Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-06456/USCOURTS-caed-1_04-cv-06456-3/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:2201 Declaratory Judgement (Insurance)

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

AMCO Insurance Company, )

 )

Plaintiff, )

)

v. )

)

MADERA QUALITY NUT LLC, et )

al., )

)

 Defendants. )

______________________________)

)

MADERA QUALITY NUT LLC, et )

al., )

 )

 Counter-Claimants, )

 )

v. )

 )

AMCO INSURANCE COMPANY, )

 )

 Counter-Defendant. )

 )

1:04-cv-06456-SMS

ORDER GRANTING IN PART AND

DENYING IN PART PLAINTIFF’S

MOTIONS TO COMPEL DISCOVERY OF

INTERNAL INVESTIGATION AND TO

COMPEL DEPOSITION OF CHRISTOPHER

GLENISTER (DOCS. 49 and 57)

Plaintiff’s motions to compel deposition testimony and

discovery of Defendants’ internal investigation and to compel the

further deposition testimony of Christopher Glenister came on

regularly for hearing on March 31, 2006, at 2:00 p.m. in

Courtroom 7 before the Honorable Sandra M. Snyder, United States

Magistrate Judge. Julian J. Pardini of Lewis Brisbois Bisgaard &

Smith, LLP, appeared on behalf of Plaintiff; Arturo Gonzalez of

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Morrison & Foerster LLP and Jeffrey P. Davis of Dowling Aaron &

Keeler appeared on behalf of Defendants. After argument the

matter was submitted to the Court.

I. Background

The first amended complaint filed by Plaintiff on April 22,

2005, alleges jurisdiction pursuant to 28 U.S.C. § 1332 based on

diversity of citizenship, and it concerns conduct arising out of

a fire that occurred on August 11, 2003, at the Madera nut

processing facility of Defendant Madera Quality Nut, LLC (MQN), a

California corporation and the insured under a policy issued by

Plaintiff Amco Insurance Company (Amco). Plaintiff Amco alleges

that Defendant MQN, by its own officers and employees, and by

officers and personnel of several Virginia corporations of which

MQN is alleged to be a subsidiary (Defendants Madera Quality Nut,

Inc., Red River Roods, Inc., Universal Leaf Tobacco Company,

Inc., and Universal Corporation), engaged in fraud by claiming

fire loss based on business expenses and product damage that were

materially and intentionally inflated. Plaintiff Amco’s claims

include the following: 1) declaratory relief based on intentional

concealment and/or misrepresentation voiding the insurance

policy, which is denied by Defendant MQN, and is manifested in

proofs of loss and other documentation submitted in connection

with examinations under oath in 2004 of various personnel and

officers of the Defendant corporations, and reflecting

concealment or fraud committed on the day after the loss and

thereafter, fraud concerning the quality, number, and type of

product allegedly damaged in the fire, the dollar value claimed

to be owed for loss or damage to the product, gross inflation of

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the value and quantity of items damaged, the security camera

videotape monitoring the interior of the site of the fire, the

dollar value falsely claimed as business interruption and extra

expense, the commingling of fire-damaged nut with old, unsaleable

Brazil nuts and Chinese blanched almonds, the existence or

destruction of various items of evidence and documents concerning

the exact quantity of nut product in the plant at the time of the

fire, the weekly reports of production, the time photographs were

taken in relation to removal of damaged product, pricing inedible

nut product at prices exceeding their actual value, purchase

contracts and other documents that would evidence the product in

the plant at the time of the fire, and the financial condition of

MQN until the time of loss; 2) declaratory relief regarding

restitution of the advance payment made by Amco to MQN should the

policy be determined to be null and void; 3) declaratory relief

regarding the amount of coverage owed to Defendant MQN under the

policy should the Court determine that coverage is owed; 4)

damages for common law fraud against all Defendants should the

Court determine that coverage is not owed; 5) declaratory relief

regarding entitlement to, and the amount of, an award for costs

of the Plaintiff insurer’s investigation against all defendants

should the Court find Defendants liable for common law fraud; and

6) an award of punitive damages against all defendants for common

law fraud.

In the answer filed on June 2, 2005, Defendants deny that

the alleged parent corporations do business through MQN, which is

now doing business as a corporation. They admit the advance

payment by Plaintiff in the amount of $533,521.95. It is admitted

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that Red River wholly owned and was the parent corporation of

MQN, that MQN’s earnings were included in Universal’s financial

statements and accounting records, and that the other corporate

defendants were informed of the fraud allegations. However,

Defendants deny all factual assertions of imputed liability,

admit that a fraud investigation began in November 2003 as a

result of fraud allegations made by employee Rosemary Valladares,

and admit that Hearington communicated with her and received

documents regarding allegations of insurance fraud. It is

admitted that various employees and officers were present at the

site at various times. Defendants deny the major allegations of

the elements of the various claims. Defendants assert affirmative

defenses of failure to state a claim, a claim for damages, a

claim for tort damages, violation of the First Amendment in the

form of a claim for punitive damages, denial of a claim for fees

and costs, statute of limitations, bad faith breach of the

implied covenant of good faith and fair dealing underlying the

contract, Plaintiff’s misconduct and negligence, lack of

causation, lack of justifiable reliance, failure of condition,

lack of statutory compliance, justification, excuse of

performance, third party misconduct, Defendant’s reasonable

conduct undertaken in good faith, no intentional act, full

performance, lack of authorization or ratification, lack of

standing, lack of jurisdiction, estoppel, laches, waiver, unclean

hands, failure to mitigate, and further defenses if discovered in

the course of discovery.

On June 2, 2005, MQN filed a counterclaim against Amco for

breach of contract and breach of the implied covenant of good

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faith, seeking special, general, economic, incidental,

consequential, and punitive damages, as well as interest, fees,

and costs. MQN alleged that Amco failed to advise and inform MQN

how to document its claim of loss with the intent to increase the

likelihood of a denied claim or decreased recovery, made false

statements of fact to delay and reduce recovery, failed to

consider MQN’s position fairly, made an unreasonable coverage

determination, attempted to force acceptance of reduced benefits,

brought the instant lawsuit in order to enhance Amco’s position

in settlement discussions, failed to supervise and control its

agents and attorneys, and violated various California statutes

relating to insurers. MQN denied commingling of damaged and

undamaged product with wrongful intent or other misconduct,

alleged mitigation and salvage of product, and sought $810,813.46

as a result of Amco’s breach of contract, representing the

difference between the amount owed to MNQ and the amount paid.

On July 8, 2005, Amco answered the counterclaim, denying all

the material factual allegations regarding wrongful conduct, and

asserting defenses of failure to state a claim, bar to recovery

based on the insurance contract, satisfaction of contractual

obligations, unreasonable action by MQN, MQN’s breach of the

contract by way of material, intentional misrepresentation, lack

of causation, third party causation, failure to mitigate, third

party fault, statute of limitations, estoppel, unclean hands,

waiver, lack of coverage, reasonable conduct, laches,

unconstitutionality of punitive damages and of bad faith, accord

and satisfaction, no entitlement to fees or interest, stacking of

policies, credit or offset, and unclear claim. Amco sought a

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declaration regarding the controversy as well as costs of suit.

