Truck Ins. Exchange v. Super.
Filed 7/31/13 Truck Ins. Exchange v. Super. Ct. CA1/3
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST
APPELLATE DISTRICT
DIVISION
THREE
TRUCK
INSURANCE EXCHANGE, et al.,
Petitioners,
v.
THE SUPERIOR
COURT OF ALAMEDA
COUNTY,
Respondent;
GOLDEN
STATE DEVELOPERS, INC., et al.,
Real Parties in Interest.
A137420
(Alameda
County
Super. Ct.
No. RG-06-291935,
consolidated with RG-07-334847 &
RG-10-509252)
Petitioners
Truck Insurance Exchange, Mid-Century Insurance Company, Farmers Insurance
Exchange, and Farmers Group, Inc., seek a writ directing respondent court to
vacate certain orders compelling responses to discovery propounded by real
parties in interest Golden State Developers, Inc., Castro Valley Associates,
LP, and Castro Valley, Inc. (hereafter collectively referred to as Golden
State). In the pending litigation in respondent
court, petitioners objected to the requested discovery (production of documents
and responses to deposition questions) on the ground that it sought disclosure
of communications that contravened their attorney-client privilege (Evid. Code,
§ 954).
State met its burden of
demonstrating that petitioners’ attorney-client privilege had been lost based
on the crime-fraud exception codified in Evidence Code section 956.
court erred in concluding that Golden
State had met its burden for
applying the crime-fraud exception to the attorney-client privilege. Therefore, we will issue the requested writ
and direct respondent court to vacate its orders and issue new and different
orders sustaining petitioners’ objections to discovery requests that contravene
their attorney-client privilege.
A. Background
The underlying
dispute arose after the development of single-family homes by Golden
State, who acted as the general
contractor for the project. Several
homeowners sued Golden State, seeking damages for water penetration allegedly
caused by construction defects. In March
2003, after Golden State had incurred approximately $370,000 in repair costs,
it sued several of its subcontractors, which generated various cross-complaints
between Golden State and other subcontractors and the parties’ insurers. Ultimately, one of the homeowners, James
Morrison, settled with a subcontractor for approximately $80,000; Morrison allegedly
assigned his rights against Golden State to petitioner Mid-Century Insurance
Company, the subcontractor’s insurer.
Subsequently,
Mid-Century Insurance Company filed two actions to recover the costs it had
incurred to settle the Morrison claim:
v. Golden State Developers, et al. (hereafter “Farmers/Morrison actionâ€)
and Mid-Century Insurance Company v.
Golden State Developers, et al. (hereafter “Mid-Century actionâ€)
(collectively hereafter also referred to as “the recovery actionsâ€). In the Farmers/Morrison action, Golden State
was dismissed as a defendant in January 2008.
The complaint in the Mid-Century action was filed, but not served on
Golden State. When Golden State
discovered the filed Mid-Century action complaint, it successfully moved to
dismiss that complaint against it.
During
the construction defect litigation, Golden State sued one of its alleged
insurers, petitioner Truck Insurance Exchange, for declaratory relief and to
recover damages for various claims including breach of contract, bad faith, and
misrepresentation. By the time of the
filing of a fifth amended complaint,
on March 26, 2010, Golden State added as defendants its alleged additional
insurers, petitioners Mid-Century Insurance Company, Farmers Insurance
Exchange, Farmers Group, Inc., and the insurers’ counsel Gregory R. de la Peña,
Keith L. Cooper, and de la Peña & MacDonald LLP, and an additional claim
for malicious prosecution of the dismissed recovery actions.
