Opinion
C19-1553JLR
08-02-2022
CONDOMINIUM OWNERS ASSOCIATION, Plaintiff, v. AFFILIATED FM INSURANCE COMPANY, et al., WATER'S EDGE, A Defendants.
ORDER
JAMES L. ROBART, UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
Before the court is Plaintiff Water's Edge, a Condominium Owners Association's (“Water's Edge”) renewed motion to compel the deposition of Daniel Syhre. (2d Mot. (Dkt. # 69).) Defendant MiddleOak Specialty (“MiddleOak”) opposes the motion. (2d Resp. (Dkt. # 71).) The court held oral argument on Water's Edge's renewed motion on August 2, 2022. (See 8/2/22 Min. Entry (Dkt. # 72).) The court has considered the parties' submissions, the arguments of counsel, the relevant portions of the record, and the applicable law. Being fully advised, the court GRANTS Water's Edge's renewed motion to compel the deposition of Mr. Syhre.
II. ANALYSIS
On October 1, 2020, Water's Edge brought a motion to compel the deposition of MiddleOak's attorney, Mr. Syhre, under Cedell v. Farmers Ins. Co., 295 P.3d 239 (Wash. 2013) based on his involvement in quasi-fiduciary tasks associated with the adjustment of Water's Edge's claim. (1st Mot. (Dkt. # 45).) The court denied its motion without prejudice and informed Water's Edge that it could renew the motion “after it takes additional discovery on MiddleOak's claims handling process if Water's Edge obtains information in discovery showing that Mr. Syhre's deposition is necessary to Water's Edge's preparation of this case.” (11/10/20 Order (Dkt. # 49) at 7; see also 10/27/20 Hrg. Tr. (Dkt. # 51) at 21.) Following the court's ruling, Water's Edge took the deposition of MiddleOak's designated representative pursuant to Federal Rule of Civil Procedure 30(b)(6) in an effort to determine whether the information sought from Mr. Syhre was available by other means. (See 2d Mot. at 1.) As a result of that deposition testimony, Water's Edge now renews its motion to compel the deposition of Mr. Syhre. (Id.) Below, the court sets forth the relevant legal standard before turning to Water's Edge's renewed motion.
A. Legal Standard
“Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case.” Fed.R.Civ.P. 26(b)(1). The Ninth Circuit defines privileged information as “confidential disclosures made by a client to an attorney in order to obtain legal advice, as well as an attorney's advice in response to such disclosures.” United States v. Chen, 99 F.3d 1495, 1501 (9th Cir. 1996). The attorney-client privilege “applies to communications between lawyers and their clients when the lawyers act in a counseling and planning role, as well as when lawyers represent their clients in litigation.” Id.
However, under Washington State law, the attorney-client privilege applies differently in certain insurance cases. “[I]n first party insurance claims by insured[s] claiming bad faith in the handling and processing of claims,” the attorney-client privilege is presumptively inapplicable. Cedell, 295 P.3d at 246. In such cases, Cedell creates a “presumption that there is no attorney-client privilege relevant between the insured and the insurer in the claims adjusting process, and that the attorney-client . . . privilege[ is] generally not relevant.” MKB Constructors v. American Zurich Insurance Co., No. C13-0611JLR, 2014 WL 2526901, at *4 (W.D. Wash. May 27, 2014) (citing Cedell, 295 P.3d at 246). Nonetheless, an insurer may overcome Cedell's “presumption of discoverability by showing its attorney was not engaged in the quasi-fiduciary tasks of investigation and evaluating or processing the claim, but instead in providing the insurer with counsel as to its own liability: for example, whether or not coverage exists under the law.” Cedell, 295 P.3d at 246.
B. Water's Edge's Renewed Motion to Compel
Water's Edge argues that the record currently before the court demonstrates that “information critical to the development and prosecution of its case can only be obtained through the deposition of Mr. Syhre.” (See 2d Mot. at 1.) Specifically, Water's Edge contends that “Mr. Syhre had complete control” over three areas of the claim adjusting process-(1) the review of Water's Edge's claim supporting documents; (2) the investigation into the nature and extent of the property damages; and (3) the contents of the denial letter-and that those three areas are relevant to Water's Edge's bad faith, Insurance Fair Conduct Act (“IFCA”), and breach of contract claims. (See id. at 1-5 (citing McIsaac Decl. (Dkt. # 70) ¶ 3, Ex. A (portions of MiddleOak's Rule 30(b)(6) representative's deposition transcript)); see also SAC (Dkt. # 36) at 4-6.)
In response, MiddleOak does not argue that Mr. Syhre was engaged in privileged, rather than quasi-fiduciary tasks, with respect to the three areas of the claim adjusting process identified in the renewed motion. (See generally 2d Resp. at 1-3.) Instead, it argues that the test announced in Shelton v. Am. Motors Corp., 805 F.2d 1323 (8th Cir. 1986), rather than Cedell, applies to this discovery dispute and that “Water's Edge cannot meet its burden on the third [element of the Shelton test] by showing that counsel's deposition is crucial to the preparation of its case by relying on the general notion that that deposition would cover topics that might be relevant to non-specific issues.” (Id. at 3; see also id. at 2 (alleging that Water's Edge could depose other individuals regarding the destructive investigation and that “it is unclear why it would be necessary for [Water's Edge] to depose defense counsel [regarding] its own records”).)