II. Motion to Compel Discovery of the Internal Investigation

On January 19, 2006, Plaintiff filed a motion to compel

deposition testimony and discovery of the internal investigation

of insurance fraud undertaken by Defendant Universal Corporation

(“UC,” MQN’s parent company) after allegations of fraud were made

by MQN employees. Plaintiff filed a memorandum and the

declaration of Mohammed S. Mandagary in support of the motion. 

Plaintiff seeks communications between employees and

witnesses regarding the fire and the loss and insurance claim

resulting therefrom, including interviews of MQN employees; 

Defendant UC’s entire investigation file, including but not

limited to summaries of interviews prepared by Randolph “Randy”

Robinson and reviewed by Mr. Joseph Hearington and reports,

notes, etc., generated during the course of the investigation by

Defendants’ employees and management personnel; Plaintiff also 

seeks to depose 1) Mr. Randolph Robinson, Manager of Internal

Auditing for UC and employee of Leaf Tobacco (Leaf), who

conducted a factual investigation and reported to Hearington; 2)

Mr. Joseph Hearington, Corporate Director of Internal Auditing

for UC, who, undertook an internal factual investigation of the

fraud allegations, interviewing MQN employees and examining the

books and records of MQN to determine if any fraud had occurred,

and reporting to UC’s auditing committee; 3) Mr. James H.

Starkey, Vice President of UC and Senior Vice President of Leaf,

to whom Hearington also reported; 4) the members of the internal

audit committee, to whom the report was rendered and who are

identified in Plaintiff’s memo (Doc. 49-1 at p. 3) as John B.

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Adams, Jr., Thomas H. Johnson, Eddie N. Moore, Jeremiah J.

Sheehan, and Walter A. Stosch; and 5) the MQN employees who were

interviewed.

Alternatively, should this Court conclude that the

investigation was privileged, then Plaintiff asserts that

Defendants waived their right to argue attorney-client privilege

or work product doctrine pursuant to Cal. Evid. Code § 912(a) by

producing in this case, over Defendants’ counsel’s objection,

transcripts of depositions from the Valladares action (wrongful

termination proceeding in state superior court brought by

Valladares and others for termination of whistleblowers in

violation of public policy), consisting of Hearington’s and

Starkey’s (and unspecified others’) testimony giving the time,

manner, purpose, and identities of those who conducted the

investigation and limited findings of the investigation; and by

placing the findings of the internal factual investigation at

issue by raising various affirmative defenses (third party

misconduct, good faith, lack of intentionality, and lack of

authorization or ratification) and filing the counterclaim that

put the investigation into issue.

Plaintiff requests that at the very least, the Court should

review the final report of the investigation in camera to

determine whether it is privileged in whole or in part, and order

disclosure of solely factual parts with redactions of portions

that constitute legal advice; and Plaintiff requests that the

Court order the deposition of MQN’s in-house counsel regarding

the procedures involved in the investigation itself in order to

clear up the conflicting stories that MQN has offered about the

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extent, nature and effect of counsel’s involvement. 

Plaintiff asks the Court to rule in its favor, grant the

motion to compel discovery, and preclude Defendants from

asserting the privilege and instructing witnesses not to respond

to questions at deposition.

Defendants filed opposition to the motion on February 17,

2006, including a memorandum of points and authorities and the

declarations of Arturo J. Gonzalez; Joseph W. Hearington;

Catherine H. Claiborne, associate general counsel for Leaf, and

as such in-house counsel to all Defendants; and Christopher A.

Brown of the Dowling firm. 

On March 21, 2006, Plaintiff filed a reply with points and

authorities (Doc. 70).

III. Analysis

A. Attorney-Client Privilege

1. Governing Law

Fed. R. Evid. 501 provides:

Except as otherwise required by the Constitution

of the United States or provided by Act of Congress

or in rules prescribed by the Supreme Court pursuant

to statutory authority, the privilege of a witness,

person, government, State, or political subdivision

thereof shall be governed by the principles of the

common law as they may be interpreted by the courts 

of the United States in the light of reason and experience.

However, in civil actions and proceedings, with respect

to an element of a claim or defense as to which State law

supplies the rule of decision, the privilege of a witness,

person, government, State, or political subdivision thereof

shall be determined in accordance with State law

(Emphasis added).

The import of this provision is that in civil diversity cases in

which state law governs, state law governs the issue of

privilege. Star Editorial, Inc. v. United States District Court

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for Central District of California, 7 F.3d 856, 859 (9th Cir.

1993). Here, the discovery in question relates to state law fraud

and bad faith claims; thus, the existence and extent of any

privilege is controlled by California law. 

2. Whether Attorney-Client Privilege Applies to 

 the Internal Investigation

a. General Principles

Under California law, all privileges derive from statutory

law. HLC Properties, Ltd. v. Superior Court, 35 Cal.4th 54, 59

(2005). Pursuant to the attorney-client privilege, confidential

communications between a client and a lawyer are privileged, and

the client may refuse to disclose, and prevent another from

disclosing, such communications. Cal. Evid. Code § 954. The

privilege extends to all forms of communication, including

transmission of specific documents. Mitchell v. Superior Court,

37 Cal.3d 591, 600 (1984).

A 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 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. Cal.

Evid. Code § 952. Thus, for example, the privilege extends to

communications that are intended to be confidential if they are

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made to attorneys, business associates, or agents of the party or

his attorneys on matters of joint concern, when disclosure of the

communication is reasonably necessary to further the interest of

the litigant or purpose of the legal consultation. Oxy Resources

California LLC v. Superior Court, 115 Cal.App.4th 874, 890

(2004).

 A client is a person who, directly or through an authorized

representative, consults a lawyer for the purpose of retaining

the lawyer or securing legal service or advice from him in his

professional capacity. Cal. Evid. Code § 951.

With respect to establishing a privilege, the Court

indicates which party has the burden of producing evidence and

the burden of proof with respect to an issue of preliminary fact

as implied by the rule of law under which the question arises,

and the Court determines the existence or nonexistence of

disputed preliminary facts. Cal. Evid. Code §§ 402, 405. The

burden of establishing the attorney-client privilege is on the

party claiming the privilege. HLC Properties, Ltd., 35 Cal.4th at

59-60. The party claiming the privilege must establish a prima

facie claim of privilege, or the preliminary facts essential to

the claim, namely, a that the communication was made in the

course of an attorney-client relationship; this means that it

must be shown that an attorney-client relationship existed with

respect to the communication in question. D.I. Chadbourne, Inc.

v. Superior Court, 60 Cal.2d 723, 729 (1964); Wellpoint Health

Networks, Inc. v. Superior Court, 59 Cal.App.4th 110, 123 (1997);

Travelers Ins. Companies v. Superior Court, 143 Cal.App.3d 436,

448 (1983). When that showing has been made, then the

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communication is presumed to have been made in confidence, and

the opponent of the claim of privilege has the burden of proof to

establish that the communication was not confidential, Cal. Evid.

Code § 917, or to establish a prima facie showing that an

exception applies or a waiver occurred, Wellpoint Health

Networks, Inc., 59 Cal.App.4th at 123-24. Even if a communication

is made in the course of professional employment, it is not

privileged unless the client intends that it be treated in

confidence. D. I. Chadbourne, Inc. v. Superior Court, 60 Cal. 2d

at 732. Further, the mere delivery to an attorney of a

communication not originally privileged does not render the

communication privileged. Id. at 732-733.

