Case Name: NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff v. JOHN M. BOURLON, Defendant
Court: North Carolina Court of Appeals
Jurisdiction: North Carolina
Decision Date: 2005-08-16
Citations: 172 N.C. App. 595
Docket Number: No. COA04-245
Parties: NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff v. JOHN M. BOURLON, Defendant
Judges: Judge GEER concurs.
Reporter: North Carolina Court of Appeals Reports
Volume: 172
Pages: 595–628

Head Matter:
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff v. JOHN M. BOURLON, Defendant
No. COA04-245
(Filed 16 August 2005)
1. Appeal and Error— appealability — motion to compel discovery — interlocutory order
Although an order denying a motion to compel discovery is generally interlocutory in nature, this appeal is properly before the Court of Appeals because it denied defendant’s motion to dismiss the instant appeal as an appeal from an interlocutory order in an order dated 25 March 2004.
2. Appeal and Error— preservation of issues — failure to argue
Although both parties assigned error to the trial court’s order, defendant’s cross-assignments of error are deemed abandoned under N.C. R. App. R 28(b)(6) because defendant failed to offer any support for them in his brief.
3. Attorneys— attorney-client relationship — joint or dual representation — counsel employed by insurance company to defend insured against claim
The trial court erred by concluding that no attorney-client relationship existed between plaintiff insurance company and the attorney assigned by plaintiff to defend defendant insured against claims for personal injuries sustained after one of defendant’s dogs bit another man in the face, because whenever defense counsel is employed by an insurance company to defend an insured against a claim, he represents both the insurer and the insured in a joint or dual representation.
4. Discovery— common interest or joint client doctrine— insurance litigation — communications between attorney and insured — privilege
The trial court erred by concluding that the attorney-client relationship between defendant insured and an attorney, assigned by plaintiff insurance company to defend defendant against claims for personal injuries sustained after one of defendant’s dogs bit another man in the face, prevented the attorney from disclosing to plaintiff any communications between the attorney and defendant, because the common interest or joint client doc trine applies to the context of insurance litigation in North Carolina and provides that communications between the insurer and the retained attorney are not privileged to the extent that they relate to the defense for which the insurer has retained the attorney. However, the attorney-client privilege still attaches to those communications unrelated to the defense of the underlying action as well as those communications regarding issues adverse between the insurer and the insured such as communications that relate to an issue of coverage. In the instant case in light of defendant’s challenges to the attorney’s representation, defendant waived the privilege with respect to those communications unrelated to the underlying action and which involved questions of coverage.
5. Discovery— insurance litigation — entire file — attorney-client privilege
The trial court did not err by concluding that an attorney, assigned by plaintiff insurance company to defend defendant against claims for personal injuries sustained after one of defendant’s dogs bit another man in the face, breached the attorney-client relationship by providing the entire file from the underlying action to plaintiff, because some communications contained in the file may have been privileged including those communications unrelated to the underlying action or defendant’s counterclaims, those communications regarding coverage issues made prior to defendant’s counterclaims, and those communications unrelated to the conduct forming the basis of defendant’s counterclaims. The file should have been submitted to the trial court for an in camera review aimed at determining which documents in the file were privileged.
6. Discovery— refusal of sanctions — refusal to answer certain questions based on privilege — premature termination of deposition
The trial court did not abuse its discretion by refusing to grant plaintiff insurance company’s motion for sanctions based on defendant insured’s alleged unjustifiable refusal to answer certain questions and premature termination of his deposition where the trial court noted that the privilege issue involved in the motion was a question of first impression, because plaintiff failed to demonstrate that the trial court’s decision was arbitrary and unreasoned. N.C.G.S. § 1A-1, Rule 37.
7. Appeal and Error— sealing of documents pending further orders — privilege
Although plaintiff contends the trial court erred by ordering that the attorney assigned by plaintiff insurance company to defend defendant insured have his files relating to defendant’s case and all copies of documents contained therein sealed pending further orders, the merits of this argument are not reached in light of the Court of Appeals’ prior conclusions regarding those portions of the attorney’s file which were discoverable and whether defendant waived his privilege with respect to the remaining portions.
Judge Tyson concurring in part and dissenting in part.
