U.S. Fire Ins. Co. v. Icicle Seafoods, Inc.

523 F.Supp.3d 1262

UNITED STATES FIRE INSURANCE COMPANY, et al., Plaintiffs/Counterclaim Defendants,

v.ICICLE SEAFOODS, INC., et al., Defendants/Counterclaim Plaintiffs.

NO. C20-00401-RSM

United States District Court, W.D. Washington, at Seattle.

Signed March 5, 2021

Matthew Clayton Crane, Robert D. Sykes, Meliha Jusupovic, Bauer Moynihan & Johnson, Seattle, WA, for Plaintiffs/Counterclaim Defendants.

Daniel Francis Mullin, Tracy A. Duany, Timothy E. Allen, Mullin, Allen & Steiner, PLLC, Seattle, WA, for Defendants/Counterclaim Plaintiffs.

ORDER DENYING DEFENDANTS-COUNTERCLAIM PLAINTIFFS ICICLE'S MOTION TO DISQUALIFY COUNSEL

RICARDO S. MARTINEZ, CHIEF UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

This matter comes before the Court on Defendants-Counterclaim Plaintiffs Icicle Seafoods, Inc., and ISVesselCo, Inc. (collectively, "Icicle")’s Motion to Disqualify Counsel from representing Plaintiffs-Counterclaim Defendants in this matter.¹ Dkt. #45. Icicle argues that Plaintiffs’ counsel, Matt Crane, is a key fact witness in this case and should therefore be disqualified under Washington's Rules of Professional Conduct ("RPC") 3.7 and 1.7. Icicle also argues that Mr. Crane's firm Bauer, Moynihan & Johnson ("Bauer Moynihan") should be disqualified as well. Id. Plaintiffs oppose the motion, claiming that the hypothetical testimony from Crane is neither material nor prejudicial to Plaintiffs and can be obtained elsewhere, and that exceptions to the Rules are applicable in any event. Dkt. #49. The Court finds oral argument unnecessary to resolve the relevant issues.

For the reasons set forth below, the Court DENIES Icicle's Motion to Disqualify. Plaintiffs have also sought sanctions against Icicle, which this Court DENIES.

II. BACKGROUND

This action arises out of an insurance claim for Loss of Hire ("LOH") damages claimed by Icicle as a result of engine damage on the vessel R.M. THORSTENSON ("the THORSTENSON") in December 2016 that interrupted Icicle's fish processing operations in 2017 and 2018. After discovery of the engine damage, Icicle submitted a claim under hull and equipment coverage ("the Hull Claim"). The Hull Claim was reported to Icicle's insurers, Plaintiff-Counterclaim Defendants United States Fire Insurance Company, National Union Fire Insurance Company of Pittsburgh, PA, Great American Insurance Company of New York, Argonaut Insurance Company, Endurance American Insurance Company, Houston Casualty Company, and Certain Underwriters at Lloyd's, London ("Insurers"), and parties settled the Hull Claim in October 2018. Once the Hull Claim was resolved, parties turned to address Icicle's LOH claim for damages incurred from interruptions to their fish processing operations. From 2018 until 2020, parties unsuccessfully attempted to settle the LOH claim. Insurers adjusted Icicle's LOH claim in the amount of $966,638.48, which Icicle refused to accept on the basis that their damages approximated $4 million. Dkt. #1 at ¶ 11, Dkt. #18 at ¶ 86.

On March 13, 2020, Insurers filed a declaratory judgment action in this Court seeking a declaration of Icicle's actual loss of net earnings sustained as a result of the THORSTENSON's December 2016 engine damage and as limited by the policy terms and conditions between the parties. Dkt. #1 at ¶ 30. On June 5, 2020, Icicle counterclaimed for violations under breach of contract, breach of duty of good faith and fair dealing, the Washington Consumer Protection Act, RCW 18.86, and the Insurance Fair Conduct Act ("IFCA"), RCW 48.30.015.² Dkt. #18 at ¶¶ 88-98. Parties suspended discovery while attempting mediation but resumed after mediation efforts failed.

Icicle claims $4,043,445.00 in loss of earnings for cod, herring, sockeye salmon, and pink salmon as a result of the THORSTENSON's engine damage. Dkt. #18 at ¶ 86. A large percentage of Icicle's claim is comprised of pink salmon loss—specifically, the amount of pink salmon Icicle would have processed had the THORSTENSON been able to travel to a fishing management area in Alaska called "Area M." Dkt. #1 at ¶ 19. The instant motion to disqualify concerns an expert report drafted by independent fishing expert Tom Manos, who was retained by Insurers to investigate and draft a report regarding the pink salmon that Icicle would have been able to process in Area M in 2017. Id. The expert's report ("the Manos Report") concluded that 4.5 million pounds of pink salmon were available in Area M. Dkt. #18 at ¶ 71. During a June 2019 meeting, Insurers accidentally disclosed the Manos Report to Icicle. Id.

