Court Opinion

ID: 4290179
Source: CourtListenerOpinion
Date Created: 2018-06-29 19:00:19.032668+00
Date Added: 2024-06-11T09:34:17.336278
License: Public Domain

FILED: June 19, 2018
                                                             AMENDED: June 28, 2018

                       UNITED STATES COURT OF APPEALS
                           FOR THE FOURTH CIRCUIT

                                       No. 18-1401
                                  (9:15-cv-00304-DCN)

In re: MT. HAWLEY INSURANCE COMPANY,

                    Petitioner.

                                       ORDER

      Pursuant to Rule 244 of the South Carolina Appellate Court Rules, we respectfully

certify the following question of law to the Supreme Court of South Carolina:

      Does South Carolina law support application of the “at issue” exception to
      the attorney-client privilege such that a party may waive the privilege by
      denying liability in its answer?

      As we explain, we believe that there is no controlling precedent answering this

question in the decisions of the Supreme Court of South Carolina. Moreover, the answer

may be determinative of whether petitioner Mount Hawley Insurance Company (“Mount

Hawley”) is entitled to a writ of mandamus vacating the district court’s order to compel

the production of files that Mount Hawley asserts are protected by the attorney-client

privilege under South Carolina law.
                                             I.

       Mount Hawley provided ContraVest Construction Company (“Contravest”) with

excess commercial liability insurance from July 21, 2003, to July 21, 2007. During that

period, Contravest constructed the Plantation Point development in Beaufort County,

South Carolina.    In 2011 the Plantation Point Horizontal Property Regime Owners

Association (“the Owners Association”) sued Contravest for alleged defective

construction of Plantation Point. Mount Hawley refused Contravest’s demands to defend

or indemnify Contravest in the suit, as Contravest contended was required by its

insurance policies, and Contravest ultimately settled the case.

       Contravest and the Owners Association subsequently sued Mount Hawley in

South Carolina court, alleging bad faith failure to defend or indemnify, breach of

contract, and unjust enrichment. Mount Hawley removed the case to the United States

District Court for the District of South Carolina pursuant to 28 U.S.C. § 1441 (2012), and

federal subject matter jurisdiction exists under 28 U.S.C. § 1332 (2012) based upon

complete diversity of citizenship between the parties and damages alleged to be greater

than $75,000.

       During discovery, the plaintiffs sought production of, first, Mount Hawley’s file

on Contravest’s claim for excess coverage relating to the Plantation Point suit, and later,

Mount Hawley’s files relating to all of Contravest’s claims under its excess liability

policies. See Fed. R. Civ. P. 26(b)(1), 34(a)(1)(A). Mount Hawley contended that these

files contained material protected by the attorney-client privilege, and produced the files

in redacted form with accompanying privilege logs. See Fed. R. Civ. P. 26(b)(5)(A).

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The plaintiffs filed multiple motions to compel, arguing that Mount Hawley waived the

attorney-client privilege as to these files. See Fed. R. Civ. P. 37(a)(3)(B)(iv). The district

court adopted the recommendation of the magistrate judge, granted the motions to

compel, and ordered Mount Hawley to produce the files for in camera inspection.

ContraVest Inc. v. Mt. Hawley Ins. Co., 273 F. Supp. 3d 607, 622-23 (D.S.C. 2017). The

district court subsequently denied Mount Hawley’s motion for reconsideration. 1 Mount

Hawley then sought a writ of mandamus from this court to vacate the district court’s

order granting the motions to compel.

                                             II.

       In its petition for a writ of mandamus, Mount Hawley challenges the district

court’s holding that the relevant files were not protected by the attorney-client privilege

because Mount Hawley put them “at issue” in the case by denying liability for bad faith

failure to defend or indemnify. Because this is a diversity action involving claims for

which South Carolina law provides the rule of decision, South Carolina’s law of attorney-

client privilege applies. See Ashcraft v. Conoco, Inc., 218 F.3d 282, 285 n.5 (4th Cir.

2000); Fed. R. Evid. 501. In South Carolina the attorney-client privilege is defined as

follows:

       (1) Where legal advice of any kind is sought (2) from a professional legal
       adviser in his capacity as such, (3) the communications relating to that
       purpose (4) made in confidence (5) by the client, (6) are at his instance

       1
        In its motion for reconsideration Mount Hawley asked the district court to certify
four questions of law to the Supreme Court of South Carolina, but the district court
declined to do so.

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       permanently protected (7) from disclosure by himself or by the legal
       adviser, (8) except the protection be waived.

Tobaccoville USA, Inc. v. McMaster, 387 S.C. 287, 293, 692 S.E.2d 526, 530 (2010). “In

general, the burden of establishing the privilege rests upon the party asserting it.”