The Shelton test requires that parties seeking to depose opposing counsel demonstrate that they have no other means to obtain the information at issue, that the information is relevant and nonprivileged, and that the information is crucial. See Lloyd Lifestyle Ltd. v. Soaring Helmet Corp., No. C06-0349JCC, 2006 WL 753243, at *2 (W.D. Wash. Mar. 23, 2006) (citing Shelton, 805 F.2d at 1327).
To begin, the court rejects MiddleOak's contention that the court should apply the test for deposing opposing counsel established in Shelton to this dispute. “Although the [c]ourt [has] previously employed the Shelton test, the [c]ourt has never done so in the context of insurance bad faith litigation, and Shelton itself has never been adopted by the Ninth Circuit.” Bagley v. Travelers Home & Marine Ins. Co., No. C16-0706JCC, 2016 WL 8738672, at *2 (W.D. Wash. July 5, 2016) (citation omitted) (declining to impose the Shelton test because “Shelton is inapposite in a case such as this, where an insured alleges insurance bad faith and seeks to depose opposing counsel regarding quasi-fiduciary tasks”). Rather, this court has applied the Cedell presumption in cases where the insured claims bad faith in the handling and processing of claims and seeks to depose opposing counsel regarding quasi-fiduciary tasks. See, e.g., id. (ordering the deposition of defense counsel under Cedell because the defendant failed to carry its burden of demonstrating that the plaintiffs sought “privileged information, rather than information related to a quasi-fiduciary task”); Mkt. Place N. Condo. Ass'n v. Affiliated FM Ins. Co., No. C17-0625RSM, 2018 WL 3956130, at *1 (W.D. Wash. Aug. 17, 2018) (concluding that the depositions of defense counsel were permitted under Cedell because counsel “engaged in at least some claims processing and handling by assisting in the drafting” of coverage determination and IFCA response letters and “have discoverable information[, relevant to the claims in the case,] related to the drafting of those letters”).
Mr. Syhre conceded during the court's October 27, 2020 hearing on Water's Edge's first motion to compel, and again during the August 2, 2022 hearing on the renewed motion to compel, that he had not found any “cases that apply the Shelton rule in the Cedell context.” (See 10/27/20 Hrg. Tr. at 16-17; 8/2/22 Min. Entry.) And in its response to Water's Edge's renewed motion, MiddleOak similarly failed to provide any cases in which this court applied the Shelton test in the Cedell context. (See generally 2d Resp. at 2 (citing a case that did not involve insurance related claims in which the court applied the Shelton test to determine whether the plaintiffs could depose defense counsel).)
See also Everest Indem. Ins. Co. v. QBE Ins. Corp., 980 F.Supp.2d 1273, 1280 (W.D. Wash. 2013) (finding that “testimony [of insurer's counsel] is relevant to determining whether QBE/CAU acted reasonably in denying Derus' tender, and Everest is entitled to take her deposition”); Canyon Estates Condo. Ass'n v. Atain Specialty Ins. Co., No. C18-1761RAJ, 2020 WL 363379, at *1-2 (W.D. Wash. Jan. 22, 2020) (“[T]he Court is convinced . . . that [defense counsel] has discoverable information related to the drafting of those letters, relevant to the Association's claims, and that his deposition is permitted under Cedell.”).
Because this case involves “first party insurance claims by insured[s] claiming bad faith in the handling and processing of claims,” the court concludes that the Cedell presumption applies to the instant discovery dispute. Cedell, 295 P.3d at 246. The court further finds that Mr. Syhre engaged in claim processing and handling-i.e., quasi-fiduciary-tasks by reviewing the documents that Water's Edge submitted to MiddleOak in support of its claim; participating in the investigation into the nature and extent of the property damage; and drafting the denial letter on behalf of MiddleOak. (See generally 2d Mot. at 1-5; MiddleOak 30(b)(6) Dep. Tr. (Dkt. # 73).) The court is convinced from the record before it that Mr. Syhre has discoverable information related to those quasi-fiduciary tasks, relevant to Water's Edge's claims, and that his deposition is permitted under Cedell. Accordingly, the court GRANTS Water's Edge's renewed motion to compel the deposition of Mr. Syhre. The deposition shall be limited to the following areas: (1) the review of Water's Edge's claim supporting documents; (2) the investigation into the nature and extent of the property damages; and (3) the denial letter. Should Water's Edge pose a question to Mr. Syhre that MiddleOak believes, in good faith, seeks to elicit privileged information, it may make the proper objection. And in the event that Water's Edge believes, in good faith, that the objection is without merit, the parties may then bring that issue before the court.
III. CONCLUSION
For the foregoing reasons, the court GRANTS Water's Edge's renewed motion to compel the deposition of Mr. Syhre (Dkt. # 69). Water's Edge may depose Mr. Syhre at a mutually convenient date and time. The deposition shall be limited to the following areas: (1) the review of Water's Edge's claim supporting documents; (2) the investigation into the nature and extent of the property damages; and (3) the denial letter.