General principles concerning the application of the

privilege in situations involving corporate clients were

discussed in D. I. Chadbourne, Inc., 60 Cal.2d at 733-38. Where

the person who gives information is an employee of a corporation

who is not a person charged with potential liability but is

merely a witness to matters that require communication to the

corporate attorney, then the information is the statement of an

independent witness and is not privileged. However, if the

information is required to be reported by the employee in the

ordinary course of business, then the employee is no longer an

independent witness, and his statement or report becomes that of

the employer; further, such a communication may be privileged if

the employer’s dominant purpose is for confidential transmittal

to the employer’s attorney. Id. at 736-38. It was emphasized that

in all corporate employer-employee situations, it is the intent

of the person from whom the information emanates that originally

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governs its confidentiality (and thus its privilege); thus, where

an employee is not expressly directed by the employer to make a

statement, and he or she does not know that his statement is

sought on a confidential basis or does not intend it to be

confidential, the intent of the party receiving and transmitting

the statement cannot control the question of privilege. Id. at

737-38. Where the employer directs the employee to make a

statement, the intent of the employer controls. Id. at 738.

Factors considered in such situations include the degree of

an employee’s choice to make a statement and whether the employee

has been informed of choice or requirement; if the employee has

no choice to make a statement but is required by the corporate

employer to make a statement, then the employee’s state of mind

is not greatly important; rather, it is a situation where the

corporation may be the client who desires to communicate its

knowledge to its attorney confidentially. Chadbourne, 60 Cal.2d

at 734. Other factors are whether the statement is made by the

employee directly to the employer, or indirectly to another;

whether the employer was first consulted before the statement;

and to whom the statement was intermediately and ultimately

transmitted. Id. at 734-36.

b. Dominant Purpose of Investigation 

In order for an employee’s statement to be privileged, where

a corporate entity is a client, the dominant purpose of the

communication must be transmittal to an attorney in the course of

professional employment; there is no privilege for a

communication that is not made to, or for further communication

to, an attorney, even though the communication might have some

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connection with possible liability in the future, such as reports

submitted in the regular course of business for study or for

prevention of future accidents. Holm v. Superior Court, 42 Cal.2d

500, 507 (1954) (disapproved on another point in Suezaki v.

Superior Court, 58 Cal.2d 166 (1962)). However, even if the

attorney is acting in a nonlegal, business, capacity, it is

necessary to analyze the specific documents or communications to

ascertain whether the document purpose behind each one was or was

not the furtherance of the attorney-client relationship because 

even when acting generally in a nonlegal, business capacity as an

investigator or fact finder, the attorney may be called upon to

give legal advice during the course of the representation, and

documents related to those communications should be protected

notwithstanding the original purpose of employing the attorney.

Wellpoint Health Networks, Inc. v. Superior Court, 59 Cal.App.4th

110, 122 (1997).

Here, the declaration of Claiborne demonstrates that she was

assistant general counsel for Leaf and as such was responsible

for providing legal advice to UC and to the other defendants in

the action. She was informed of the allegations of fraud, and

without delay she undertook to perform an investigation with

respect to fraud in relation to the fire for the purpose of

assessing the claim and its veracity, giving advice if necessary,

taking corrective action, and minimizing legal exposure, which

she anticipated in the form of potential litigation, including

claims by governmental agencies, the insurance company, and the

employee. The purpose was to consider the criminal and civil

liability of her client and to give legal advice regarding those

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problem. These functions concern consulting an attorney in her

capacity as such. The communications between Claiborne and her

client, including communications from and to employees

interviewed in the course of Claiborne’s investigation, are

presumed to be confidential.

Other evidence confirms that counsel instituted, directed,

and controlled the investigation. Oberschmidt testified that

after witnessing the allegation of fraud on November 18, 2003, he

returned to Virginia and met with Hearington and counsel the next

day. (Mandegary’s Decl., Ex. C at 54.) The deposition testimony

of Hearington (Mandegary’s Decl., Ex. A at 120, 150, 153, 159,

174-75) confirms that although he was an auditing investigator

who generally had Robinson investigate for him, Hearington’s

original meeting on this investigation was with Claiborne and

Oberschmidt; he reported his factual conclusions (finding no

fraud or that fraud could not be proved) to counsel on February

11, 2004; he considered the investigation to have been on behalf

of counsel; and he discussed the result with counsel and Starkey.

Starkey confirmed that the findings were discussed only in

meetings where counsel was present. (Mandegary’s Decl., Ex. B at

46).

Further evidence of a predominant legal purpose consists in

the retention and consultation with attorneys from the Dowling

firm in Fresno, to whom Claiborne delegated the task of

participating in some interviews.

Plaintiff asserts that the investigation was merely factual. 

Claiborne delegated part of the investigation to Hearington, the

head of the UC internal audit department, who in turn delegated

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some tasks to Robinson; however, this appears to have been a

delegation of part of the work to others who were in a position

to be familiar with the business procedures, practices, and

documentation in question. During the investigation, counsel

retained control, advising Hearinton of the potential legal

impact of the allegation, and supervising him and communicating

with him at least every other day; she approved his delegation of

interviewing MQN employees and reviewing on-site documents to

Robinson, an audit manager in Hearington’s department. The

purpose of the interviews was to assess the veracity of the

allegation of fraud in order to best advise her clients on how to

proceed and to take any necessary steps to reduce exposure. She

considered the interviews to be confidential, just as if she had

sent a legal assistant to interview the employees on her behalf

in anticipation of litigation. She and Hearington conferred with

Robinson during the interview process, and with attorney Smith

regarding the status of the investigation. She considered the

entire process confidential and never disclosed it to any third

party.

The procedure of preparing the report and delivering the

report confirm that the investigation was predominantly for a

legal purpose. At the conclusion of the review of documents and

the investigation, Claiborne discussed with Hearington the report

that she and Hearington would be producing; he prepared a draft,

she reviewed and edited it, and they jointly presented it to

management. She considered the report privileged and had not

shared it contents with anyone but management and outside legal

counsel. She further stated that producing the documents would

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impede her ability to give frank and open advice to her clients

regarding the internal investigation.

Ramon Delgadillo, an employee of MQN who was interviewed,

testified that he was sent to an office and told in January that

a man from Universal was going to ask questions; he was

instructed to go ahead and answer them; however, even though he

was questioned about Valladares’ claims regarding specific nuts

in connection with the fire, he did not recall knowing of the

purpose of the meeting and did not realize that the man was

investigating the fire. (Mandegary’s Decl., Ex. E at pp. 117,

120.) This testimony does not undermine what is otherwise a

showing of a consistent expectation of confidentiality and a

predominant purpose to provide legal assistance to the client in

anticipation of litigation as distinct from merely to collect

facts or to comply with legal requirements.

Although Claiborne did state that one purpose of the report

was to comply with obligations under various statutes and

regulations, including the Sarbanes-Oxley Act, no party has

informed the Court or briefed what data or procedures would

necessarily be encompassed by such an investigation.

Nevertheless, Claiborne also was clearly concerned with potential

litigation and exposure. 

