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Harleysville Insurance Co. v. Holding Funeral Home, Inc.

United States District Court, W.D. Virginia, Abingdon Division

February 9, 2017

HARLEYSVILLE INSURANCE COMPANY, Plaintiff/Counterclaim Defendant
v.
HOLDING FUNERAL HOME, INC., et al., Defendants/Counterclaim Plaintiffs.

          MEMORANDUM OPINION

          PAMELA MEADE SARGENT UNITED STATES MAGISTRATE JUDGE

         This matter was heard before the undersigned on the Plaintiffs Motion Requesting The Disqualification of Defendants' Counsel, (Docket Item No. 52) ("Motion"), on January 17, 2017. Based on the reasoning set forth below, the Motion will be denied insofar as it seeks the disqualifications of defense counsel. Nonetheless, the undersigned finds that some sanction is appropriate and will award plaintiff its fees and costs incurred in pursuing the Motion.

         The material facts are not in dispute. Plaintiff, Harleysville Insurance Company, ("Harleysville"), has sued the defendants seeking a declaratory judgment that it does not owe the defendants' fire loss claim for an October 22, 2014, loss of a funeral home in Castlewood, Virginia, based on the fire being intentionally set, material misrepresentations and failure to cooperate. The defendants have filed counterclaims alleging breach of insurance contract and bad faith against Harleysville. At issue before the court is defense counsel's access to Harleysville's entire claims file, and whether the facts and circumstances surrounding this access require the disqualification of defense counsel.

         In an effort to share information electronically, Thomas Cesario, a Senior Investigator for Nationwide Insurance Company, ("Nationwide"), which owns Harleysville, uploaded video surveillance footage of the fire loss scene, ("Video"), onto an internet-based electronic file sharing service operated by Box, Inc. Cesario then sent an email containing a hyperlink to the Box, Inc., internet site, ("Box Site"), by which Wes Rowe of the National Insurance Crime Bureau, ("NICB"), could access the file containing the Video using the internet and download the Video. The Video was placed on the Box Site, and the hyperlink to the Box Site sent by email to Rowe on September 22, 2015. The email to Rowe stated: "Here is the link to access the video" and provided the hyperlink. The email also contained the following statement:

CONFIDENTIALITY NOTICE: This e-mail contains information that is privileged and confidential, and subject to legal restrictions and penalties regarding its unauthorized disclosure or other use. You are prohibited from copying, distributing or otherwise using this information if you are not the intended recipient. If you received this e-mail in error, please notify me immediately by return e-mail, and delete this e-mail and all attachments from your system.

(Docket Item No. 55-5 at 2.) Harleysville concedes that any person who used the hyperlink to access the Box Site had access to the electronic information stored there. The information was not password protected. Harleysville also concedes that any person who had access to the internet could have accessed the Box Site by simply typing in the url address in a web browser.

         After receiving the September 22, 2015, email, Rowe used the hyperlink included to access the Box Site on two occasions, once on September 22, 2015, and, again, subsequently, to download the Video. On the occasions that Rowe used the hyperlink to access the Box Site, the only information contained there was the Video.

         On April 28, 2016, Cesario placed files containing Harleysville's entire claims file and Nationwide's entire investigation file for the defendants' fire loss, ("Claims File"), on the Box Site to be accessed by Harleysville's counsel. Cesario then sent an email to Harleysville's counsel with the same hyperlink he sent to Rowe to be used by counsel to access the Box Site and retrieve a copy of the Claims File.

         Defense counsel issued a Subpoena Duces Tecum, dated May 24, 2016, to NICB requesting NICB's entire file related to the fire. On or about June 23, 2016, NICB sent defense counsel electronic copies of all documents and information it had received from Harleysville, including a copy of the September 22, 2015, email from Cesario to Rowe containing the hyperlink to the Box Site. That same day, defense counsel, without the knowledge or permission of Harleysville or its counsel, used the hyperlink to gain access to the Box Site, which now contained the Claims File. Defense counsel downloaded the Claims File and reviewed it without ever notifying Harleysville's counsel that they had accessed and reviewed potentially privileged information.