Respondent
court ordered the Golden State lawsuit to be tried in several phases, depending
on what issues, if any, needed to be resolved after each phase of the
trial. Phase I was to focus on certain
questions of law and declaratory relief
including whether particular Golden State claims were barred or released by
prior settlement agreements and whether certain insurers owed any duty to
defend or indemnity Golden State in the construction defect litigation. Phase II was to focus on Golden State’s
claims of breach of contract, bad faith, fraud, damages, defense fees and
costs, and indemnity. Phase III was to
focus on Golden State’s claim of malicious prosecution, with the court
specifically ordering that “[i]ssues regarding malicious prosecution and the
elements of that cause of action will not be considered for Phase I.†On September 5, 2012, after a bench trial,
respondent court filed a statement of decision resolving the Phase I issues and
adhering to its pretrial ruling not to consider issues regarding malicious
prosecution nor the elements of that cause of action.
In
preparing for the Phase II trial, Golden State sought the production of documents
in Mid-Century’s claim files.
Mid-Century objected to the production of any documents that contravened
the attorney-client privilege. After
Golden State moved to compel discovery, respondent court appointed Judge Bonnie
Sabraw (Retired judge of the Alameda County Superior Court) to serve as
discovery referee to review Mid-Century’s privilege logs. In pertinent part, the referee addressed
“whether or not there were documents in the files that supported [Golden State’s]
allegations of the application of the crime-fraud exception†to the
attorney-client privilege. After an in camera review of the files,
the referee tentatively found that the production of privileged attorney-client
information was not warranted. However,
the referee did not address whether or not respondent court had “found, as a
result of issues decided in Phase I, whether there is a basis for a finding of
the necessary prima facie showing for [Golden State’s] [application] of the
crime[-]fraud exception to the attorney client privilege,†and she requested
“guidance on that issue as it [was] anticipated [Golden State] may attempt to
propound questions related to the crime-fraud issue at upcoming
depositions.â€
On
September 14, 2012, in response to Golden State’s objections to the referee’s
recommendations, and after consideration of the parties’ oral and written
arguments, respondent court found Golden State had “set forth a prima facie
showing of fraud, at least on the part of Mid-Century Company, with respect to
both the initiation and maintenance of the [recovery actions].â€
name="_ftnref6" title="">[6] The court noted that, although the referee
had found that no reviewed documents supported an application of the
crime-fraud exception, she did so without the benefit of the court’s finding
that Golden State had made a prima facie showing of fraud. Consequently, the court remanded the matter
to the referee for a reexamination of the documents “that refer to, discuss,
mention, or otherwise relate specifically to the [recovery actions], which
presumably would eliminate any documents authored after those cases wereâ€
terminated. As to the referee’s request
for guidance on the matter of questioning during depositions, the court
directed that “lines of inquiry soliciting information regarding the [recovery
a]ctions, including the decisions to initiate and maintain those actions, may
be pursued, with [attorney-client privilege] objections to questions regarding
[those actions] subject to being overruled pursuant to Evidence Code section
956.†The court concluded by stating
that “[t]he issuance of a final order . . . will await receipt and
review of the [referee’s] further recommendations upon remand.†On remand, the referee made new
recommendations after establishing the appropriate time-frame (October 1, 2006
through January 23, 2009) for which responsive documents would be required to
be produced by Mid-Century. The referee
found that “several hundred†otherwise privileged documents were discoverable
based on the crime-fraud exception.
Petitioners objected to the referee’s recommendations, again arguing
against the application of the crime-fraud exception.
On
November 8, 2012, respondent court issued another “non-final†order addressing
petitioners’ objections. In so ruling,
the court stated: “For purposes of determining whether the [crime-fraud
exception] to the [attorney-client privilege] applies in the discovery context,
it is not necessary to make an ultimate finding of fraudulent conduct. Rather, evidence from which inferences can be
drawn to establish the fraud is a sufficient ‘prima facie showing.’ †The court again noted that its finding was
based on the previous court orders addressing the malicious prosecution cause
of action, “and, by inference, the evidence submitted by [Golden Gate] in
opposition to those motions. . . . [¶] The court further notes
that [petitioners’] arguments as to the extent of its duties to [Golden State]
under the applicable insurance policies and endorsements, raised in an attempt
to establish that the [recovery actions] were in no sense improper, are
inconsistent with the findings of the court in the Phase I trial.†The matter was remanded to the referee to
determine whether any of petitioners’ other objections to the production of the
requested documents should be sustained.