Appeal by plaintiff from order entered 5 September 2003 by Judge Evelyn W. Hill in Wake County Superior Court. Heard in the Court of Appeals 4 November 2004.
Bailey & Dixon, L.L.P., by Gary S. Parsons and David S. Wisz, for plaintiff-appellant.
Stark Law Group, P.L.L.G., by W. Russell Gongleton, Thomas H. Stark, and Fiona V. Ginter, for defendant-appellee.

Opinion:
TIMMONS-GOODSON, Judge.
Nationwide Mutual Fire Insurance Company ("plaintiff') appeals the trial court order denying its motion for sanctions and/or discovery and requiring the parties to maintain certain documents under seal. For the reasons discussed herein, we affirm in part and reverse in part.
The facts and procedural history pertinent to the instant appeal are as follows: On 24 September 1996, Dimitri Axarlis ("Axarlis") filed a complaint against John M. Bourlon ("defendant") and his wife, seeking damages for personal injuries Axarlis sustained after one of defendant's dogs bit him in the face ("the underlying action"). In addition to his claim for personal injuries, Axarlis alleged that defendant maliciously prosecuted him and abused the criminal process by securing a second-degree trespass charge against him. Axarlis admitted that he was on defendant's property when he was attacked, but he asserted that he entered defendant's property in an effort to rescue his girlfriend's dog, which was being chased and attacked by defendant's dogs.
At the time of these incidents, defendant had a homeowners' insurance policy ("the policy") with plaintiff. The policy had a personal liability limit of $300,000.00, and it provided as follows:
If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:
1. pay up to our limit of Lability for the damages for which the insured is legally liable; and
2. provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when the amount we pay for damages resulting from the occurrence equals our limit of liability.
Following the filing of Axarlis' complaint, defendant notified plaintiff of the claims against him. On 11 October 1996, plaintiff informed defendant that it had assigned Lee A. Patterson, II ("Patterson"), to represent him. Plaintiff further informed defendant that the malicious prosecution and abuse of process claims in Axarlis' complaint were not covered by the policy, and that therefore it would not provide indemnity to defendant with regard to those claims. However, plaintiff informed defendant that it would provide legal representation against all of Axarlis' claims, including the malicious prosecution and abuse of process claims.
' Efforts of the parties to reach a pretrial settlement failed, and the case proceeded to trial. On 28 October 1998, the jury returned a verdict against defendant and his wife, concluding that Axarlis was injured by a vicious animal wrongfully kept by defendant, that Axarlis was injured by the negligence and willful or wanton conduct of defendant, and that defendant maliciously prosecuted Axarlis for trespass. The jury awarded Axarlis $321,000.00 in compensatory and punitive damages, which included an award of $1,000,00 in compensatory damages and $150,000.00 in punitive damages, each arising out of the malicious prosecution verdict. The jury's verdict made no mention of or award for Axarlis' claim for abuse of process.
Following entry of the verdict, Patterson filed post-trial motions on defendant's behalf. Prior to a hearing on the motions, Axarlis communicated to Patterson an offer to settle all claims in the underlying action for $236,000.00. Plaintiff offered to contribute $200,000.00 toward the settlement, if defendant would pay the remaining $36,000.00. Defendant thereafter instructed Patterson to inform plaintiff that he would contribute $20,000.00 to the settlement. Plaintiff refused defendant's offer of contribution, and, allegedly without defendant's prior knowledge, plaintiff subsequently settled the covered claims separately. Axarlis thereafter demanded from defendant full payment of the jury's award for malicious prosecution. Defendant and Axarlis subsequently reached a separate settlement agreement, whereby defendant personally paid Axarlis for the malicious prosecution verdict.
In January 2001, defendant contacted Patterson via new counsel and requested a copy of his file. Patterson advised plaintiff of the request, and plaintiff's counsel thereafter contacted the North Carolina State Bar, seeking advice regarding whether defendant was entitled to a copy of the file. The State Bar advised plaintiff that defendant was entitled to a copy of the file, and plaintiff subsequently made arrangements to provide defendant with the file through Patterson's office.
