United States District Court, W.D. Virginia, Abingdon Division
Tayloe Ross, David Paul Abel, and Robert S. Reverski, Jr.,
Midkif Muncie & Ross, P.C., Richmond, Virginia, and John
L. Coole CooleySublettPearson PLC, Roanoke, Virginia, for
Plaintiff and Counter -Defendant
Harleysville Insurance Company; Glenn H. Silver, C. Thomas
Brow Erik B. Lawson, and Caitlin M. Brown, Silver &
Brown, Fairfax, Virginia, for Insureds and Counter-Claimants
Holding Funeral Home, Inc., Golden Ru Family Management, LLC,
and L.J. Horton Florist, Inc.
OPINION AND ORDER
P. Jones United States District Judge.
a diversity action arising out of a claim for fire insurance
coverage Harleysville Insurance Company
(“Harleysville”) seeks a declaration that it has
n duty to pay benefits under its policy to the insureds,
Holding Funeral Home, Inc Golden Rule Family Management, LLC,
doing business as Holding Funeral Hom of Castlewood, and L.J.
Horton Florist, Inc. (the “Insureds”). The Insure
counterclaim for breach of the insurance contract.
on the merits of this case have been stayed pending the
disposition of a related criminal prosecution. However, as a
separate matter, Harleysville has moved to disqualify counsel
for the Insureds. The magistrate judge denied the motion, and
the parties' objections to that decision, as well as an
additional Motion to Strike, are now before me for review.
basic facts surrounding the motion seeking disqualification
of opposing counsel are uncontested. On October 22, 2014, the
Insureds' funeral home burned to the ground. Harleysville
received prompt notice of the fire loss and resulting claim.
It immediately launched an investigation, and its independent
fire expert found that the fire had been intentionally set.
In its Complaint, filed in this court on November 23, 2015,
Harleysville alleges that representatives of the Insureds
“made material misrepresentations to Harleysville
during the investigation of the Fire and the Claim.”
Compl. ¶ 33, ECF No. 1. These alleged misrepresentations
are also the subject of the pending criminal prosecution.
Indictment, United States v. Riebe, 1:17CR00014, ECF
No. 2 (W.D. Va. Apr. 24, 2017).
after the fire, one or more employees of Nationwide Insurance
Company (“Nationwide”), which owns Harleysville,
began corresponding with representatives of the National
Insurance Crime Bureau (“NICB”). During the course
of that correspondence, NICB asked Harleysville to provide
surveillance video footage of the fire scene. In response,
Thomas Cesario, a senior investigator for Nationwide,
uploaded the video file to an electronic folder in an
Internet-based file-sharing service operated by Box, Inc.
(“Box Folder”). On September 22, 2015, Cesario
sent an email to NICB agent Wes Rowe. The email contained a
“sharing” link to the Box Folder and stated,
“Here is the link to access the video.” Cesario
Email, ECF No. 55-5. The email also contained a notice that
it was “privileged and confidential.”
Id. Rowe used the link to access the Box Folder on
two occasions shortly after receiving the email. On both
occasions, the video was the only file contained in the
folder. No one from NICB accessed the Box Folder after that
seven months later, Cesario was asked to share
Harleysville's claims file and Nationwide's
investigation file (collectively, “Claims File”)
with Harleysville's counsel. On April 28, 2016, Cesario
uploaded the Claims File to the Box Folder, generated a
“sharing” link to the folder, and sent an email
to Harleysville's counsel containing the link to the
folder. Cesario did not realize that the link he provided to
Harleysville's counsel was identical to the link he had
provided to NICB seven months earlier.