This case is analogous to Wellpoint Health Networks, Inc. v.

Superior Court, 59 Cal.App.4th 110, 123-24 (1997), where there

was evidence warranting a finding that counsel had been engaged

to conduct an investigation of employment discrimination charges

(thus establishing a prima facie case of privilege), but where in

the absence of evidence that the regular course of business

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involved the use of counsel to engage in routine fact-finding on

behalf of the personnel department, the court concluded that

there was no substantial evidence to support the trial court’s

conclusion that the attorney was actually acting as merely a fact

finder and investigator. Here, the involvement of counsel in the

investigation, coupled with the purpose to assess the exposure,

advise the client, and take any necessary measures to reduce

exposure, makes this more like Aetna Casualty & Surety Co. v.

Superior Court, 153 Cal.App.3d 467, 475-76 (1984), where an

insurer’s hiring of an attorney to investigate the insured’s

claim and make a coverage determination under the policies was

held to represent a classic example of a client seeking legal

advice from an attorney, such that inapplicability of the

privilege had to be decided on a document by document basis. 

The present case differs from other cases where an attorney

was hired to do primarily nonlegal tasks, such as Estate of

Perkins, 195 Cal. 699, 710 (1925) (giving business advice),

Montebello Rose Co. v. Agricultural Labor Relations Bd., 119

Cal.App.3d 1, 32 (1981) (being a labor negotiator for the client,

which could have been accomplished by a non-attorney, such that

unless the dominant purpose of a particular communication was to

secure or render legal service or advice, it was not privileged);

Watt Industries, Inc. v. Superior Court, 115 Cal.App.3d 802, 805

(1981) (acting merely as a business agent in conveying a client’s

position to a contracting party did not afford work product

protection to the attorney’s notes); In re Grand Jury Subpoena v.

United States, 599 F.2d 504 (2nd Cir. 1979) (common law attorneyclient privilege did not cover an investigation conducted by

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management alone for the purpose of discovering facts, but it did

apply to a second investigation conducted by counsel with a

purpose to determine appropriate tax filings and to evaluate the

vulnerability of the corporation or its personnel to civil and

criminal sanctions); 2,002 Ranch, L.L.C. v. Superior Court, 113

Cal.App.4th 1377 (2003) (evidence reflecting a factual

investigation of a purchaser's claim regarding title insurance

was subject to discovery because although the in-house claims

adjusters were also licensed attorneys, the purpose of their work

was not legal, but rather was to do the work of a claims

adjuster, which was generally not done by attorneys in the

industry; however, the court was to analyze each requested item

to determine its dominant purpose and thus whether it was matter

reflecting the requesting of or rendering of legal advice

protected by the attorney-client privilege, or was subject to

work product protection); Diversified Industries, Inc. v.

Meredith, 572 F.2d 596 (8th Cir. 1978) (no privilege where the

legal services in question were for the sole purpose of

investigating facts and giving advice as to future conduct, which

in the circumstances could have been done by an accountant); BioRad Laboratories, Inc. v. Pharmacia, Inc., 130 F.R.D. 116

(N.D.Cal. 1990) (involving a federal work product issue

concerning factual information compiled by an attorney for

submission of a patent application, which was held not to be

privileged because it lacked confidentiality in view of the

expectation that it would ultimately be passed along to third

parties); Garcia v. City of El Centro, 214 F.R.D. 587 (S.D.Cal

2003) (involving a federal (§ 1983) claim stemming from a

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disturbance, where city claims adjusters’ interviews of officers

were not privileged because even if a claims adjuster were an

attorney, the officers were not seeking legal advice; rather,

claims adjuster's capacity was principally to determine whether

to pay suspect's claim).

Plaintiff’s claim that the privilege cannot cover statements

by third party witnesses or statements to agents of counsel

should be rejected. Communications of an intermediate agent for

communication between an attorney and a client are covered by the

privilege. (City and County of San Francisco v. Superior Court,

37 Cal.2d 227, 236-37 (1951) (earlier statutory provision)

(observations of physician who examined a client for the attorney

who was preparing to litigate concerning the client’s physical

condition were held to be covered by attorney-client privilege).

The use of a corporate auditor to gather, interpret, and

communicate facts to counsel, where it may reasonably be implied

that significant financial documents and records are involved, is

not unreasonable. Attorney communications with agents and

employees of a client, with the attorney giving and receiving

information to facilitate the purpose of the professional

employment, are protected. Travelers Ins. Companies v. Superior

Court, 143 Cal.App.3d 436, 448-52 (1983) (accident report by

insureds to insurers was protected by attorney-client privilege

if the insurer was obligated to defend the insured, even if the

ultimate attorney had not yet been retained, so long as the

communication was intended to help the attorney hired to handle

the defense); Scripps Health v. Superior Court (Reynolds), 109

Cal.App.4th 529, 535 (2003) (holding privileged incident reports

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that were primarily created for the purpose of attorney review by

in-house counsel but were also used by the risk managers as de

facto insurance claims handlers).

The Court concludes that the dominant purpose was to obtain

information with the ultimate intent to provide legal advice, and

that the employer’s agents intended the communications to be

confidential.

3. Fraud Exception

Plaintiff argues that the fraud exception applies.

Defendants do not address this argument.

Cal. Evid. Code § 956 provides that 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. To

invoke the exception, the proponent must make a prima facie

showing that the services were sought or obtained to enable or

aid anyone to commit or plan to commit a crime or fraud;

consideration of the intent of the client, and not that of the

lawyers, must be considered. State Farm Fire and Casualty Co., 54

Cal.App.4th 625, 643, 645 (1997). Further, it is determined

whether there is a reasonable relationship between the crime or

fraud and the attorney-client communication. Id. at 645. It is

not permissible to require disclosure of privileged material in

order to determine the presence of a prima facie case. Id.

Here, no evidence has been submitted by Plaintiff in support

of its assertion of the exception’s applicability. Plaintiff’s

argument is that because it is alleging fraud by MQN and its

parent corporations, which allegedly had knowledge of the

fraudulent insurance claim by virtue of the internal factual

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investigation, and because Defendants have not produced any

evidence they obtained to prove or disprove the allegations,

Defendants have concealed clearly relevant information concerning

the fraud, and thus, Defendants have furthered the fraudulent

activity. The complaint was unverified. The mere fact that

Defendants have conducted an internal investigation regarding

allegations of fraud, the subject of the present suit, does not

warrant an inference that they concealed information or that the

client intended to engage in a fraud. The Defendants’ claiming of

the privilege with respect to its investigation is not

inconsistent with a legitimate claim of privilege. It is the

burden of the party asserting the exception to establish the

exception. 

The Court thus concludes that Plaintiff has not submitted

evidence constituting a factual basis adequate to support a good

faith belief by a reasonable person that the purpose of the

consultation was to enable or aid a fraud. Plaintiff has not

established an exception to the privilege. 

4. Waiver of the Attorney-Client Privilege

Cal. Evid. Code § 912(a) provides that except as otherwise

provided, the right of a person to claim the attorney-client

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

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the legal standing and opportunity to claim the privilege.

Section 912(c) and (d) provide that a disclosure that is itself

privileged is not a waiver, nor is disclosure of a privileged

communication when disclosure is reasonably necessary for the

accomplishment of the purpose for which the lawyer was consulted.