On 8 February 2001, plaintiff filed a declaratory judgment complaint against defendant, seeking inter alia a determination that it was not obligated to indemnify defendant for any sums paid in settlement of the malicious prosecution verdict. On 3 December 2001, defendant filed an answer denying plaintiff's allegations and asserting counterclaims for breach of contract, negligence, bad faith refusal to settle, negligent misrepresentation, fraud, breach of fiduciary duty, and unfair or deceptive trade practices. The trial court subsequently granted partial summary judgment in favor of plaintiff, dismissing defendant's breach of contract counterclaim and concluding that plaintiff was not obligated to indemnify defendant for either the malicious prosecution verdict against defendant or defendant's settlement with Axarlis.
Following the order granting partial summary judgment, plaintiff sought to depose defendant regarding his remaining counterclaims. On 11 April 2003, defendant appeared for his deposition with counsel. Although he had not sought a protective order or filed a motion to limit the scope of the deposition, prior to commencement of the deposition, defendant's counsel stated as follows:
I'm [] going to object to taking of this deposition'by your firm because I believe that there is a conflict. We have addressed this with [plaintiffs counsel], and [plaintiffs counsel] has assured us there is none. However, in our review of the correspondence, it appears to us that your firm has been privy to confidential communications between the trial counsel and [defendant], and therefore is in a conflict position when it tries to represent Nationwide.
The deposition proceeded until defendant was questioned regarding his communications with Patterson. In response, defendant asserted the attorney-client privilege and refused to answer questions regarding his conversations with Patterson. Defendant's counsel thereafter terminated the deposition.
On 28 April 2003, plaintiff filed a motion requesting that the trial court sanction defendant and/or require defendant to "fully and adequately respond to all questions concerning his communications with [] Patterson." Following presentation of evidence and arguments by both parties, the trial court entered an order concluding in pertinent part as follows:
2. There is nothing in the Nationwide Policy which suggests that [plaintiffs] providing counsel to an insured waives attorney-client privilege.
3. There was an attorney-client relationship between [defendant] and [Patterson] in [the underlying action],
4. There was no attorney-client relationship between [Patterson] and [plaintiff] in [the underlying action].
7. The file maintained by [Patterson] in the defense of [the underlying action] was generated as attorney-client materials with respect to [defendant] as a result of the contractual duty [plaintiff] was fulfilling in providing a defense to [defendant].
10. It was a breach of the attorney-client relationship for confidential communications by and between [defendant] and [Patterson] in [the underlying action] to be disclosed to [plaintiff].
16. The Court in the exercise of its discretion deems that the imposition of sanctions and/or an order compelling discovery are not justified under the facts and circumstances of the facts of this case.
Based in part upon these conclusions of law, the trial court denied plaintiffs motion. It is from this order that plaintiff appeals.
We note initially that an appeal from an order denying a motion to compel discovery is generally interlocutory in nature. Shelton v. Morehead Memorial Hospital, 318 N.C. 76, 80, 347 S.E.2d 824, 827 (1986); Mack v. Moore, 91 N.C. App. 478, 480, 372 S.E.2d 314, 316 (1988), disc. review denied, 323 N.C. 704, 377 S.E.2d 225 (1989). However, by order issued 25 March 2004, this Court denied defendant's motion to dismiss the instant appeal as interlocutory. Therefore, we conclude that plaintiffs appeal is properly before us.
We also note that both parties assigned error to the trial court's order in the instant case. However, because defendant failed to offer any support in his brief for his cross-assignments of error, those assignments of error are deemed abandoned. N.C.R. App. R 28(b)(6) (2005). Accordingly, we limit our present review to those assignments of error properly preserved by plaintiff for appellate review.
The issues on appeal are whether the trial court erred by: (I) concluding that no attorney-client relationship existed between plaintiff and Patterson; (II) concluding that the attorney-client relationship between defendant and Patterson prevented Patterson from disclosing to plaintiff any communications between Patterson and defendant; (III) concluding that Patterson breached the attorney-client relationship by providing the entire file from the underlying action to plaintiff; (IV) refusing to grant plaintiff's motion for sanctions; (V) ordering that Patterson's file and all copies of documents contained therein be sealed pending further orders.