On remand, the referee made revised recommendations, identifying more
than 260 documents to which the attorney-client privilege was claimed but fell
within the temporal and subject-matter scope of respondent court’s rulings on
the crime-fraud exception. Petitioners
objected, again arguing against the application of the crime-fraud
exception.
Thereafter,
respondent court issued two orders, both filed December 18, 2012, granting, in
part, Golden State’s motions to compel answers to certain deposition questions
after overruling petitioners’ objections based on the attorney-client
privilege. On December 21, 2012,
respondent court issued a final order directing the production of documents
pursuant to the referee’s latest recommendations after again rejecting petitioners’
objections based on the attorney-client privilege. In so ruling, the court stated that
petitioners’ objections reflected “a misunderstanding of the scope and effect
of the court’s orders regarding the crime-fraud exception (“CFEâ€) as it arises
here in the discovery context. A finding
that a prima facie showing of conduct implicating the CFE has been made does
not equate to a finding of liability for such conduct. Rather, the limited effect of this finding is
to cause the production of evidence that would otherwise properly be withheld
as privileged. These discovery
production orders have no direct effect in establishing any form of liability
on the part of any party, nor are they determinative of whether any evidence
produced thereunder will be admissible in connection with the adjudication of
such issues of liability.â€
On
December 27, 2012, petitioners filed this petition for writ of mandate and/or
prohibition and requested an immediate stay of the discovery orders that were
filed on December 18, 2012, and December 21, 2012. On January 3, 2013, we temporarily stayed the
discovery orders, requested informal briefing, and gave notice, pursuant to
(1984) 36 Cal.3d 171, 180, that, if appropriate, this court might issue a
peremptory writ in the first instance.
DISCUSSION
Review and Relief Is Appropriate in This Case
It is well settled
that interlocutory writ relief is “the only adequate remedy†where a superior
court orders the production of information that “may be subject to a privilege,
‘since once privileged matter has been disclosed there is no way to undo the
harm which consists in the very disclosure.’
[Citation.] The attorney-client
privilege ‘deserves a particularly high degree of protection in this regard
since it is a legislatively created privilege protecting important public
policy interests, particularly the confidential relationship of attorney and
client and their freedom to discuss matters in confidence.’ [Citations.]â€
(Korea Data Systems Co. v.
Superior Court (1997) 51 Cal.App.4th 1513, 1516.) Because the petition here alleges that,
absent writ relief, privileged attorney-client communications will be disclosed
and the privilege irretrievably lost, we will entertain the petition.
Golden
State contends we should not reach the merits of this petition because (1)
petitioners failed to provide an adequate record; (2) the petition is untimely;
and (3) petitioners failed to pursue an adequate legal remedy in respondent
court. We conclude these procedural
objections are unavailing.
Petitioners
submitted seven volumes of exhibits, including all of the documents submitted
to respondent court concerning its orders regarding the crime-fraud exception,
as well as the court’s statement of decision after the Phase I trial, and the
only document incorporated by reference therein. Golden State complains that petitioners
failed to include the “second complaint†filed in the Mid-Century action, as
well as Golden State’s evidence submitted in opposition to defense motions
seeking dismissal of the malicious prosecution cause of action, and “critical
evidence admitted in the Phase [I] trial.â€
To the extent Golden State believed the additional documents were
relevant, they submitted them to this court and we granted its request to take
judicial notice and have considered those documents to the extent they are
relevant to our resolution of this petition.
informed appellate review. (
(2013) 212 Cal.App.4th 1076, 1085.)
