FRIEDMAN ROUTE 10, LLC v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

FRIEDMAN ROUTE 10, LLC, a New Jersey

limited liability company,

Plaintiff-Respondent,

v.

CERTAIN UNDERWRITERS AT LLOYD'S,

LONDON, RAPHAEL & ASSOCIATES,

and JIMCOR AGENCY, INC.,

Defendants-Appellants.

Argued telephonically January 22, 2014 Decided January 31, 2014

 

Before Judges Reisner and Carroll.

 

On appeal from an interlocutory order of Superior Court of New Jersey, Law Division, Essex County, Docket No. L-2823-12.

 

Joseph M. Powell argued the cause for appellants (Powell & Roman, attorneys; Mr. Powell, on the brief).

 

Richard L. Zucker argued the cause for respondent (Lasser Hochman, attorneys; Mr. Zucker, of counsel and on the brief; Ryan M. Buehler, on the brief).

 

PER CURIAM

By leave granted, defendants appeal from a June 7, 2013 interlocutory order of the Law Division directing defendant Raphael & Associates (Raphael) to produce sixteen documents listed on its privilege log, and an August 9, 2013 order denying reconsideration. Defendants maintain that they share a common interest in this litigation and that the documents at issue contain legal advice and are shielded from disclosure by the attorney-client privilege, and/or were prepared in anticipation of litigation and constitute attorney work product. Except for selected portions of a single document that we find not to be privileged, we reverse.

This matter arose after plaintiff, Friedman Route 10, LLC, filed an insurance claim with defendant Certain Underwriters at Lloyd's London (Lloyd's), when a portion of the roof on plaintiff's building collapsed on February 2, 2011. Because Lloyd's cannot conduct business in New Jersey, pursuant to the New Jersey Surplus Lines Law, N.J.S.A. 17:22-6.40 to 6.69, Lloyd's utilizes surplus lines agents to issue such policies. Defendant Jimcor Agency, Inc. (Jimcor) is a surplus lines agent, and issued the insurance policy to plaintiff on behalf of Lloyd's. In addition to utilizing surplus lines agents, Lloyd's uses independent claims adjustment companies for claims handling. Lloyd's thus retained Raphael, an independent claims adjuster, to investigate and adjust plaintiff's claim.

Lloyd's also retained the law firm of Powell & Roman, LLC (Powell) on March 29, 2011, to provide a coverage opinion and legal analysis with respect to plaintiff's claim. Lloyd's instructed Powell to work with its United States claims representative, Raphael. Powell routinely submitted legal bills to Raphael for review and approval. According to defendants, all communications between plaintiff and defendants were initially done through Raphael.

On April 14, 2011, Raphael wrote to plaintiff, advising that upon investigation of the claim, Lloyd's noted that plaintiff had previously submitted a claim with respect to a roof collapse that had occurred approximately a year earlier. Raphael further indicated that it would continue to adjust the claim, but warned that "[Lloyd's] did not waive any of their rights or defenses under the policy."

Defendants assert that throughout this time, Raphael represented itself to plaintiff as acting on Lloyd's behalf, although the ultimate decision as to denial or acceptance of coverage and payment of claims rested with Lloyd's. During this period, Raphael communicated with Lloyd's retained counsel, Powell, regarding legal issues arising out of the handling of the claim.

The parties were unable to adjust the claim, and plaintiff commenced this action against Lloyd's in the Law Division on April 16, 2012. The complaint sought compensatory damages resulting from the roof collapse, and alleged that the loss exceeded the $980,000 policy limit. Notably, prior to Raphael being added as a defendant in this matter, its Property Department Manager, Robert Purcell, was authorized to certify interrogatory answers on Lloyd's behalf. When the matter later went to mediation, Raphael's representative, Paul Lincoln, Esq., attended as Lloyd's representative.

On June 4, 2012, plaintiff issued a subpoena to Raphael, seeking production of its file. Raphael provided the file to Powell, who in turn produced the subpoenaed documents to plaintiff's counsel. Powell, however, did not produce sixteen documents that were itemized in a privilege log, contending that they were protected by the attorney-client privilege. The purportedly privileged documents spanned the time period from March 31, 2011 to June 6, 2012, both before and after the filing of plaintiff's complaint against Lloyd's on April 16, 2012. Plaintiff's counsel objected, contending that Powell was retained by Lloyd's, and that Raphael is a separate entity that was never Powell's client.

Plaintiff amended its complaint in January 2013 to add Raphael and Jimcor as additional defendants. The amended complaint alleged that Jimcor served as Lloyd's agent with respect to the policy and the processing of plaintiff's claim, and that Raphael served as an administrator of Lloyd's, managing the policy and the claim processing. Powell filed an answer to the amended complaint on behalf of all defendants.

Following a failed mediation, plaintiff moved to compel production of the withheld documents. On May 3, 2013, Judge Patricia K. Costello directed Raphael to produce the withheld documents for an incamera review by a different judge in order to determine whether the items were privileged. Judge Costello also wrote on the order: "insufficient specificity on the papers for a court to decide if these items are privileged, absent an in camera review, to be accompanied by a detailed privilege log."