Once a prima facie showing of privilege has been made, it is then

the burden of the party asserting the waiver to establish that

the privilege has been waived. Wellpoint Health Networks v.

Superior Court, 59 Cal.App.4th 110, 123-24 (1997). 

a) Waiver by Production of Depositions Taken

 in the Valladares Action

Plaintiff argues that MQN’s production of deposition

transcripts from depositions taken in the Valladares state action

(wrongful termination and discipline), and specifically those of

Mr. Hearington and Mr. Starkey, vice president of Universal (UC)

and Senior Vice President of Leaf, constituted a waiver by

disclosure. The deposition transcripts were submitted at the

direction of the undersigned Magistrate Judge over Defendants’

initial objections.

First, given the context of the disclosure, it does not

appear that a voluntary disclosure occurred. It was agreed that

the testimony would not constitute a waiver of the privilege when

the testimony was originally given, and the testimony was given

in the context of numerous, consistent objections to revelation

of the content of privileged communications. (Decl. of

Mandegaray, Ex. A, Decl. of Hearington at 150-152, 170-73.) In

this action, it was the Court that directed the disclosure of the

information over objection.

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However, in any event, Cal. Evid. Code § 912 provides that a

waiver by disclosure does not result unless a significant part of

the communication has been disclosed. As previously noted,

disclosure of the time, manner, purpose, and identities of those

conducting the investigation, as distinct from the communications

themselves, would not be privileged matter. The privilege

protects communications; it does not protect facts related to a

communication, such as the fact that a communication took place,

or the time, date, and participants in the communication; it does

not prevent disclosure of underlying facts which may be referred

to within a qualifying communication. 2,002 Ranch, L.L.C. v.

Superior Court, 113 Cal.App.4th 1377, 1388 (2003) (citing State

Farm Fire & Casualty Co. v. Superior Court, 54 Cal.App.4th 625,

640 (1997)). It is not a violation of the privilege for a

participant in an investigation to divulge the existence of

documents or other evidence that were uncovered during the

investigation. State Farm Fire & Casualty Co. v. Superior Court,

54 Cal.App.4th 625 (1997). Relevant case law makes it clear that

mere disclosure of the fact that a communication between client

and attorney occurred does not amount to disclosure of the

specific content of that communication, and as such does not

necessarily constitute a waiver of the privilege. Mitchell v.

Superior Court, 37 Cal.3d 591, 601-02 (1984). Further, disclosure

of the fact of a communication and the conclusion of a

communication has been held not to be sufficient to establish a

waiver under § 912. Southern California Gas Company v. Public

Utilities Commission, 50 Cal.3d 31, 46- (1990) (company’s

statement that its attorney had gone over a contract and

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determined that there was no way it could have been legally

cancelled without subjecting the client to a lawsuit did not

constitute disclosure of a significant part of a privileged

communication). 

Thus, the Court concludes that Plaintiff has not established

that disclosure of the time, manner, purpose, and identities of

those conducting the investigation, and the limited findings of

the investigation at deposition, constituted a waiver under §

912.

b. Implied Waiver by Putting the Internal

 Factual Investigation in Issue

Citing Kaiser Foundation Hospitals v. Superior Court, 66

Cal.App.4th 1217, 1226 (1998), and Steiny & Co. v. California

Elec. Supply Co., 79 Cal.App.4th 285, 292 (2000), Plaintiff

argues that when MQN filed a counter-claim for bad faith arising

out of Amco’s handling of MQN’s insurance claim on the theory

that Amco had no reasonable basis for denying MQN’s claim, MQN

raised issues at the core of the factual investigation. 

There is no formal “client litigant” exception to the

attorney-client privilege in California. City and County of San

Francisco v. Superior Court, 37 Cal.2d 227, 238 (1951.) However,

the general proposition of an implied waiver by affirmative

conduct has been recognized by the California Supreme Court. In

Mitchell v. Superior Court, 37 Cal.3d 591 (1984), the court held

that plaintiffs seeking emotional distress damages from entities

involved with chemicals that had contaminated ground water around

the plaintiffs’ home had not put communications with her counsel

about chemicals at issue; rather, she had put into issue the

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reasonableness of her fears about the chemicals; there was no

waiver of the attorney-client privilege because the substance of

the protected communication was not itself tendered in issue, but

instead the underlying evidence simply represented one of the

several forms of indirect evidence in the matter. Again, in

Southern California Gas Company, 50 Cal.3d 31 (1990), the court

considered a gas company’s application for rate relief and

expenditures that involved proving that its expenditures were

reasonable in light of all the information that the utility’s

decision makers knew or should have known at the time. 50 Cal.3d

at 40. The court recognized that the federal standard of implied

waiver was similar to California’s: assertion of the privilege

was a result of some affirmative act, such as filing suit, by the

asserting party; through the affirmative act, the asserting party

put the protected information at issue by making it relevant to

the case; and application of the privilege would have denied the

opposing party access to information vital to his defense. Id. at

42. The court determined that the utility had not placed its

privileged communications in issue; it had not stated that it

intended to rely on its attorneys’ advice or state of mind to

demonstrate that it acted reasonably when it acted, and it in

fact had expressly stated otherwise. The court held that because

the attorney’s advice or state of mind was not in issue, there

was no implied waiver of the attorney-client privilege. Even if

fairness were separately considered, the court in Southern

California Gas, 50 Cal.3d at 43, noted that there was no evidence

to indicate that the privileged information was vital to a fair

adjudication because the issue of the reasonableness of the

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utility’s action in terminating a contract involved some legal

analysis, but it was not the actual legal analysis of the

attorneys who had represented the utility in the past, but rather

was an objective issue that depended on the terms of the contract

itself and the surrounding factual circumstances. It was possible

for the utility to meet its burden of proof without disclosing

its actual legal advice. Although actual legal advice might have

been relevant, it was not essential. The court confirmed that

privileged communications do not become discoverable simply

because they are related to issues raised in the litigation; such

an approach would create an intolerable burden upon the privilege

and make it very difficult for parties to a confidential

relationship to discuss openly matters which might eventually

lead to litigation. Id. at 44-45. 

The court in Southern California Gas, 50 Cal.3d at 41-43,

favorably cited Aetna Casualty & Surety v. Superior Court, 153

Cal.App.3d 467 (1984), where an insurer sought declaratory relief

that its policy provided no coverage for an insured’s claim, and

the insured cross-complained, alleging bad faith denial of

coverage. The insured sought discovery of the insurer’s

communication with its attorneys, alleging that the insurer had

waived the privilege because it was using advice of counsel as a

defense and that the insurer’s state of mind was at issue. The

court held that the insurer had not impliedly waived its

attorney-client privilege because it was not relying on advice of

counsel to show that it had acted reasonably, but instead sought

to show that its conduct was reasonable based on the underlying

facts. Further, the fact that the insurer’s state of mind was at

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issue in the insured’s bad faith action did not place in issue

its attorneys’ state of mind or their advice. 

The Supreme Court of California has limited application of

the implied waiver principle to the “one situation in which a

client has placed in issue the decisions, conclusions, and mental

state of the attorney who will be called as a witness to prove

such matters.” Mitchell v. Superior Court, 37 Cal.3d at 605;

Southern California Gas, 50 Cal.3d at 42-43. 

