purpose was the driving force behind Ms. Coughlin's request. Additionally, the descriptions of this document do not identify a basis for withholding this document under the attorney-client privilege. Interline's in-house legal department processed claims on Interline's behalf at the time this email was sent. From the context of this email, it appears that Ms. Coughlin seeks Mr. Cangelosi's input in a business capacity.
• ESI-0004388 (Log Entry 3509) - NOT PRIVILEGED o This is an email involving Joe Cangelosi dated May 11, 2010, titled “E.L. Ross Claim.” It is withheld as an attorney-client communication and work product “regarding claims involving the DuraPro brand toilet connectors.” (Doc. 151-2, p. 140).
o The Cangelosi declaration states this document is a communication between legal personnel and himself involving legal issues with the DuraPro brand toilet ...

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