24, 2016, Insureds' counsel issued a subpoena duces tecum
to NICB requesting NICB's entire file relating to the
funeral home fire. On June 23, 2016, NICB responded to the
subpoena with electronic copies of all documents and
information it had received from Harleysville. Included in
the response was Cesario's September 22 email to Rowe,
which contained the link to the Box Folder.
same day after receiving NICB's response, Insureds'
counsel used the link contained in Cesario's email to
access the Box Folder. When Cesario sent the link to NICB in
September 2015, the Box Folder contained only the video;
however, by the time Insureds' counsel came into
possession of the link in June 2016, the Box Folder contained
the Claims File as well. Insureds' counsel downloaded and
reviewed the Claims File. During their review, Insureds'
counsel noted that certain documents were marked as
“Confidential” and “Attorney-Client
Privileged.” Upon discovering these documents, they
contacted the Virginia State Bar's ethics hotline for
advice as to how to proceed, as well as conducted research of
their own. Insureds' counsel, incorrectly assuming that
Harleysville had used the Box Folder to share the Claims File
with NICB, came to the conclusion that any attorney-client
and work-product privileges had been waived by Harleysville
and continued their review of the file. Insureds' counsel
neither notified Harleysville's counsel that they were in
possession of the Claims File nor sought this court's
ruling on the issue of waiver.
August 22, 2016, Insureds' counsel produced a thumb drive
to Harleysville's counsel in response to a request for
production of documents. The thumb drive contained
“tens of thousands of pages of documents, sorted into
hundreds of folders and subfolders.” Mem. Supp. Mot. to
Disqualify 5, ECF No. 53. During their review of the
documents contained on the thumb drive, Harleysville's
counsel noticed certain potentially privileged material
inadvertently produced by Insureds' counsel.
Harleysville's counsel notified Insureds' counsel of
the disclosure, and Insureds' counsel requested that the
privileged documents be destroyed. Harleysville's counsel
complied with this request and continued to review the
contents of the thumb drive.
October 27, 2016, Harleysville's counsel discovered that
its Claims File was contained on the thumb drive in a folder
labeled “NICB Video.” A few days later, on
November 1, Harleysville's counsel contacted
Insureds' counsel and requested that Insureds'
counsel destroy their copies of the Claims File.
Insureds' counsel refused, and Harleysville's counsel
subsequently filed the present motion to disqualify
issuing her Memorandum Opinion on this motion, the magistrate
judge did not have the benefit of reviewing the Claims File,
but assumed that at least some of the materials that make up
the Claims File were privileged. Mem. Op. 5, ECF No. 68. Upon
my in camera review of the Claims File, I find that it did,
in fact, contain clearly privileged material. See
infra at IV.A.1. Insureds' counsel have conceded
that they reviewed the entire Claims File and that they
shared the Claims File with counsel for both sides in the
related criminal case.
seeking disqualification, Harleysville asserted that
Insureds' counsel improperly accessed and reviewed
certain privileged documents, that they concealed this access
from Harleysville's counsel, and that they refused to
destroy the Claims File when asked to do so. As relief,
Harleysville sought the disqualification of Insureds'
counsel. Harleysville also sought an order directing
Insureds' counsel to destroy copies of the Claims File,
directing Insureds' counsel not to disclose the Claims
File, and barring the use of the Claims File in this action.
See generally Mem. Supp. Mot. to Disqualify, ECF No.
53. Insureds' counsel contended in response that
disqualification was inappropriate, first on the ground that
Harleysville had failed to prove that material in the Claims
File was privileged, and second on the ground that any
privilege was waived when Harleysville posted the Claims File
to a publicly-accessible folder on the Internet. See
generally Opp'n to Mot. to Disqualify, ECF No. 55.
motion seeking disqualification was referred to the
magistrate judge for determination. Following full briefing
by the parties, the magistrate judge held an evidentiary
hearing and she invited counsel to submit supplemental
evidence and legal authorities following the hearing. Both
Harleysville and the Insureds did so. The Insureds
subsequently objected to Harleysville's submission,
arguing that the evidence contained therein should properly
have been presented at the hearing, where the witnesses would
have been subject to cross-examination and evidentiary
objections. The magistrate judge agreed and sustained
Insureds' objections, a decision to which
Harleysville's counsel timely objected. Order, ECF No.