We
also reject Golden State’s argument that the petition was untimely because it
was submitted approximately three months after the first court order ruling on
the crime-fraud exception to the attorney-client privilege. In that first order, the respondent court
specifically stated that “[t]he issuance of a final order [giving] effect [to
its rulings] will await receipt and review of the Discovery Referee’s further
recommendations upon remand.†The court’s final orders on the matter did not
issue until December 18, 2012 and December 21, 2012, and this petition was
thereafter timely filed on December 27, 2012.
Lastly,
we conclude petitioners adequately exhausted their legal remedy in respondent
court before filing this petition for writ relief. Golden State contends petitioners failed to
adequately challenge the requested discovery because when the crime-fraud
exception issue was first raised, petitioners “filed no written opposition,â€
but relied only on the referee’s tentative finding that there was no evidence
to support the application of the exception.
However, the record indicates that petitioners relied not only on the
referee’s tentative finding in their favor, but also relied on—and respondent
court expressly considered—petitioners’ written argument against applying the
crime-fraud exception as set forth in their “brief regarding privilege [log]
documents filed with the Court on June 1st, 2012.â€
II. Respondent Court Erred
in Ruling that the Crime-Fraud Exception to the Attorney-Client Privilege Applied in This Case
“We review
discovery orders for an abuse of discretion.
[Citation.] Under this standard,
a trial court’s ruling on a discovery motion ‘will be overturned upon a
prerogative writ if there is no substantial basis for the manner in which trial
court discretion was exercised or if the trial court applied a patently
improper standard of decision.’
[Citation.]†(
(2004) 122 Cal.App.4th 1060, 1071.)
“Evidence
Code section 956 codifies the common law rule that the privilege protecting
confidential attorney-client communications is lost if the client seeks legal
assistance to plan or perpetrate a crime or fraud. [Citation.]
The crime-fraud exception expressly applies to communications ordinarily
shielded by the attorney-client privilege.
(Evid. Code, § 954.)†(
Court (1988) 199 Cal.App.3d 1240, 1249 (BP
Alaska Exploration).) As explained
by our Supreme Court, the crime-fraud exception is invoked “ ‘only when a
client seeks or obtains legal assistance “to enable or aid†one to commit a
crime or fraud. The quoted language
clearly requires an intention on the part of the client to abuse the
attorney-client relationship . . . .’ [Citations.]â€
(People v. Clark (1990) 50
Cal.3d 583, 623 (Clark), quoting
Cal.App.3d 738, 746 (Glade), citing
to BP Alaska Exploration, supra, 199
Cal.App.3d at p. 1249.) Concededly,
“Evidence Code section 956 does not require a completed crime or fraud. It applies to attorney communications sought
to enable the client to plan to commit
a fraud, whether the fraud is successful or not. Moreover, we are not reviewing the merits of
a fraud cause of action . . . but rather we are reviewing the merits
of a discovery [motion] to determine if [Golden State] will have access to
communications between [petitioners] and [their] attorneys to aid [Golden
State] in proving its causes of action.â€
(BP Alaska Exploration, supra,
199 Cal.App.3d at pp. 1262-1263.)
Thus, “because section 956 applies where an attorney’s services are
sought to enable a party to plan to commit a fraud, the proponent of the
exception need only . . . prove a false representation of a material
fact, knowledge of its falsity, intent to deceive and the right to rely.†(BP
Alaska Exploration, supra, 199 Cal.App.3d at p. 1263.)
Golden
State contends petitioners’ prosecution of the recovery actions constituted
“criminal deceit.†We disagree. Standing alone, the prosecution of a lawsuit,
malicious or not, is neither a crime nor deceit. (Tur v.