"[I]t is well established that orders regarding discovery matters are within the discretion of the trial court and will not be upset on appeal absent a showing of abuse of that discretion." Evans v. United Servs. Auto. Ass'n, 142 N.C. App. 18, 27, 541 S.E.2d 782, 788 (citations omitted), cert. denied, 353 N.C. 371, 547 S.E.2d 810 (2001). To demonstrate an abuse of discretion, the appellant must show that the trial court's ruling was manifestly unsupported by reason, Clark v. Penland, 146 N.C. App. 288, 291, 552 S.E.2d 243, 245 (2001), or could not be the product of a reasoned decision. Chavis v. Thetford Prop. Mgmt., Inc., 155 N.C. App. 769, 771, 573 S.E.2d 920, 921 (2003). This Court is not allowed to substitute its own judgment for that of the trial court. Id.
I. Attorney-Client Relationship Between Plaintiff and Patterson
Plaintiff first argues that the trial court erred by concluding that no attorney-client relationship. existed between it and Patterson. Plaintiff asserts that this conclusion was counter to the ethics opinions of our State Bar and the established standards of insurance law practice. We agree.
Our Supreme Court has previously noted that while " 'questions of propriety and ethics are ordinarily for the consideration of the [North Carolina State] Bar' because that organization was expressly created by the legislature to deal with such questions, . . . the power to regulate the conduct of attorneys is held concurrently by the Bar and the court." Gardner v. N.C. State Bar, 316 N.C. 285, 287-88, 341 S.E.2d 517, 519 (1986) (quoting McMichael v. Proctor, 243 N.C. 479, 485, 91 S.E.2d 231, 235 (1956)). In North Carolina State Bar RPC 92 (January 17, 1991) ("RPC 92"), the State Bar recognized that although the attorney's primary allegiance must remain with the insured, an attorney may enter into dual representation of both an insurer and an insured. In such an instance, "[t]he attorney should keep the insurance company informed as to the wishes of the insured concerning the defense of the case and settlement." Id. This ruling was consistent with North Carolina State Bar RPC 91 (January 17, 1991) ("RPC 91"), which noted that "[w]henever defense counsel is employed by an insurance company to defend an insured against a claim, he or she represents both the insurer and the insured." In a recent Formal Ethics Opinion, the State Bar noted that its "[p]rior ethics opinions ha[d] firmly established that a lawyer defending an insured at the request of an insurer represents both clients." 2003 Formal Ethics Opinion 12 (October 21, 2004) ("FEO 12").
In the instant case, despite this well-established doctrine, the trial court concluded that no attorney-client relationship existed between plaintiff and Patterson. In support of this conclusion, the trial court relied upon the contractual nature of Patterson's hiring, in that plaintiff "provided counsel to [defendant] . . . pursuant to the Nationwide Policy issued to [defendant]." However, we note such a contractual provision of counsel is not unlike the employment of counsel referred to by RPC 91 and endorsed by FEO 12, which, along with RPC 92, "envisioned that . . . work product would be shared with the insurance company [as well as the insured] so that both clients are fully informed of their lawyer's opinion" on representation issues, (emphasis added). In light of the foregoing, we conclude that a tripartite attorney-client relationship existed in the instant case, whereby Patterson provided "joint" or "dual" representation to both plaintiff and defendant. Accordingly, the trial court erred by determining that no attorney-client relationship existed between plaintiff and Patterson.
II. Attorney-Client Relationship Between Defendant and Patterson
Plaintiff next argues that the trial court erred by concluding that the attorney-client relationship between defendant and Patterson prevented Patterson from disclosing to plaintiff any communications between Patterson and defendant. Plaintiff asserts that the attorney-client privilege is inapplicable to those communications related to the underlying action. We agree.
This Court has previously recognized that "the attorney-client privilege may result in the exclusion of evidence which is otherwise relevant and material." Evans, 142 N.C. App. at 31, 541 S.E.2d at 790. Our courts are obligated to "strictly construe" the attorney-client privilege, and to limit it to the purpose for which it exists: " 'to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.' " Id. (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 66 L. Ed. 2d 584, 591 (1981)).
