Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00492/USCOURTS-caed-2_05-cv-00492-3/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

TIG INSURANCE COMPANY 

OF MICHIGAN,

Plaintiff,

vs. CIV-S-05-0492-MCE GGH 

VISION SERVICE PLAN, 

et al.,

Defendants. ORDER 

 /

On December 22, 2005, the parties, by and through their counsel, were heard in

connection with TIG’s motion to compel production of documents. Chip Cox appeared by

telephone on behalf of TIG. David Wood appeared for defendants.

Introduction and Summary

On November 29, 2005, this court held a telephone conference regarding TIG’s

motion which was originally scheduled to be heard on December 8, 2005. At that time, the court

ordered defendants to produce documents from the underlying litigation, not subject to dispute,

which were located in their offices on December 2, 2005, and to produce documents not

currently in their offices by December 13, 2005. At that time, the hearing on plaintiff’s motion to

compel was continued to December 22, 2005.

\\\\\

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 1 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

2

Facts

Defendants are Vision Service Plan and its subsidiaries (“VSP”), and Altair

Eyewear, Inc. TIG issued an insurance liability policy to VSP with an effective date of January

9, 2002, which was cancelled by VSP effective November 18, 2002. Defendants claim that

TIG’s policy covers them in underlying litigation, Aspex Eyewear, Inc. v. Altair Eyewear, Inc., a

patent infringement action in New York. Defendants’ costs of defending this action are more

than $700,000, according to TIG and close to $1 million according to defendants. TIG alleges

that the underlying action began when Aspex wrote a letter to Altair, alleging patent infringement

in July, 2001, followed by another letter in September, 2001. Because the policy at issue is a

“claims made” policy, TIG contends that it only provides coverage for claims first made during

the policy period. TIG contends these demand letters were made before the policy was issued. 

TIG additionally claims that when VSP applied for a policy in January, 2002, it denied any

previously asserted claims. Based on what TIG asserts are these material misrepresentations, it

issued the policy to VSP. Aspex filed an action against Altair in August, 2002. TIG originally

declined coverage for the Aspex litigation but then later agreed to defend Altair under a

reservation of rights. 

TIG filed the instant action to rescind the policy and declare that it does not cover

the Aspex litigation. On August 17, 2005, defendants responded to the instant discovery

requests. It was in early November, 2005 that defendants discovered further pre-August, 2002

documents and transmitted a privilege log to TIG on November 10, 2005.

Defendants assert that TIG’s application for its policy was vague and ambiguous,

and VSP did not understand that TSP’s questions concerned “claims” like those contained in the

two Aspex letters. They deny any material misrepresentations on the basis that Aspex’s July and

September, 2001 letters to Altair do not constitute claims, that defendants regularly receive

numerous frivolous demand letters, that Altair responded that they were not infringing, to which

Aspex did not respond until ten months later, leading Altair to believe the matter was laid to rest

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 2 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

 Despite the observations in a few cases that Pagano had been implicitly overruled by 1

the Supreme Court (on matters unrelated to the proposition advanced herein), no such overruling

ever took place.

3

and not necessary to disclose to its insurer. 

Discussion

The document request remaining at issue is number 7 which requests “all

documents that examine, consider, review, refer or relate to any patents or intellectual property of

Aspex Eyewear.”

The parties now agree that documents generated after the complaint in Aspex was

served on defendants are not sought by TIG. Remaining at issue are documents listed in

defendants’ November 8, 2005 privilege log which precede August, 2002, the date the underlying

litigation was filed. Exhibit A to Joint Statement. 

TIG argues that defendants waived any privilege, based on various theories,

including that defendants’ production of these documents to Aspex in the underlying litigation

constituted a waiver. Defendants claim that their disclosure to Aspex does not waive the

privilege because it was a selective waiver to prove its defense of non-willful infringement, and

that this disclosure was reasonably necessary to accomplish the purpose for which Davis Wright

and Tremaine was consulted, to establish this defense. Therefore, defendants argue, disclosure to

Aspex does not constitute a waiver as to TIG.

I. Choice of Law

Because the subject matter jurisdiction for this action is based on diversity of

citizenship, the court must ascertain the appropriate law, federal or California, for discussion of

the issues. In this diversity action, questions of substantive privilege are governed by state law. 

