Elite Performance LLC v. Echelon Prop. & Cas. Ins. Co.

Elite Performance LLC, an Arizona limited liability company, Plaintiff, v. Echelon Property & Casualty Insurance Company, an Illinois corporation Defendant.

No. CV 20-00552-TUC-RM (LAB)

United States District Court, D. Arizona

August 12, 2022

ORDER

Leslie A. Bowman United States Magistrate Judge

Pending before the court is the plaintiff's motion to compel filed on January 13, 2022. (Doc. 38) The defendant filed a response on January 27, 2022. (Doc. 40) The plaintiff filed a reply on February 3, 2022. (Doc. 42)

Also pending is the defendant's motion, filed on February 8 2022, to strike portions of the plaintiff's reply brief which was filed in support of its motion to compel. (Doc. 43) The plaintiff filed a response on February 9, 2022. (Doc. 44) The defendant filed a reply on February 11, 2022. (Doc. 46)

The court finds the motions suitable for determination without oral argument. LRCiv 7.2(f)

Background

In April of 2019, a small fire damaged property owned by the plaintiff, Elite Performance. (Doc. 1-3, p. 3) Elite contracted with AC/DC Corporation to fix the damage. Id.

AC/DC's work, however, was sub-par, and Elite subsequently filed suit against it (and its owner) in Maricopa County Superior Court alleging negligence. Id., pp. 3-4 AC/DC was insured at the time by the defendant in this action, Echelon. Id. AC/DC tendered the state court suit to Echelon for a defense, but after some back and forth, Echelon ultimately refused coverage. Id., p. 4 The letter informing Elite of that refusal was authored by attorney Elizabeth Fleming, who had been retained by Echelon. (Doc. 38, p. 2) Elite and AC/DC subsequently stipulated to a judgment in favor of Elite in the amount of $475,000. Id., pp. 5-6 In addition AC/DC assigned to Elite the bad faith and contract claims it had against Echelon pursuant to Damron v. Sledge, 105 Ariz. 11, 460 P.2d 997 (1969). Id.

Elite subsequently filed a bad faith and breach of contract action against Echelon in Pima County Superior Court. (Doc. 1-3, pp. 2-10) On December 23, 2020, Echelon removed that action to this court alleging diversity jurisdiction. (Doc.1)

Pending Motions

When Elite filed its original lawsuit against AC/DC, AC/DC tendered a claim to its insurer, Echelon, for a defense. Elizabeth Fleming, from the Udall law firm, subsequently issued to AC/DC a denial of coverage letter on January 24, 2020. (Doc. 38, p. 2); (Doc. 38-1) She wrote as follows: “Elite's claims as presently presented do not fall within the coverage of AC/DC's Policy.” (Doc. 38-1, p. 6) AC/DC therefore was forced to obtain counsel on its own. (Doc. 38, p. 2)

Later, however, on July 31, 2020, Fleming withdrew the coverage denial based on new evidence of “physical damage done to the electric panel which [Elite's counsel] claims qualifies as property damage for the purpose of coverage under this policy.” (Doc. 38-2, p. 8) She issued a “Reservation of Rights” and invited counsel, Robert M. Moore, to stay on assuming he would accept Echelon's panel billing rates. (Doc. 38-2, pp. 2-3)

Later still, on October 14, 2020, Fleming issued a “Disclaimer of Coverage” because the alleged damage to the electrical panel fell within a coverage exclusion. (Doc. 38-3, p. 8) The letter was addressed to Beth Fitch, who apparently represented AC/DC at that time. (Doc. 38-3, p. 2) In conclusion, Fleming wrote as follows: “As previously noted this is not a professional liability policy and, as such, it is not intended to apply to the conduct that Elite is generally alleging.” Id.

In its pending motion to compel, Elite asserts that it is entitled to the “full and complete unredacted claim file of Echelon” and “the files of the Udall Law Firm and Elizabeth Fleming, including all communications with Udall Law Firm and payments made to Udall Law firm” pursuant to Fed.R.Civ.P. 37. (Doc. 38, p. 1)

On January 27, 2022, Echelon filed a response to the motion to compel arguing generally that discovery is precluded by the work-product privilege and the attorney-client privilege. (Doc. 40) On February 3, 2022, Elite filed a reply. (Doc. 42)

On February 8, 2022, Echelon filed its pending motion to strike. (Doc. 43) Echelon moves that this court strike “Section D” from Elite's reply brief, in which Elite argues that Echelon should produce all communications it had with attorney Beth Fitch, who represented AC/DC at some point. (Doc. 43) Elite filed a response and Echelon filed a reply. (Doc. 44); (Doc. 46)

Discussion: Motion to Compel Disclosure of the Claim File

In general, “[p]arties 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, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed.R.Civ.P. 26(b)(1). Pursuant to Fed.R.Civ.P. 37(a)(3)(B)(iv), “A party seeking discovery may move for an order compelling . . . production . . . if . . . a party fails to produce documents.”