In construing the effect of the tripartite relationship between an attorney, an insurer, and an insured, several courts across the country have held that the "common interest" or "joint client" doctrine applies. Under this doctrine, communications between the insured and the retained attorney are not privileged to the extent that they relate to the defense for which the insurer has retained the attorney. See, e.g., Northwood Nursing & Convalescent Home, Inc. v. Continental Ins. Co., 161 F.R.D. 293, 297 (E.D. Pa. 1995) ("Because [the insurer] has agreed to defend this action, [the insureds] have no reasonable expectation of privilege."); North River Ins. v. Philadelphia Reinsurance, 797 F. Supp. 363, 366 (D.N.J. 1992) ("The common interest doctrine has been recognized in the insured/insurer context when counsel has been retained or paid for by the insurer, and allows either party to obtain attorney-client communications related to the underlying facts giving rise to the claim, because the interests of the insured and insurer in defeating the third-party claim against the insured are so close that 'no reasonable expectation of confidentiality' is said to exist." (citation omitted)); Pittston Co. v. Allianz Ins. Co., 143 F.R.D. 66, 69 (D.N.J. 1992) ("It seems clear that use of the [common interest] doctrine is warranted when there is a dispute between [an] insurer and [an] insured regarding underlying litigation in which the insured was represented by an attorney appointed by the insurer."); Waste Management, Inc. v. International Surplus Lines Ins. Co., 144 Ill. 2d 178, 193, 579 N.E.2d 322, 328 (1991) (holding that common interest doctrine applies as between insurer and insured); Brasseaux v. Girouard, 214 So. 2d 401, 410 (recognizing that in suits between an insurer and an insured, communications made by the insured to the insurer's counsel during a period of simultaneous representation are not privileged where the issue to which the communications relate concerns matters of the legal representation of the insured), cert. denied, 253 La. 60, 216 So. 2d 307 (1968); Goldberg v. American Home Assurance Co., 80 A.D.2d 409, 413, 439 N.Y.S.2d 2, 5 (1981) (common interest doctrine "especially" applies "where an insured and his insurer initially have a common interest in defending an action against the former[.]"). See also 81 Am. Jur. 2d Witnesses § 434 (2004) ("When an insurer, as required by its contract of insurance, employs counsel to defend its insured, any communication with the lawyer concerning the handling of the claim against the insured is necessarily a matter of common interest to both the insured and the insurer, and the attorney-client privilege is inapplicable.").
In North Carolina, our courts have previously recognized the common interest or joint client doctrine, noting that "as a general rule, where two or more persons employ the same attorney to act for them in some business transaction, their communications to him are not ordinarily privileged inter sese." Dobias v. White, 240 N.C. 680, 685, 83 S.E.2d 785, 788 (1954) (citing Carey v. Carey, 108 N.C. 267, 12 S.E. 1038 (1891) (noting that privilege rule does not apply to communications between parties and to a joint attorney) and Michael v. Foil, 100 N.C. 178, 189, 6 S.E. 264, 269 (1888) ("[A] communication made to counsel for two defendants is not privileged from disclosure in a subsequent suit between the two.") (internal quotation marks omitted)); accord Brown v. Green, 3 N.C. App. 506, 512, 165 S.E.2d 534, 538 (1969). The rationale for the doctrine rests upon the non-confidential nature of communications between the parties during the tripartite relationship. "If it appears by extraneous evidence or from the nature of a transaction or communication that they were not regarded as confidential, or that they were made for the purpose of being conveyed by the attorney to others, [communications] are stripped of the idea of a confidential disclosure and are not privileged." Dobias, 240 N.C. at 684-85, 83 S.E.2d at 788 (citation omitted).
In light of the foregoing, we are persuaded that the common interest or joint client doctrine applies to the context of insurance litigation in North Carolina. Therefore, where, as here, an insurance company retains counsel for the benefit of its insured, those communications related to the representation and directed to the retained attorney by the insured are not privileged as between the insurer and the insured. Nevertheless, we note that application of the common interest or joint client doctrine does not lead to the conclusion that ah of the communications between defendant and Patterson were unprivileged. Instead, the attorney-client privilege still attaches to those communications unrelated to the defense of the underlying action, as well as those communications regarding issues adverse between the insurer and the insured. Specifically, "[c]ommunications that relate to an issue of coverage . . . are not discoverable . . . because the interests of the insurer and its insured with respect to the issue of coverage are always adverse." North River Ins., 797 F. Supp. at 367 (citations omitted).