On October 13, 2020, counsel for Icicle discovered a "previously unknown email" authored by Crane dated June 20, 2019. Dkt. #45 at 6. Crane's email summarized the Manos Report as follows:

[I]n [Manos’] opinion, Icicle could have processed up to 4.5 million lbs of pink salmon in 2017 had the RM THORSTENSON gone to Area M on the Alaska Peninsula in August 2017. Manos based his opinion on the fishery having a 20-year high run of pink salmon and the surplus of available fish, but that processing that quantity of salmon required the assured to have had arranged catcher boats, tenders and trampers in advance to be able to handle such a volume of fish. Those are big assumptions and are part of the requests in the attached forensic accounts’ letter, but Manos’ report provides some independent support for the assured's loss of pink salmon claim .... At this point we intend to retain his report as a consulting expert report and not disclose it to the assured.

Dkt. #46-1 at 38 (emphasis added). After discovering Crane's email, Icicle's counsel sent a letter to Crane and Bauer Moynihan dated October 19, 2020, requesting that Crane and his firm withdraw from this matter. Id. at 41-43. In demanding Crane and his firm's withdrawal, Icicle argued that Insurers’ previous attempt to bury the Manos Report violated their fiduciary duty and gave rise to a potential malpractice claim by Insurers against Crane and Bauer Moynihan. Id. Crane refused to withdraw and still represents Insurers.

On November 12, 2020, Icicle filed the instant motion to disqualify Crane and his firm from representing Insurers. Dkt. #45. Icicle claims that Crane is a necessary witness for its bad faith claims against Insurers, as Icicle will need to cross-examine Crane regarding his decision to "bury the Manos report." Id. at 9. For that reason, Icicle argues, Crane must be disqualified from this matter under RCP 3.7(a). as well as under RCP 1.7(a)(2) for an irreconcilable conflict of interest with his clients. It further argues that Bauer Moynihan must be disqualified under RCP 1.7(a)(2) since Crane's conflict of interest is imputed to them. Id. at 13.

III. DISCUSSION

A. Legal Standard

This Court's Local Civil Rule 83.3 (a)(2) directs that "attorneys appearing in this district shall ... comply with ... the Washington Rules of Professional Conduct (RPC)." Washington RPC 3.7 provides:

(a) A lawyer shall not act as an advocate at a trial in which the lawyer is likely to be a necessary witness unless:

(1) the testimony relates to an uncontested issue;

(2) the testimony relates to the nature and value of legal services rendered in the case;

(3) disqualification of the lawyer would work substantial hardship on the client; or

(4) the lawyer has been called by the opposing party and the court rules that the lawyer may continue to act as an advocate.

(b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.

Id. (emphases added).

Washington courts are reluctant to disqualify an attorney absent compelling circumstances. Pub. Util. Dist. No. 1 of Klickitat Co. v. Int'l Ins. Co., 124 Wn.2d 789, 812, 881 P.2d 1020 (1994). "When an attorney is to be called ..., a motion for disqualification must be supported by a showing that the attorney will give evidence material to the determination of the issues being litigated, that the evidence is unobtainable elsewhere, and that the testimony is or may be prejudicial to the testifying attorney's client." Id. (quoting Cottonwood Estates, Inc. v. Paradise Builders, Inc., 128 Ariz. 99, 105, 624 P.2d 296 (1981) ). Disqualification is considered "a drastic measure which courts should hesitate to impose except when absolutely necessary." United States ex rel. Lord Elec. Co., Inc. v. Titan Pac. Constr. Corp., 637 F. Supp. 1556, 1562 (W.D. Wash. 1986) (citing Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 721 (7th Cir. 1982) ); see also Venable v. Keever, 960 F. Supp. 110, 113 (N.D. Tex. 1997) ("Depriving a party of the right to be represented by the attorney of his or her choice is a penalty that must not be imposed without careful consideration"). Disqualification motions are therefore subject to "particularly strict judicial scrutiny." Am. Safety Cas. Ins. Co. v. Happy Acres Enterprises Co. , No. C16-0044 RSM, 2017 WL 279616, at *3 (W.D. Wash. Jan. 20, 2017) (quoting Optyl Eyewear Fashion Int'l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985) ).

B. Disqualification for Trial Testimony under RCP 3.7(a)

As an initial matter, the Court agrees with Insurers that Icicle's motion under RCP 3.7 is premature. Dkt. #49 at 10. As this Court has previously stated, "the plain language of Washington RPC 3.7(a) is unequivocally clear in only prohibiting attorneys from acting as an advocate at trial. " Am. Safety Cas. Ins. Co. , 2017 WL 279616 at *3 (quoting Microsoft Corp. v. Immersion Corp. , No. C07-936RSM, 2008 WL 682246, at *3 (W.D. Wash. Mar. 7, 2008) ) (emphasis in original). Trial in this matter is currently set for September 20, 2021. At this stage of the case, the fundamental questions raised by Icicle's motion—whether the Manos Report indeed supported Icicle's LOH claims and whether Insurers violated any duty by planning not to disclose it—remain unresolved. Furthermore, to the extent Icicle seeks to disqualify Crane's law firm under RCP 3.7, this...