Elite argues first that the court should order Echelon to “produce the full and complete unredacted claim file of Echelon and certify same under oath.” (Doc. 38, p. 1) Elite explains that it requested “a full and complete copy of the entire claim file” in its Request for Production of Documents, No. 1. (Doc. 38, p. 4) Echelon subsequently disclosed its 556-page claim file but 229 pages were completely redacted. Id., pp. 4-5. Echelon notified Elite that the redacted information was withheld pursuant to the work-product privilege and the attorney-client privilege. (Doc. 38, p. 6) Elite filed the pending motion to compel pursuant to Rule 37 arguing that neither privilege applies. The court considers the privileges in turn.

The work-product privilege is codified at Fed.R.Civ.P. 26(b)(3)(A) and reads in pertinent part as follows:

Ordinarily, a party may not discover 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).

Elite argues first that the work-product privilege does not apply to the redacted pages because these pages were “prepared as part of insurance claim investigations” and not “in anticipation of litigation.” (Doc. 38, p. 5) Specifically, Elite asserts that “[d]ocuments are not work product simply because litigation is in the air or there is a remote possibility of some future litigation.” (Doc. 38, p. 6) Here, however, there was something more than a “remote possibility.”

On May 13, 2020, AC/DC's counsel, Robert M. Moore, “sent a letter to Echelon's counsel, demanding that Echelon provide a defense in the underlying suit and stating that, if it failed to do so, it would ‘enter into a Damron Agreement^[1] without further notice.'” (Doc. 40, p. 3); (Doc. 40-1, p. 4) A similar letter, expressing similar demands, was sent to Echelon on July 22, 2020 by Elite's counsel, Joel L. Herz. (Doc. 40, p. 3); (Doc. 40-2, p. 2) The court agrees with Echelon that by May 13, 2020, documents prepared by Echelon's attorneys, agents, or other representatives likely were “prepared in anticipation of litigation.” See Fed.R.Civ.P. 26(b)(3)(A). Echelon, however, provides no evidence tending to show that documents prepared prior to May 13, 2020 were prepared in anticipation of litigation. The court therefore agrees with Elite in so far as it asserts that documents prepared prior to May 13, 2020 have not been shown to be work-product.

Elite further argues that documents in the claim file prepared by Echelon's counsel, Elizabeth Fleming, are not protected by the attorney-client privilege. In Arizona, the attorney-client privilege is codified at A.R.S. § 12-2234. Centex Homes v. NGM Ins. Co., 2020 WL 5593759, at *1 (D. Ariz. 2020); see also Fed.R.Evid. 501. (“[I]n a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.”). “The attorney-client privilege only protects communications that are made to or by a lawyer for the purpose of securing or giving legal advice.” Id. (punctuation modified). “Thus, not all communications to or by one's lawyer are privileged.” Id. “Indeed, merely assigning an attorney to perform an ordinary insurance business function does not cloak with privilege matters that would otherwise be discoverable.” Id. “Because the privilege impedes full and free discovery of the truth, the privilege is strictly construed.” Roehrs v. Minnesota Life Ins. Co., 228 F.R.D. 642, 645 (D. Ariz. 2005). “The party resisting production bears the burden of persuasion.” Id. (punctuation modified).

Here, Elite maintains that Echelon's counsel, Elizabeth Fleming, acted as a normal claims adjuster and therefore her activities are not covered by the attorney-client privilege. See (Doc. 38, p. 8); see, e.g., Nerdig v. Electric Insurance Company, 2018 WL 5776523, *2 (D.Ariz. 2018) (Claim notes prepared by defense counsel were not protected by the attorney-client privilege because they did not contain legal advice.). Elite notes, for example, that she was the one who drafted the letters denying AC/DC's claim. (Doc. 38, p. 7) The first letter drafted by Fleming was dated January 24, 2020, approximately four months before the May 13, 2020 letter that first put Echelon on notice that it might anticipate a lawsuit. It therefore appears that she was retained, at least initially, to perform the routine task of claims adjustment.

In response, Echelon asserts that Elite's characterization of...