Under this analysis, Exhibit 4 in the instant case — a letter from defendant to Patterson discussing discovery responses to the underlying action — was not privileged. The letter is directly related to plaintiffs defense of the underlying action, and thus clearly covered by the common interest doctrine. However, defendant was correct in declining to answer the following question from his deposition: "So did [Patterson] give you any advice as to whether the claims of malicious prosecution or punitive damages were covered or not covered under the policy?" This question involves an issue of coverage, which, as detailed above, is adverse to plaintiffs representation of defendant and unrelated to plaintiffs defense of the underlying action.
Plaintiff maintains that even those communications unrelated to plaintiffs defense of the underlying action and concerning issues of coverage should be discoverable in the instant case. In support of this assertion, plaintiff contends that by asserting counterclaims against plaintiff based upon his alleged improper representation by Patterson, defendant has waived the privilege which covers the communications. We agree.
We note initially that our review of this issue is limited by the premature termination of the deposition and the appeal of the trial court order prior to further discovery motions. As discussed above, defend ant terminated the deposition prior to its completion, citing the attorney-client privilege. While we recognize the need to be vigilant in protecting the attorney-client privilege, in the instant case, because of the early termination of the deposition and the immediate appeal of the trial court's order, we are left with no idea of the degree to which defendant concedes the attorney-client privilege has been waived. A better practice would have been to have proceeded with the deposition, with defendant asserting the privilege as to each question he deemed inappropriate in light of the privilege. By failing to follow this approach, both the trial court and this Court must apply the attorney-client privilege in the abstract. Nevertheless, we have examined the record in the instant case, and, in light of defendant's challenges to Patterson's representation, we conclude that defendant has waived the privilege with respect to those communications unrelated to the underlying action and adverse to plaintiff.
As discussed above, in his answer to the declaratory judgment complaint, defendant asserts eight counterclaims against plaintiff. In his second counterclaim, defendant alleges that plaintiff "failed to properly assess and evaluate the claims" against him and breached its duty "to defend and handle" the claims against him "competently and with due regard to" his rights. To the extent defendant contends that Patterson negligently defended him in the underlying action and negligently failed to resolve the claims, such allegations constitute a waiver of the attorney-client privilege. See State v. Taylor, 327 N.C. 147, 152, 393 S.E.2d 801, 805 (1990) (concluding that a defendant making a claim that an attorney rendered ineffective assistance of counsel waives the attorney-client privilege with respect to those matters relevant to his allegations). This counterclaim refers to what plaintiff led defendant to believe, and it alleges that plaintiff failed to keep defendant "properly advised of the status of the settlement negotiations[.]" Similar allegations are contained within defendant's fourth counterclaim, which states that defendant "justifiably relied on the information supplied by [plaintiff]" regarding the "status of the settlement negotiations ." Moreover, in his affidavit, defendant repeatedly recites communications he received from Patterson regarding plaintiff's position with respect to settlement and detailing how the settlement negotiations were proceeding. See Blackmon v. Bumgardner, 135 N.C. App. 125, 141, 519 S.E.2d 335, 345 (1999) (concluding that attorney-client privilege is waived when client offers testimony concerning the substance of the communication). In light of the foregoing, we conclude that defendant has waived the attorney-client privilege with respect to those issues which were unrelated to the underlying action and which involved questions of coverage.
TTT. Patterson's Breach of the Attorney-Client Relationship
Plaintiff next argues that the trial court erred by concluding that Patterson breached his attorney-client relationship with defendant when he provided plaintiff with the entire file from the underlying action. Plaintiff asserts that the trial court's conclusion results from improper determinations that no attorney-client relationship existed between plaintiff and Patterson and that all communications between defendant and Patterson were privileged from disclosure. However, while the trial court's conclusion might have been based upon prior improper determinations, we are not persuaded that the trial court erred by concluding that Patterson was prohibited from providing the file to plaintiff in a wholesale manner. As discussed above, some communications contained in the file may have been privileged, including those communications unrelated to the underlying action or defendant's counterclaims, those communications regarding coverage issues made prior to defendant's counterclaims, and those communications unrelated to the conduct forming the basis of defendant's counterclaims. Therefore, we agree that Patterson's file should not have been provided to plaintiff in a wholesale manner. Instead, the file should have been submitted to the trial court for in camera review aimed at determining which documents in the file were privileged. Accordingly, we conclude that the trial court did not err by ruling that Patterson breached his attorney-client relationship with defendant when he provided plaintiff with the entire file from the underlying action.