Wilson v. Preston, 378 S.C. 348, 359, 662 S.E.2d 580, 585 (2008).

       In finding that the relevant files were not protected by South Carolina’s attorney-

client privilege, the district court relied on City of Myrtle Beach v. United Nat. Ins. Co.,

No. 4:08-1183-TLW-SVH, 2010 WL 3420044 (D.S.C. Aug. 27, 2010) (unpublished).

City of Myrtle Beach also involved a bad faith insurance suit under South Carolina law in

which the insured sought to compel the insurer to produce the relevant claims file, and

the insurer argued that the file contained material protected by the attorney-client

privilege. Id. at *1-2. The district court adopted the approach articulated in Hearn v.

Rhay, 68 F.R.D. 574 (E.D. Wash. 1975), as “consistent with established South Carolina

law.” Id. at *5. Applying Hearn, the district court found that

       there is no per se waiver of the attorney client privilege simply by a
       plaintiff making allegations of bad faith. However, if a defendant
       voluntarily injects an issue in the case, whether legal or factual, the insurer
       voluntarily waives, explicitly or impliedly, the attorney-client privilege.
       Thus “voluntarily injecting” the issue is not limited to asserting the advice
       of counsel as an affirmative defense. A party’s assertion of a new position
       of law or fact may be the basis of waiver.

Id. (citation omitted).

       Applying this definition of waiver, the court in City of Myrtle Beach found that

“[f]or the purposes of the motion to compel, . . . the [insured] has presented a prima facie

case of bad faith,” and the insurer failed to meet its burden of establishing the absence of

                                             4
waiver of the attorney-client privilege on account of the defenses asserted in its answer,

including that the insurer acted reasonably and in good faith. Id. at *7. The court noted

that “[w]hile this ruling amounts to a virtual per se waiver of the privilege in this case,

this result is based on the facts and issues presented by [the insurer] in its Answer and its

failure to meet its burden as to the applicability of the privilege with this in mind.” Id.

       In the present case, the district court rejected Mount Hawley’s argument that City

of Myrtle Beach was inconsistent with South Carolina law in light of the fact that one

member of the Supreme Court of South Carolina criticized the Hearn decision in a

separate opinion concurring in part and dissenting in part.          See Davis v. Parkview

Apartments, 409 S.C. 266, 291-96, 762 S.E.2d 535, 549-51 (2014) (Pleicones, J.,

concurring in part and dissenting in part). The district court found “that the numerous

decisions that have applied City of Myrtle Beach in this district provide stronger evidence

[than the separate opinion in Davis] that the Supreme Court of South Carolina would

adopt such an approach.” ContraVest, 273 F. Supp. 3d at 616. The district court also

concluded that this approach strikes the best balance between the “important policy goals

of the attorney-client privilege . . . against the substantive interests underlying an insured

bad faith claim.” Id. (citation omitted).

       Following the approach articulated in City of Myrtle Beach, the district court

concluded that because the plaintiffs had established a prima facie case of bad faith

failure to insure, and Mount Hawley in its answer denied bad faith liability, Mount

Hawley waived the attorney-client privilege with respect to the attorney-client

communications in the claim files, to the extent such communications are relevant under

                                              5
Fed. R. Civ. P. 26. 2 Id. at 611-23. The court thus ordered Mount Hawley to produce the

files for in camera review. Id. at 623.

       Mount Hawley contends, and we agree, that if South Carolina law does not

support the “at issue” exception applied in City of Myrtle Beach, the district court’s order

granting the motions to compel was erroneous. We have not found any South Carolina

authority that appears to definitely answer this question, and believe the issue to be

sufficiently debatable to warrant certification of the question to the Supreme Court of

South Carolina.

                                               III.

       Based on the foregoing, we respectfully request that the Supreme Court of South

Carolina accept and answer the foregoing certified question, thereby providing the

parties, the courts, future litigants, and the public with definitive guidance regarding the

attorney-client privilege in South Carolina.

       We direct the Clerk of Court to forward a copy of this order under official

seal to the Supreme Court of South Carolina.

       Entered at the direction of Judge Niemeyer with the concurrence of Judge

Agee and Senior Judge Hamilton.

                                                           QUESTION CERTIFIED

       2
         The district court noted that City of Myrtle Beach does not explicitly hold that a
plaintiff in a bad faith insurance case must establish a prima facie case before being
entitled to discover relevant attorney-client communications. ContraVest, 273 F. Supp.
3d at 618-19. The court explained, however, that unless City of Myrtle Beach is read to
require such a prima facie showing, the rejection of the “per se waiver” rule would be
meaningless. Id. at 619.

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