67; Pl.'s Objs., ECF No. 73.
magistrate judge subsequently denied the motion to
disqualify. She found that any privilege had been waived when
Harleysville uploaded the files to a publically accessible,
non-password-protected website. Mem. Op. 9, 13, ECF No. 68.
Because any privilege was waived, she concluded,
disqualification of Insureds' counsel was unwarranted,
since replacement counsel would be entitled to access the
same information. Id. at 17. However, she also held
that because Insureds' counsel knew or should have known
they had accessed potentially-privileged information, they
should have revealed this access to Harleysville's
counsel and should have asked the court to decide the
question of waiver before making use of the information.
Id. at 16. Because they did not do so, she said,
their conduct “require[d] some sanction.”
Id. She accordingly imposed monetary sanctions on
the Insureds' counsel.
Harleysville and the Insureds filed timely objections to the
magistrate judge's rulings. Harleysville objected to the
magistrate judge's finding that Harleysville had waived
any privilege and to her denial of their motion to
disqualify. Pl.'s Objs., ECF No. 73. Insureds'
counsel objected to the magistrate judge's sua sponte
imposition of monetary sanctions, arguing that such sanctions
were both unwarranted and unjust. Defs.' Objs., ECF No.
careful review of the record to that point, I concluded that
there was a need for additional evidence as to certain
important matters, including those encompassed by
Harleysville's counsel's supplementary submission,
which the magistrate judge excluded from consideration.
Accordingly, I ordered a second evidentiary hearing and
directed the parties to present additional evidence. Op.
& Order, ECF No. 96.
to the hearing, Harleysville filed two written experts'
reports in conjunction with the hearing: one by Paul
Georgiadis, who testified at the hearing, and one by Michael
Rigsby, who did not testify. Following the hearing, the
Insureds filed a Motion to Strike both reports, arguing both
that my order directing the evidentiary hearing did not
permit the parties to file such reports and that Michael
Rigsby's report was improper because he did not testify,
and thus was not subject to cross-examination at the hearing.
me for review are (1) the Harleysville objections to the
magistrate judge's finding that Harleysville had waived
any privilege, her finding that Harleysville's
counsel's supplemental affidavits could not be
considered, and her denial of the motion to disqualify; (2)
the Insureds' objection to the magistrate judge's
imposition of sanctions; and (3) the Insureds' Motion to
Strike the written expert reports of Paul Georgiadis and
Michael Rigsby. I consider each in turn.
Standard of Review.
issues raised by both parties - namely, questions of
privilege and waiver along with sanctions - are “not
dispositive of a party's claim or defense.”
Fed.R.Civ.P. 72(a). I therefore must consider the
parties' objections to the magistrate judge's order
and “modify or set aside any part of the order that is
clearly erroneous or is contrary to law.” Id.
of fact are reviewed under the Rule's “clearly
erroneous” standard. Gairola v. Va. Dep't of
Gen. Servs., 753 F.2d 1281, 1288 (4th Cir. 1985);
see also Bruce v. Hartford, 21 F.Supp.3d 590, 594
(E.D. Va. 2014); HSBC Bank USA, Nat'l Ass'n v.
Resh, No. 3:12-CV-00668, 2014 WL 317820, at *7 (S.D.
W.Va. Jan. 28, 2014). A court's “finding is
‘clearly erroneous' when although there is evidence
to support it, the reviewing court on the entire evidence is
left with the definite and firm conviction that a mistake has
been committed.” United States v. U.S. Gypsum
Co., 333 U.S. 364, 395 (1948); see also Harman v.