IV. Trial Court's Refusal To Sanction Defendant,
Plaintiff next argues that the trial court erred by refusing to grant plaintiff's motion for sanctions. Plaintiff asserts that because defendant was unjustified in refusing to answer certain questions and prematurely terminated his deposition, the trial court abused its discretion by refusing to sanction him. We disagree.
The record reflects that with respect to this issue, the trial court concluded as follows:
14. The refusal of [defendant] and his counsel to respond to the questions posed concerning the communications between [defendant] and [] Patterson, as well as the termination of the deposition of [defendant] for the breach of the attorney-client privilege, was substantially justified within the meaning of the Commentary to Rule 37(a)(4) of the North Carolina Rules of Civil Procedure^]
15. The refusal of [defendant] and his counsel to respond to the questions posed concerning the communications between [defendant] and [] Patterson as well as the termination of the deposition of [defendant] for the breach of the attorney-client privilege were actions taken in good faith and not for the mere purpose of delay and/or obfuscation.
16. The Court in the exercise of its discretion deems that the imposition of sanctions and/or an order compelling discovery are not justified under the facts and circumstances of the facts of this case.
"The choice of sanctions under Rule 37 lies within the court's discretion and will not be overturned on appeal absent a showing of abuse of that discretion." Routh v. Weaver, 67 N.C. App. 426, 429, 313 S.E.2d 793, 795 (1984). "A trial court may be reversed for abuse of discretion only upon a showing that its ruling was so arbitrary that it could not have been the result of a reasoned decision." Hursey v. Homes By Design, Inc., 121 N.C. App. 175, 177, 464 S.E.2d 504, 505 (1995). In the instant case, in its order denying sanctions, the trial court noted that "the privilege issue involved in this motion is a question of first impression],]" and the trial court concluded that defendant was "substantially justified" in relying on the attorney-client privilege in terminating .the deposition. After reviewing the record, we conclude that plaintiff has failed to demonstrate that the trial court's decision was arbitrary and unreasoned. Accordingly, the trial court's decision not to impose sanctions is affirmed.
V. Trial Court's Decision To Seal Patterson's File
Plaintiff's final argument is that the trial court erred by requiring that Patterson's file remain sealed pending further orders from the court. However, in light of our prior conclusions regarding those portions of Patterson's file which were discoverable and whether defendant waived his privilege with respect to the remaining portions, we need not reach the merits of this argument. Accordingly, plaintiff's final argument is dismissed.
VI. Conclusion
In summary, we conclude that the trial court erred by determining that (a) no attorney-client relationship existed between plaintiff and Patterson, and (b) the attorney-client relationship between defendant and Patterson prevented Patterson from disclosing to plaintiff his communications with defendant. As detailed above, Patterson, plaintiff, and defendant were engaged in a tripartite relationship, whereby Patterson served as attorney for both plaintiff and defendant. By virtue of this relationship, any communications between Patterson and defendant related to plaintiff's defense of the underlying action were discoverable, while those communications unrelated to the underlying action and those communications involving issues of coverage were not discoverable. Thus, we also conclude Patterson breached his attorney-client relationship by turning over the file to plaintiff wholesale. However, while we further conclude that the trial court did not err in refusing to sanction defendant for failing to answer questions and prematurely terminating the deposir tion, under the facts of the instant case, we nevertheless conclude that defendant has waived his right to assert his attorney-client privilege with respect to those communications relevant to his counterclaims although unrelated to the underlying action and involving issues of coverage. Therefore, we hold that plaintiff is entitled to discovery regarding those matters, and, accordingly, we affirm the trial court's order in part and reverse it in part.
Affirmed in part; reversed in part.
Judge GEER concurs.
Judge TYSON concurs in part and dissents in part.