         On August 22, 2016, in response to a request for production of documents, defense counsel produced a thumb drive to Harleysville's counsel. When Harleysville's counsel reviewed the information contained on the thumb drive, counsel discovered that it contained potentially privileged material inadvertently produced by the defendants. Harleysville's counsel alerted defense counsel. Defense counsel requested that the disclosed privileged documents be destroyed, and Harleyville's counsel complied. Upon further review of the information contained on the thumb drive, Harleysville's counsel discovered on October 27, 2016, that its Claims File was contained on the thumb drive and had been produced by defense counsel. The Claims File was located in a computer file entitled "NICB Video." On November 1, 2016, Harleysville's counsel contacted defense counsel and requested that defense counsel destroy their copy of the Claims File. Defense counsel have conceded that all defense counsel of record have reviewed the materials accessed on the Box Site and that the materials have been shared with the defendants. Nationwide, subsequently, disabled the Box Site so it was no longer accessible to anyone, and Harleysville filed the Motion with the court.

         Harleysville's counsel argues that defense counsel's access to Harleysville's Claims File was an improper, unauthorized access to privileged information requiring the disqualification of all defense counsel of record. Defense counsel argue that the Motion should be denied because Harleysville waived any claim of privilege or confidentiality by placing the information on the Box, Inc., site where it could be accessed by anyone.

         Harleysville asserts that the Claims File reviewed by defense counsel contained information protected from disclosure by the attorney-client privilege and the work-product doctrine. Jurisdiction in this declaratory judgment action is based on diversity of citizenship, and the claims raised by the parties are governed by Virginia state law. Therefore, under Federal Rule of Evidence 501, Virginia state law governs the applicability and waiver of any evidentiary privilege. See Fed. R. Evid. 501. The work-product doctrine, however, it not a privilege, but rather a qualified immunity from discovery. See Continental Cas. Co. v. Under Armour, Inc., 537 F.Supp.2d 761, 769-70 (D. Md. 2008) (citing 8 Charles Alan Wright, Et Al., Federal Practice and Procedure: Civil 2d § 2023 at 335 (2d ed. 1994)). Thus, Rule 501 does not apply, and federal law, not Virginia law, governs the applicability and waiver of the protection available under the work-product doctrine. See Continental Cas. Co., 537 F.Supp.2d at 769-70.

         Under Virginia law, confidential attorney-client communications are privileged from disclosure. See Walton v. Mid-Atl. Spine Specialists, 694 S.E.2d 545, 549 (Va. 2010). "Nevertheless, the privilege is an exception to the general duty to disclose, is an obstacle to investigation of the truth, and should be strictly construed." Commonwealth v. Edwards, 370 S.E.2d 296, 301 (Va. 1988). Also, the attorney-client privilege may be expressly or impliedly waived by the client's conduct. See Edwards, 370 S.E.2d at 301. The proponent of the privilege has the burden to establish that the attorney-client privilege applies to a communication and that the privilege was not waived. See Edwards, 370 S.E.2d at 301; United States v. Jones, 696 F.2d 1069, 1072 (4th Cir.1982).

         Although it is hard to imagine that the entire Claims File would be protected by the Virginia attorney-client privilege, the court will assume that at least a portion of the file contains privileged information for the purpose of addressing the parties' arguments at issue here. See Westchester Surplus Lines Ins. Co. v. Clancy & Theys Const. Co., 2013 WL 6058203, at *6 (E.D. N.C. Nov. 15, 2013) ("Similar to work product, application of the attorney-client privilege can be i- complicated in the context of insurance claims). Harleysville argues that the court should treat defense counsel's access to its claims file as an unauthorized involuntary disclosure or, in the alternative, as an ...


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