Here, the affirmative conduct relied on by Amco is MQN’s

filing of a counterclaim for breach of the insurance contract and

bad faith breach of the implied covenant of good faith in making

the coverage determination. By asserting that Amco’s conduct was

in bad faith and unreasonable, MQN has not put the decisions,

conclusion, and/or mental state of MQN’s counsel directly in

issue; instead, it is the reasonableness of Amco’s conduct that

is in question, which can be determined by reference to Amco’s

knowledge and other circumstances surrounding its coverage

determination. Application of the privilege will not deny Amco

access to information vital to its defense; Amco already has

access to the circumstances surrounding its decision on MQN’s

insurance claim. Further, Amco will still be able to conduct

discovery regarding the underlying facts relating to the nature

and extent of the claim and any asserted misrepresentation; it is

only the communications involved in the investigation that are

privileged. Application of the privilege would not deny Amco

access to information vital to its defense of the breach of

contract or bad faith counterclaims.

Amco argues in its reply that because the counterclaim

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explicitly states that MQN has complied with all terms and

conditions of the Amco policy, which contains provisions

requiring MQN’s cooperation in Amco’s own investigation and

prohibiting fraud, it has put its internal investigation in

issue. Although facts pertinent to MQN’s cooperation and conduct

are relevant, the counterclaim does not put counsel’s advice or

state of mind directly in issue, render it information vital to a

defense against the counterclaim, or otherwise require

interference with privileged communications. Amco is free to

conduct discovery regarding the underlying facts, including

seeking the identity of the persons interviewed and deposing

them, deposing MQN personnel regarding their states of mind and

conduct in connection with the handling of the insurance claim, 

seeking documents not constituting privileged communications,

etc. It is only the privileged communications that are protected.

Amco argues that various affirmative defenses in MQN’s

answer to the first amended complaint put the “investigation” in

issue, including MQN’s assertion that third persons other than

Defendants caused the injuries and damages, Defendants acted in

good faith with adequate cause and observed all reasonable

commercial standards of conduct in their actions and dealings

with Amco, and Defendants acted in good faith and did not

intentionally violate Amco’s rights or breach a duty owed to

Amco. These matters do not put counsel’s state of mind or advice

directly in issue. Further, although it is extremely unlikely,

even if it were true that MQN could only know the facts

supporting these defenses via the internal investigation, the

facts, as distinct from the investigation itself, are available

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to Amco via discovery. 

In this case, Defendants and Counterclaimants have not put

the privileged internal investigation directly in issue as would

be the case where an employer defended a hostile environment

discrimination claim and pleaded the adequacy of its prelitigation investigation into the claimed misconduct as a

defense. Further, this is not a case like Steiny, 79 Cal.App.4th

285, 292 (2000), where a plaintiff’s evidence regarding damages

was appropriately barred because the plaintiff’s privilege had

prevented the opposing party from examining key evidence. Here,

the underlying evidence regarding Defendants’ conduct in making

the insurance fraud claim is not barred; it is only privileged

communications regarding the investigation which are removed from

the case. Plaintiff has not established an implied waiver.

5. Scope of Discovery

Because Defendants have shown that the investigation was

directed, supervised, and conducted by counsel with the dominant

purpose of gaining information from the client in order to give

legal advice, communications in the course of the investigation

from corporate employees to counsel and her agents participating

in the investigation, and communications from counsel and

counsel’s agents, are privileged. 

The Court is mindful of the important societal relationships

and interests underlying the privilege. The Court is also

concerned that the privilege not be applied to impede discovery

of the unprivileged underlying facts of the events and

transactions that are relevant in this lawsuit. The privilege 

protects communications; it does not protect facts related to a

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communication, such as the fact that a communication took place,

or the time, date, and participants in the communication; it does

not prevent disclosure of underlying facts which may be referred

to within a qualifying communication. 2,002 Ranch, L.L.C. v.

Superior Court, 113 Cal.App.4th 1377, 1388 (2003) (citing State

Farm Fire & Casualty Co. v. Superior Court, 54 Cal.App.4th 625,

640 (1997)). It is not a violation of the privilege for a

participant in an investigation to divulge the existence of

documents or other evidence that were uncovered during the

investigation. State Farm Fire & Casualty Co. v. Superior Court,

54 Cal.App.4th 625 (1997). Thus, while actual interviews

themselves and communications among attorneys and employees of

the corporations and communications to attorneys would be

privileged, the fact that employees were interviewed (i.e., the

fact that communications themselves were made and associated

data, such as the employees’ names, the time, date, participating

people, etc.) would not be privileged. The underlying information

and facts would be discoverable.

Further, although no exception or waiver has been

demonstrated by Plaintiff, it may be that further discovery will

reveal facts upon which Plaintiff may renew its assertion of

waiver or exception.

Finally, it does not appear that any specific request to

conduct any in camera review is before the Court, and so the

Court denies Plaintiff’s request for in camera review. The Court

notes that with respect to the attorney-client privilege, which

is governed by California law, Cal. Evid. Code § 915, if binding

on this Court, appears to foreclose in camera review of materials

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claimed to be protected by the attorney-client privilege if

undertaken for the purpose of determining whether the materials

themselves are privileged.

B. Work Product Protection and the Fraud Investigation

1. Governing Law

Work product protection is governed by federal law because

it is not a privilege, but rather is a procedural immunity, or a

qualified protection from discovery. Airheart v. Chicago & North

Western Transp. Co., 128 F.R.D. 669, 670-71 (D.S.D. 1989);

F.D,I.C. v. Fidelity & Deposit Co. of Maryland, 196 F.R.D. 375,

381 (S.D.Cal. 2000).

2. General Principles

Fed. R. Civ. P. 26(b) provides in pertinent part:

(3) Trial Preparation: Materials. Subject to the

provisions of subdivision (b)(4) of this rule, a party

may obtain discovery of documents and tangible things

otherwise discoverable under subdivision (b)(1) of this

rule and prepared in anticipation of litigation or for

trial by or for another party or by or for that other

party's representative (including the other party's

attorney, consultant, surety, indemnitor, insurer, or

agent) only upon a showing that the party seeking

discovery has substantial need of the materials in the

preparation of the party's case and that the party is

unable without undue hardship to obtain the substantial

equivalent of the materials by other means. In ordering

discovery of such materials when the required showing

has been made, the court shall protect against

disclosure of the mental impressions, conclusions,

opinions, or legal theories of an attorney or other

representative of a party concerning the litigation.

. . . .

(5) Claims of Privilege or Protection of Trial

Preparation Materials. When a party withholds

information otherwise discoverable under these rules by

claiming that it is privileged or subject to protection

as trial preparation material, the party shall make the

claim expressly and shall describe the nature of the

documents, communications, or things not produced or

disclosed in a manner that, without revealing

information itself privileged or protected, will enable

other parties to assess the applicability of the

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privilege or protection.

Rule 26(b)(3) substantially codifies the holding of Hickman v.