Raphael provided the documents itemized on the privilege log to the second judge, along with its prior opposition papers. It did not provide a "more detailed privilege log," but rather the same one that was originally submitted.1 On June 7, 2013, without further explanation, the court ordered that all of the withheld documents be produced.

Defendants moved for reconsideration, again on the basis that the documents were privileged, and for the first time, that they were protected under the attorney work product doctrine and the common interest doctrine. Following oral argument, the court denied reconsideration. In its August 9, 2013 order, the judge added the following handwritten statement of reasons:

Movant failed to comply with Judge Costello's order requiring a detailed privilege log. Without privilege log, court will not find privilege.

 

Movant fails to meet requirement for reconsideration as to privilege. Defendant continues to fail to comply with order of Honorable Patricia K. Costello, A.J.S.C.

 

Court finds no basis for attorney client privilege for time period which is subject of motion which had to do with investigation of claim.

 

Court finds common interest claims not to apply.

 

This interlocutory appeal followed.

 

Our role in reviewing a trial court's disposition of discovery matters is limited to a determination of whether the court abused its discretion, or whether its decision is based upon "a mistaken understanding of the applicable law." Payton v. N.J. Tpk. Auth., 148 N.J. 524, 559 (1997). "Because 'a trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference[,]' Manalapan Realty, L.P. v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995), we review the applicability of the attorney-client privilege . . . in this case [] de novo." Hedden v. Kean University, ___ N.J. Super. ___, ___ (App. Div. 2013) (slip op. at 7).

"It is well-settled under New Jersey law that communications between lawyers and clients 'in the course of that relationship and in professional confidence' are privileged and therefore protected from disclosure. N.J.S.A. 2A:84A-20(1); N.J.R.E. 504(1). Specifically, the attorney-client privilege generally applies to communications (1) in which legal advice is sought, (2) from an attorney acting in his capacity as a legal advisor, (3) and the communication is made in confidence, (4) by the client." Hedden, supra, ___ N.J. Super. at ___ (slip op. at 7) (citing Metalsalts Corp. v. Weiss, 76 N.J. Super. 291 (Ch. Div. 1962)).

The policies underlying the attorney-client privilege further animate this discussion. Stengart v. Loving Care Agency, Inc., 201 N.J. 300, 315 (2010). The venerable privilege is enshrined in history and practice. Fellerman v. Bradley, 99 N.J. 493, 498 (1985) ("[T]he attorney-client privilege is recognized as one of the oldest of the privileges for confidential communications."). Its primary rationale is to encourage "free and full disclosure of information from the client to the attorney." Ibid. That, in turn, benefits the public, which "is well served by sound legal counsel" based on full, candid, and confidential exchanges. Id. at 502.

Under the Rule, "[f]or a communication to be privileged it must initially be expressed by an individual in his capacity as a client in conjunction with seeking or receiving legal advice from the attorney in his capacity as such, with the expectation that its content remain confidential." Fellerman, supra, 99 N.J. at 499, (citing N.J.S.A. 2A:84A-20(1) and (3)).

In asserting that the privilege does not apply, plaintiff primarily argues that at the time the subject communications were made (1) Raphael was not a client of Powell, who had been retained to represent Lloyd's; and (2) the communications dealt with the investigation of a claim, rather than legal advice. Defendants disagree, contending that Lloyd's retained Powell to provide a coverage opinion and legal analysis, and that litigation as to plaintiff's disputed claim was always a potential concern. Defendants further argue that the trial court's rulings failed to consider the statutory constraints imposed on surplus lines insurers such as Lloyd's, who are necessarily required to act through agencies such as Jimcor and Raphael in the issuance of policies and the adjustment of claims.

Our analysis thus begins with the issue of whether Lloyd's purpose was to solicit legal advice from Powell, in which event the privilege applies, or whether Lloyd's merely sought to secure business advice or other non-legal services, wherein it does not. See Hedden, supra, ___ N.J. Super. at ___ (slip op. at 10-11) (citing United States v. Rockwell Int'l, 897 F.2d 1255, 1264 (3d Cir. 1990)). "[W]hile the burden of proof is on the person or entity asserting the privilege to show its applicability in any given case, there is a presumption that a communication made in the lawyer-client relationship has been made in professional confidence." Hedden, supra, ___ N.J. Super. at ___ (slip op. at 10) (citations omitted). However, the privilege is not absolute, for

[i]f all activities of a lawyer are to be classified as warranting the bar of discovery proceedings because of the attorney-client privilege, then it would be appropriate for clients to retain lawyers as investigators, custodians of records and the like, thereby turning the shield of the privilege into the sword of injustice.

 

[Metalsalts Corp., supra, 76 N.J. Super. at 299.]