Pagano v. Oroville Hospital, 145 F.R.D. 683, 687 (E.D.Cal. 1993). See also First Pacific 1

Networks, Inc. v. Atlantic Mutual Ins. Co., 163 F.R.D. 574, 576 (N.D. Cal. 1995); Bank of the

West v. Valley Nat’l Bank of Ariz., 132 F.R.D. 250, 251 (N.D. Cal. 1990). However, matters

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 3 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

4

going to the procedure for invocation of such privilege, e.g., preparation of privilege logs, are

entirely federal in nature. Eureka Financial Corp v. Hartford Acc. & Indem. Co. 136 F.R.D. 179,

182; see Fed. R. Civ. P. 26 (b)(5).

In this diversity case arising out of an insurance claim made under state law, the

court must apply the state law of attorney-client privilege. First Pacific Networks, Inc. v.

Atlantic Mutual Ins. Co., 163 F.R.D. 576, 576 (N.D. Cal. 1995); Bank of the West v. Valley

Nat’l Bank of Ariz., 132 F.R.D. 250, 251 (N.D. Cal. 1990); Connolly Data Systems, Inc. v.

Victor Technologies, Inc., 114 F.R.D. 89, 91 (S.D. Cal. 1987); see Platypus Wear, Inc. v. K.D.

Co., Inc., 905 F. Supp. 808, 832 (S.D. Cal. 1995) (applying state privilege law in diversity action

to evidence applicable to state law claims); Marvin Lumber v. PPG Industries, 168 F.R.D. 641,

644 (D.C. Minn. 1996) (applying Minnesota law of attorney-client privilege in diversity case). 

Accordingly, the court will apply the attorney-client privilege law of California.

First, privileges under California law are narrowly construed as their invocation

tends to impair the search for the truth. McKesson HBOC, Inc v. Superior Court, 115 Cal. App.

4th, 1236, 9 Cal. Rptr. 3d 812, 817 (2004). In California, communications between a lawyer and

client which are intended to be confidential are protected from disclosure. Cal. Evid. Code §

952. 

As used in this article, “confidential communication between client

and lawyer” means information transmitted between a client and

his or her lawyer in the course of that relationship and in

confidence by a means which, so far as the client is aware,

discloses the information to no third persons other than those who

are present to further the interest of the client in the consultation or

those to whom disclosure is reasonably necessary for the

transmission of the information or the accomplishment of the

purpose for which the lawyer is consulted, and includes a legal

opinion formed and the advice given by the lawyer in the course of

that relationship.

The party claiming a privilege shoulders the burden of showing that the evidence

it seeks to suppress falls within the terms of an applicable statute. HLC Properties, Ltd. v.

Superior Court, 35 Cal. 4th 54, 59, 24 Cal. Rptr. 3d 199, 202 (2005). For example, the party

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 4 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

5

claiming the privilege has the burden to establish that the information was transmitted in the

course of professional employment. Witkin, California Evidence, § 1125 (Third Ed.). However,

once that initial burden is met, the party attacking maintenance of the privilege has the burden to

rebut the presumption of confidentiality. Cal. Evid. Code § 917. 

II. Waiver

California law has two separate statutory sections pertinent to the issue of waiver

of attorney-client privilege. The attorney-client privilege protects confidential communications

which “disclose[] the information to no third persons other than those who are present to further

the interest of the client in the consultation or those to whom disclosure is reasonably necessary

for the transmission of the information or the accomplishment of the purpose for which the

lawyer is consulted.” Cal. Evid. Code § 952. However, waiver of the privilege is also defined in

Cal. Evid. Code § 912: 

a) Except as otherwise provided in this section, the right of any

person to claim a privilege provided by Section 954 (lawyer-client

privilege), 980 (privilege for confidential marital communications),

994 (physician-patient privilege), 1014 (psychotherapist-patient

privilege), 1033 (privilege of penitent), 1034 (privilege of

clergyman), 1035.8 (sexual assault counselor-victim privilege), or

1037.5 (domestic violence counselor-victim privilege) is waived

with respect to a communication protected by the privilege if any

holder of the privilege, without coercion, has disclosed a

significant part of the communication or has consented to

disclosure made by anyone. Consent to disclosure is manifested by

any statement or other conduct of the holder of the privilege

indicating consent to the disclosure, including failure to claim the

privilege in any proceeding in which the holder has the legal

standing and opportunity to claim the privilege.

 ****

(c) A disclosure that is itself privileged is not a waiver of any

privilege.

(d) A disclosure in confidence of a communication that is protected

by a privilege provided by Section 954 (lawyer-client privilege),

994 (physician- patient privilege), 1014 (psychotherapist-patient

privilege), 1035.8 (sexual assault counselor-victim privilege), or

1037.5 (domestic violence counselor-victim privilege), when

disclosure is reasonably necessary for the accomplishment of the

purpose for which the lawyer, physician, psychotherapist, sexual

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 5 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

6

assault counselor, or domestic violence counselor was consulted, is

not a waiver of the privilege.