Taylor, 329 U.S. 495 (1947) and provides that work product

protection extends to documents and tangible things prepared in

anticipation of litigation or for trial by or on behalf of a

party. Holmgren v. State Farm Mut. Auto. Ins. Co., 976 F.2d 573,

576-77 (9th Cir. 1992). The primary purpose is to prevent

exploitation of a party’s efforts in preparing for litigation and

thereby to encourage independent and efficient development of

facts and issues. Id. The threshold requirements of the

protection are that the matter constitutes documents sought by a

party that were prepared for trial by a party or a representative

of a party. Id.

A court should consider whether but for the pendency or

imminence of the litigation, the document would have been

created. Newport Pacific, Inc. v. County of San Diego, 200 F.R.D.

628, 632 (C.D.Cal. 2001). Documents generated in the ordinary

course of business, or for another purpose unrelated to

litigation, are generally not subject to work product protection

because they would have been created without regard to

litigation. Griffith v. Davis, 161 F.R.D. 687, 690 (C.D.Cal.

1995). It must be determined whether in light of the nature of

the document and the factual situation in the particular case the

document can fairly be said to have been prepared or obtained

because of the prospect of litigation. United States ex rel.

Bagley v. TRW, Inc., 212 F.R.D. 554, 560 (C.D.Cal. 2003) (quoting

Colonial Gas Co. v. Aetna Cas. & Sur. Co., 144 F.R.D. 600, 605

(D.Mass. 1992)). In determining whether a document was prepared

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in the ordinary course of business or because of litigation,

factors to be considered include the type of the document, the

nature of the litigation, the relationship of the parties, the

involvement of counsel, and any other facts peculiar to the case.

Kidwiler v. Progressive Paloverde Ins. Co., 192 F.R.D. 536, 542

(N.D.W.VA 2000).

Where there are joint purposes of producing documents, with

one being with respect to anticipated litigation but another

being to achieve a business purpose or assist a business decision

that involves pending or prospective litigation, it is sufficient

if the document was prepared or obtained because of the prospect

of litigation. In re Grand Jury Subpoena (Mark Torf/Torf

Environmental Management, 357 F.3d 900, 907 (9th Cir. 2004).

Under the “because of” standard, a court does not consider

whether litigation was a primary or secondary motive behind the

creation of a document; rather, it considers the totality of the

circumstances and affords protection when it can fairly be said

that the document was created because of anticipated litigation,

and would not have been created in substantially similar form but

for the prospect of litigation. Id. at 908. However, when after

considering the facts surrounding the creation of the documents,

it appears that the litigation purpose so permeated any nonlitigation purpose that the two purposes cannot be discretely

separated from the factual nexus as a whole, then the documents

are entitled to work product protection. Id. at 909-10. 

To be protected, documents or things must have been prepared

in anticipation of litigation or trial. Commencement of a lawsuit

is not required, although there must be some possibility of

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litigation, In re Grand Jury Investigation, 599 F.2d 1224, 1229

(3d Cir. 1979), even though no specific claim need have arisen,

In re Sealed Case, 146 F.3d 881, 885-87 (D.C.Cir. 1998).

The holder of the immunity includes the attorney who

prepared the work product. Doubleday v. Ruh, 149 F.R.D. 601, 606

n. 5 (E.D.Cal. 1993).

3. Analysis

Here, although no litigation had commenced, Claiborne’s

declaration establishes that she subjectively anticipated

potential employment law claims as well as possible civil and

criminal liability for unlawful, fraudulent conduct as well and

litigation by the insurer because of the allegations of

Valladares. Her belief was objectively reasonable as well. Thus,

it appears that litigation was sufficiently anticipated.

It is not clear that the investigation’s documentation and

process would have proceeded in the same form had there not been

anticipation of litigation. No evidence has been produced with

respect to this.

From the evidence submitted to the Court, it is not possible

to separate any business purpose of the investigation and the

purpose to assess and advise regarding anticipated litigation.

The Court concludes that the documents created in the course of

the investigation were created in anticipation of litigation and

are subject to work product protection. 

4. Crime-Fraud Exception

Plaintiff argues that the fraud exception to work product

protection applies. Plaintiff argues that its allegation of

common law (insurance) fraud against MQN and against its parent

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corporations on a theory of agency, ratification and approval,

and vicarious liability make relevant the knowledge of the parent

corporations of fraud and any conduct thereafter, such as

concealing any fraud from the insurer and thus allowing MQN to

submit a fraudulent insurance claim. Because MQN knew that Amco

was investigating fraud but had not produced any evidence that

they obtained to prove or disprove the allegations of the fraud

investigation, MQN concealed clearly relevant information and

thus furthered the fraudulent activity.

"The crime-fraud exception may be used to abrogate work

product protection as well as the attorney-client privilege." In

re National Mortgage Equity Corp. Mortgage Pool Certificates

Litigation, 116 F.R.D. 297, 301 (C.D.Cal.1987); Cox v. Adm'r

United States Steel & Carnegie, 17 F.3d 1386, 1422 (11th

Cir.1994), amended by, 30 F.3d 1347 (11th Cir.1994), cert.

denied, 513 U.S. 1110, 115 S.Ct. 900, 130 L.Ed.2d 784 (1995).

However, mere allegations or charges of fraud are insufficient to

invoke the crime-fraud exception. United States v. Chen, 99 F.3d

1495, 1503 (9th Cir. 1996).

Here, Plaintiff has submitted only the unverified

allegations of the complaint and argument; there is no evidence

before the Court that would warrant a conclusion that Defendants 

intended to facilitate fraud in connection with any specific

piece of work product. Plaintiff has not demonstrated that an

exception applies.

5) Waiver

The Court rejects Amco’s assertion that there has been a

waiver of any work product protection because MQN did not claim

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1 The Court notes that no privilege log has been submitted to the Court.

Counsel agreed at the hearing of the motions that after receiving the Court’s

ruling on these motions, counsel would meet and confer regarding further

discovery.

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the privilege until the filing of MQN’s opposition papers. The

responses of MQN to Amco’s first set of requests for production

of documents (Ex. H to Mandegary’s Decl.), dated October 15,

2005, indicate that both attorney-client and work product were

the bases of MQN’s objections to requests for documents generated

during, and correspondence regarding, the investigation conducted

by Hearington in November 2003. On the basis of the evidence

submitted to the Court Plaintiff has not established a waiver by

a failure to claim the privilege.

6. Scope of Discovery

The precise nature of any documents subject to work product

protection is not before the Court. The Court notes that various

levels of work product protection exist depending upon the nature

of the document in question. Further, the Court notes that

Plaintiff has not sought to make a specific showing that any

document subject to work product protection should be disclosed

because of need, although Plaintiff has reserved the right to

make such a showing in connection with specific claims of work

product protection.1

IV. Motion to Compel Deposition Of Christopher Glenister

Plaintiff seeks to compel the further deposition of

Christopher Glenister, a certified public accountant, to testify

regarding communications he had with employees of Defendants, to

identify individuals present during conversations he had with

Defendants’ employees, and to question him on unspecified

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“specific areas and topics where the attorney-client privilege

and/or the attorney work product doctrine was improperly asserted

and/or invoked.”

A. Facts

Glenister’s deposition establishes that he was employed by

MQN’s public adjuster, the Greenspan Company, in order to assist

MQN in evaluating and preparing its insurance claim beginning on

September 25, 2003. He understood in that capacity that the claim

could result in litigation and thus his activities were to be

maintained in the strictest confidence. He had not finalized the

claim, and he had not prepared a sworn proof of claim for MQN to

submit to Amco before the internal fraud investigation started.