City of Los Angeles (1996) 51 Cal.App.4th 897, 903; see also Civ. Code,
§ 1709 [defining deceit as “the willful [deception of] another with intent
to induce him to alter his position to his injury or risk].) Rather, a lawsuit is an adversarial
proceeding in which a plaintiff’s intent is to convince the trier of fact to
adopt his position. Golden State, as an
alleged in the recovery actions “without [making] an independent inquiry.†(Wilhelm
v. Pray, Price, Williams & Russell (1986) 186 Cal.App.3d 1324,
1332.) As the record shows, once that
independent inquiry was made, the recovery actions were dismissed against
Golden State. Thus, in the absence of
any showing that Golden State was deceived by the filing of the recovery
actions, it failed to meet its burden of demonstrating a prima facie showing of
fraud sufficient to invoke the crime-fraud exception to the attorney-client
privilege. (Cf. BP Alaska Exploration, supra, 199 Cal.App.3d at pp. 1264, 1268
[proponent of crime-fraud exception to attorney-client privilege demonstrated
prima facie showing of fraud; proponent had right to rely on adversary’s letter
from which reasonable inferences could be drawn that the letter was an attempt
to defraud and dissuade proponent from pursuing its claims].)
We are not persuaded that we should uphold the discovery
orders based on Golden State’s remaining arguments. We see nothing in the court’s earlier orders
addressing the elements of the malicious prosecution cause of action or the
court’s findings after the Phase I trial that demonstrates petitioners sought
or obtained legal assistance to enable or aid in the commission of a crime or
fraud. Golden State’s citation to the
ethical standards governing an attorney’s conduct and its criticism of the
recovery actions are not relevant as “it is the intent of the client upon which
attention must be focused and not that of the lawyers.†(State
Farm Fire & Casualty Co. v. Superior Court (1997) 54 Cal.App.4th 625,
645; see also Clark, supra, 50 Cal.3d
at pp. 622-623.) Even
the claim in the recovery actions, such a circumstance is not relevant without
some evidence this alleged error was attributable to an intent to defraud by
petitioners. (See Glade, supra, 76 Cal.App.3d at p. 746 [attorney’s misuse of
confidential information to defraud others does not implicate crime-fraud
exception if client did not seek legal assistance to further this goal and was
unaware of attorney’s contemplated wrongdoing].)
In sum, we conclude respondent court erred in overruling
petitioners’ objections to the production of documents and responses to deposition
questions that contravened their attorney-client privilege as Golden State
failed to demonstrate that the crime-fraud exception applied in this case.
DISPOSITION
The accelerated Palma
procedure (Palma v. U.S. Industrial
Fasteners, Inc., supra, 36 Cal.3d 171) is appropriate here because
petitioners’ “entitlement to relief is so obvious that no purpose could
reasonably be served by plenary consideration of the
issue. . . .†(
29, 35.)
Let a peremptory writ of mandate issue directing
respondent court to vacate only those portions of its two December 18, 2012
orders “Re: Motion to Compel (Motion) Partial Grant,†and its December 21, 2012
order “Re: Objections to Discovery Referee’s Recommendations Dated November 19,
2012,†which overruled petitioners’ attorney-client privilege objections to
deposition questions and the production of documents, and issue new and
different orders sustaining petitioners’ objections to the production of
documents and responses to deposition questions that contravene their attorney-
client privilege. The January 3, 2013 stay issued by this court
is dissolved. Petitioners are entitled
to their allowable costs.
_________________________
McGuiness,
P. J.
We concur:
_________________________
Siggins, J.
_________________________
Jenkins, J.
name="_ftn1" title="">[1]
The California Evidence Code refers to this privilege as the “lawyer-clientâ€
privilege (Evid. Code, § 954), instead of “the more accurate denomination [of]
‘attorney-client privilege.’ †(
Companies (C.D. Cal. 1999) 38 F. Supp.2d 1170, 1171, fn. 1.) Because the privilege is “commonly known as
the attorney-client privilege†(ibid.),
we use that nomenclature in this opinion.
Evidence Code section 956 reads: “There is no privilege . . . if the
services of the lawyer were sought or obtained to enable or aid anyone to
commit or plan to commit a crime or a fraud.â€