 

It is within this context that the parties dispute the applicability of the Supreme Court's holding in Payton, supra. In Payton, plaintiff brought suit against defendant New Jersey Turnpike Authority under the New Jersey Law Against Discrimination, N.J.S.A. 10:5-1 to -42, and sought discovery of the identity and information of witnesses providing information to the employer when in-house counsel was utilized during the investigation process. Id. at 533. The Court held that an "attorney who is not performing legal services or providing legal advice in some form does not qualify as a 'lawyer' for purposes of the privilege." Id. at 550-51. The Court continued, "when an attorney conducts an investigation not for the purpose of preparing for litigation or providing legal advice, but rather for some other purpose, the privilege is inapplicable." Id. at 551 (citing United Jersey Bank v. Wolosoff, 196 N.J. Super. 553, 563 (App. Div. 1984). The Court added that the "result obtains even where litigation may eventually arise from the subject of the attorney's activities." Id.

The Court further explained that, when analyzing an attorney's role, a court should look "if the purpose was to provide legal advice or to prepare for litigation, [because] then the privilege applies." However, "if the purpose was simply to . . . comply with its legal duty to investigate and to remedy the allegations, then the privilege does not apply." Id. at 551.

Applying Payton's rationale, we conclude that the privilege would not attach if Powell's role here was to simply render routine claims investigation services. Based on the record before us, that does not appear to be the case. Rather, Raphael was retained by Lloyd's to investigate and adjust the claim, and the investigation was performed by engineers and other construction experts. Our independent review of the withheld documents comports with defendants' position that Powell was tasked with conducting legal research of the various issues surrounding plaintiff's claim, and to provide a legal opinion. Accordingly, with the limited exception of a portion of one of the withheld documents, discussed below, we find the remaining documents privileged, and thus not subject to disclosure.

We reject plaintiff's contention that, when the subject communications were made, Powell represented Lloyd's, not Raphael, and therefore Raphael could not claim the privilege as to documents evidencing communications between Raphael and Powell. This argument overlooks the nature and origin of the relationship between the defendants. Plaintiff does not dispute that Lloyd's cannot conduct business in New Jersey, and, by necessity, utilizes surplus lines agents such as Jimcor to issue policies, and independent claims adjustment companies such as Raphael to investigate and adjust claims.

Pursuant to N.J.S.A.2A:84A-29 and N.J.R.E.530, "[a] person waives his right or privilege to refuse to disclose or to prevent another from disclosing a specified matter if he . . . without coercion and with knowledge of his right or privilege, made disclosure of any part of the privileged matter or consented to such a disclosure made by anyone."2 "It has been recognized, however, that not every disclosure constitutes a waiver of privilege." LaPorta v. Gloucester Cnty. Bd. of ChosenFreeholders, 340 N.J. Super.254, 261 (App. Div. 2001). "Rather, 'courts have interpreted [the waiver] principle in a commonsensical way, fashioning a "common interest" doctrine which protects communications made to a non-party who shares the client's interests.'" Ibid.(quoting In re State Comm'n ofInvestigation Subpoena No. 5441, 226 N.J. Super. 461, 466 (App. Div.), certif. denied, 113 N.J. 382 (1988)). These persons or entities need not have identical interests, merely a "common purpose." LaPorta, supra, 340 N.J. Super. at 262.

Here, even though Raphael was not a party to this litigation when the subject documents were subpoenaed, it clearly shared a common interest with Lloyd's in investigating and adjusting plaintiff's claim relating to the roof damage. Accordingly, even assuming Powell was first retained by Lloyd's, the privilege was not waived by Powell's communications with Raphael, which was clearly then acting on Lloyd's behalf.

As noted, in evaluating defendants' claim of privilege, we have undertaken an individualized review of the withheld documents, which have been submitted to us in a confidential appendix. Our review is somewhat hampered by the trial judge's failure to make any findings in initially ordering that the documents be produced in their entirety. "When a New Jersey trial court reviews documents in camera, it must 'make specific determinations regarding plaintiff's access to them, including an expression of reasons for the court's rulings.'" Seacoast Builders Corp. v. Rutgers, 358 N.J. Super. 524, 542 (App. Div. 2003) (quoting Payton, supra, 148 N.J. at 550). Although the August 9, 2013 order denying reconsideration included some handwritten notes indicating that no privilege applied, again there were no detailed findings with respect to any of the documents reviewed, or the Judge's conclusions.

Having conducted a de novo review of the documents, we find that they are privileged, for the reasons we have stated. The sole exception is the document designated Da 142-144 in the confidential appendix, which is a letter from Raphael to Jimcor. Defendants shall redact this document so as delete (1) items 1 and 2 of the Enclosures, i.e., correspondence and invoice from counsel; (2) the first paragraph of the section entitled "Adjustment and General Remarks," which references advice of counsel; and (3) the first paragraph on Da 144, which discusses counsel's invoice. As redacted, this document shall be produced to plaintiff's counsel within ten days of this decision.

Reversed and remanded, except as expressly noted with respect to Da 142-144.

1 Powell's failure to prepare a more detailed privilege log, as ordered, no doubt impeded the ability of plaintiff's counsel to effectively argue that the privilege should not apply, especially since he was not privy to the content of the withheld documents. While we accept defense counsel's explanation that this was a "mistake," we caution that any future claim of privilege should be accompanied by a detailed privilege log.

2 The privilege may also be waived should defendants rely on "advice of counsel" as a defense to plaintiff's bad faith claim. However, unless and until said defense is actually raised, any ruling on waiver would be premature.