In early January 2004 he learned about the claim of

insurance fraud and at about that same time learned that

Claiborne had initiated and would direct a confidential internal

investigation into the allegations of illegal conduct; he was

requested by counsel to consult regarding the investigation

because of his familiarity with the insurance claim. He was

advised that private information would be shared with him and was

to be maintained in confidence, that he would communicate with

counsel and employees as part of the internal investigation, and

that all his activities related to the internal investigation

were subject to the attorney-client privilege. His participation

in interviews was pursuant to Claiborne’s request and under her

direction as part of the internal investigation; he never

discussed the content of the interviews with anyone other than

counsel and the auditing employees who were collecting the

information on counsel’s behalf, and he never disclosed the

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content of the interviews or identity of interviewees to any

third party because he understood that the interviews were

privileged and confidential.

In her supplemental declaration, Catherine H. Claiborne

confirmed that when the fraud investigation began, MQN had

already retained Greenspan, and Glenister had been working with

MQN on the insurance claim for three months.

Then, because the fraud allegations related directly to the

fire insurance claim, and because Glenister was experienced with

the claim and familiar with MQN’s nut processing operations,

counsel determined that Glenister’s participation in the

investigation would be very helpful to her efforts to provide

legal counsel to her clients, so she approved Glenister’s

participation in interviews of MQN employees conducted by Randy

Robinson. She considered his assistance to be like that of a

legal assistant because he was a CPA and a hired consultant, and

his information was important to the legal advice she was

providing to her clients. Disclosing the contents of employee

interviews conducted by auditing with legal counsel present at

the direction of general counsel’s office would impede her

ability to serve as an attorney. Access to the mental impressions

of defendants’ counsel or to the substance of the conversations

with employees was not necessary to permit Amco fairly to present

their case for trial.

At the hearing, it was clarified that the disputed discovery

did not concern Glenister’s activity for the employer before the

fraud investigation; rather, it was his participation in the

fraud investigation, and specifically with respect to the

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interviews of Tapia and Willits, that was the subject of

discovery, as well as his discussions with counsel before

deposition.

B. Attorney-Client Privilege

Defendants have not established that the attorney client

privilege protects any of Glenister’s pre-fraud activity.

The declarations of Glenister and Claiborne establish that

as of some time in January 2004, Glenister, an employee or other

agent of the employer, was participating in the fraud

investigation at the request and direction of counsel in order to

facilitate the purpose of counsel’s professional employment.

Thus, a privilege attaches to communications made between

Glenister and counsel. Cf. City and County of San Francisco v.

Superior Court, 37 Cal.2d 227, 236-37 (1951) (a physician

employed by an attorney to examine the client for counsel in

regard to the subject of the attorney’s representation held to be

covered as an agent of the attorney); People v. Meredith, 29

Cal.3d 682, 690 n.3 (1981). 

Further, as previously noted, the fact that communication

occurred through agents of counsel, or that persons whose

presence was reasonably necessary to effectuation of the purpose

of the employment were present during communications, does not

vitiate the privilege. 

With respect to whether or not Mr. Davis was representing

Glenister at the deposition, the Court finds that Defendants have

established by Glenister’s declaration that Glenister was

represented by Mr. Davis, who was providing him with

representation and advice at Defendant’s expense with Glenister’s

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consent.

The Court understands that Glenister’s knowledge and

activities related to preparation of MQN’s insurance claim were

not the subject of the disputed employee interviews; indeed,

there has been discovery of his percipient knowledge of facts

related to preparation of MQN’s insurance claim and of

voluminous, non-privileged portions of Greenspan’s file regarding

the insurance claim to Amco, including Glenister’s working

papers, back-up materials, and loss spreadsheets upon which MQN’s

insurance claim was based. 

The Court reiterates that it is only communications with

counsel that are subject to the privilege. This would cover

conversations between Glenister and Davis in preparation for the

deposition. Communications with Hearington during the course of

the investigation or discussions with any MQN employees when any

MQN attorney was present during the course of the fraud

investigation could constitute privileged attorney-client

communications. Such a privilege would not protect identification

of who was present, or the date, time, participants, or location

of the communications. Again, it is only the communications that

are subject to attorney-client privilege, and not the

foundational facts concerning the communication, or the

underlying, independent facts.

C. Work Product Privilege

With respect to the fraud investigation, Defendants have

established that the investigation was undertaken in anticipation

of litigation. To the extent that Glenister was involved in the

fraud investigation, documents generated in the course of the

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investigation would be subject to work product protection.

Defendants have not shown that Glenister’s employment before the

fraud investigation was in anticipation of litigation.

V. Disposition

In light of the foregoing, 

1. The Court DENIES Plaintiff’s motion to compel discovery

of Defendants’ internal investigation insofar as Plaintiff seeks

1) communications between employees of Defendant MQN and counsel

or agents of counsel made in the course of the fraud

investigation, including but not limited to interviews of MQN

employees, summaries of interviews or information received to be

forwarded to counsel, reports, or other communications, and 2)

documents or tangible things prepared by or for Defendants or by

or for Defendant’s representative (attorney, consultant, or

agent) in the course of the investigation and thus in

anticipation of litigation; and

2. The Court GRANTS Plaintiff’s motion insofar as Plaintiff

seeks to take the depositions of Randolph Robinson, Joseph

Hearington, James H. Starkey, members of the internal audit

committee to whom the report of the investigation was rendered,

and MQN employees who were interviewed in the course of the

investigation; however, the Court notes that Plaintiff may not by

deposition reach the substance of privileged communications made

between employees and agents of Defendant MQN and counsel in the

course of the investigation, or reach protected work product

materials; Plaintiff may question witnesses regarding the

underlying facts known by the witnesses, and may seek to

determine the time, date, place, and participants to

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communications made in the course of the investigation; and

3. The Court GRANTS Plaintiff’s motion to compel the further

deposition of Christopher Glenister to obtain testimony regarding

foundational facts of privileged communications, such as the

identity of individuals present during conversations he had with

Defendants’ employees in the course of the fraud investigation,

and the time, date, and place of such conversations, and further

to obtain non-privileged evidence consisting of Glenister’s

knowledge of facts pertinent to the issues raised by the

pleadings in this case; however, insofar as Plaintiff seeks to

question Glenister about his conversations with his counsel

before deposition or to obtain the substance or content of

privileged communications or to obtain documents protected as

work product, Plaintiff’s motion to compel the further deposition

of Christopher Glenister IS DENIED; and 

4. The Court DENIES Plaintiff’s request that the final

report of the investigation be reviewed to determine whether it

is privileged in whole or in part; that MQN’s in-house counsel be

deposed regarding the procedures involved in the investigation

itself in order to determine the extent, nature, and effect of

counsel’s involvement; or that the Court preclude Defendants from

asserting the privilege and instructing witnesses not to respond

to questions concerning privileged or protected matters at

deposition.

IT IS SO ORDERED.

Dated: April 10, 2006 /s/ Sandra M. Snyder 

icido3 UNITED STATES MAGISTRATE JUDGE

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