Disclosure to an Adverse Party

At hearing after some discussion, counsel for both parties represented that

“substantially” all documents at issue in the instant motion were previously produced to Aspex in

the underlying litigation subject to a protective order. The parties did not identify any disputed

documents herein which were not previously disclosed. Therefore, for purposes of this motion,

this court finds that all documents which are the subject of this motion were previously produced

to Aspex. See Joint Statement, Exhs. B and C.

Where a party produces otherwise privileged documents to an adversary, it waives

the privilege as to other adversaries. McKesson HBOC, Inc. v. Superior Court, 115 Cal. App.4th

1229, 1236, 9 Cal. Rptr. 3d 812, 817 (2004). McKesson had established an internal review for

accounting irregularities, and some of the information generated from such was considered to be

privileged information. Several private lawsuits were filed against McKesson on account of the

accounting problems as well as the commencement of an investigation by the federal

government. McKesson decided to give its internal review information to the federal

government. The plaintiffs in the private lawsuit demanded the internal review documents as

they argued any privilege had been waived by disclosure to the federal agencies involved. The

trial court agreed. The appellate court rejected McKesson’s argument that it had disclosed

privileged materials to the government on the basis that such “disclosure was reasonably

necessary to accomplish the purpose for which the attorneys were consulted.” Id. at 1237, 818,

citing Raytheon Co. v. Superior Court, 208 Cal. App. 3d 683, 256 Cal. Rptr. 425 (1989). 

McKesson construed Raytheon to suggest that parties who are aligned on the same side of an

investigation, but are nonetheless adversaries because they may try to shift blame on each other,

may share privileged information without waiving it under some circumstances. The McKesson

court distinguished the Raytheon targets and explained that there was no true alignment of

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 6 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

7

interests between an entity under investigation by the government for securities laws violations

and the government, even though the entity was attempting to root out the source of accounting

improprieties. Id. at 1238, 818. The court explained, “no one suggests that a defendant facing

multiple plaintiffs should be able to disclose privileged materials to one plaintiff without waiving

the attorney-client privilege as to the other plaintiffs.” Id. In other words, the “reasonably

necessary to accomplish the purpose” doctrine of non-waiver does not extend to adversarial

disclosures.

The exception to waiver based on a reasonable necessity for counsel to

accomplish the purpose for which it was consulted does not apply to documents disclosed by

Altair to its adversary, Apex. There is no suggestion that these two parties were aligned in any

manner and Raytheon is therefore distinguishable, based on the same reasons cited in the

McKesson case. Nor is it significant that the documents in this case disclosed to Apex were

required by normal discovery to be disclosed because Altair chose to assert an advice of counsel

defense. Whether one voluntarily attempts to ward off the government by voluntary disclosure of

privileged information, or one voluntarily chooses to defend itself in actual litigation by assertion

of a defense with concomitant disclosure requirements, the fact remains that the privileged

information was chosen to be disclosed to better one’s legal position. In both situations, the pros

and cons of disclosure are weighed against the benefit of bettering one’s legal position. And,

when that disclosure is made to an active or potential adversary, the privilege is waived.

Finally, the mere act of attempting to insulate the privileged disclosure from

further disclosure by way of protective order or agreement cannot be held to avoid a waiver. 

Generally, such self-help action is ineffective to relieve one of the consequences of his actions

vis-a-vis third parties, and the result is no different here. Invocation of the advice of counsel

defense is not painless, see Chiron v. Genentech, 179 F. Supp. 2d 1182 (E.D. Cal. 2001), and the

disclosure consequences with respect to third party rights cannot be stipulated away by the initial

beneficiaries of disclosure.

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 7 of 8
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

8

Because the court finds that defendants waived the privilege by producing

documents to Aspex, it will not address alternative theories of waiver. 

Conclusion

Accordingly, IT IS ORDERED that plaintiff’s motion to compel, filed November

9, 2005, is granted. Defendants shall produce the subject documents within fifteen days of this

order.

DATED: 1/4/06

/s/ Gregory G. Hollows

 

GREGORY G. HOLLOWS

 U. S. MAGISTRATE JUDGE

GGH/076

TIG0492.dct.wpd

Case 2:05-cv-00492-MCE -GGH Document 37 Filed 01/04/06 Page 8 of 8