Levin (In re Robertson), 772 F.2d 1150, 1153
(4th Cir. 1985).
addition, it is within my discretion to receive and consider
additional evidence. United States v. Caro, 461
F.Supp.2d 478, 480 n.2 (W.D. Va. 2006), aff'd,
597 F.3d 608 (4th Cir. 2010); see also United States v.
Frans, 697 F.2d 188, 191 n.3 (7th Cir. 1983) (noting
that Rule 72(a) “do[es] not necessarily restrict
district court review of a magistrate's findings”
and stating that the district court may “receiv[e]
additional evidence or conduct a full review”); 12
Charles Allen Wright, et al., Federal Practice and
Procedure § 3069 (2d ed. 2017) (noting that
“a district judge should have at least the authority to
consider further evidence in reviewing rulings on
nondispositive matters”). I have supplemented the
magistrate judge's findings of fact based on evidence
adduced at the hearing before me.
magistrate judge's decisions on questions of law,
however, I review under the Rule's “contrary to
law” standard. PowerShare, Inc. v. Syntel,
Inc., 597 F.3d 10, 15 (1st Cir. 2010). In the context of
Rule 72(a), this “contrary to law” standard is
equivalent to de novo review. Id. (holding that
review of a question of law “is plenary under the
‘contrary to law' branch of the Rule 72(a)
standard” and that therefore, “[f]or questions of
law, there is no practical difference between review under
Rule 72(a)'s ‘contrary to law' standard and . .
. [a] de novo standard” (citations omitted));
Haines v. Liggett Grp. Inc., 975 F.2d 81, 91 (3d
Cir. 1992) (holding that while “[t]he district court is
bound by the clearly erroneous rule in findings of facts[, ]
the phrase ‘contrary to law' indicates plenary
review as to matters of law”); Bruce, 21
F.Supp.3d at 594; HSBC Bank USA, Nat'l
Ass'n, 2014 WL 317820, at *7; 12 Charles Allen
Wright, et al., supra (noting that
“[r]egarding legal issues, the language ‘contrary
to law' appears to invite plenary review”).
Privilege and Waiver.
Claims File Contained Privileged Materials.
court has jurisdiction over this declaratory judgment action
based on diversity of citizenship. Accordingly, questions
regarding the applicability and waiver of any evidentiary
privilege, including the attorney-client privilege, are
governed by Virginia state law. Fed.R.Evid. 501.
work-product doctrine, however, is a “qualified
immunity from discovery, ” rather than an evidentiary
privilege. FTC v. Grolier Inc., 462 U.S. 19, 24
(1983) (citing Hickman v. Taylor, 329 U.S. 495, 510
(1947)); see also Chevron Corp. v. Page (In re
Naranjo), 768 F.3d 332, 345 n. 16 (4th Cir. 2014);
Fed.R.Civ.P. 26(b)(3). Questions regarding the applicability
and waiver of the protection provided by the work-product
doctrine are therefore governed by federal law.
Cont'l Cas. Co. v. Under Armour, Inc., 537
F.Supp.2d 761, 769-70 (D. Md. 2008).
Virginia, “confidential communications between an
attorney and his or her client made in the course of that
relationship and concerning the subject matter of the
attorney's representation are privileged from
disclosure.” Walton v. Mid-Atl. Spine Specialists,
P.C., 694 S.E.2d 545, 549 (Va. 2010) (citations
omitted). The purpose of the privilege is to “encourage
clients to communicate with attorneys freely, without fearing
disclosure of those communications . . . thereby enabling
attorneys to provide informed and thorough legal
advice.” Id. (citing Upjohn Co. v. United
States, 449 U.S. 383, 389 (1981)). However, because the
privilege is an “obstacle to investigation of the
truth, ” it “should be strictly construed.”
Id. (quoting Commonwealth v. Edwards, 370
S.E.2d 296, 301 (Va. 1988)). The burden of showing the
privilege applies is on the proponent of the privilege - in
this case, Harleysville. United States v. Jones, 696
F.2d 1069, 1072 (4th Cir. 1982).
second evidentiary hearing, Harleysville's counsel
provided the court with a copy of the Claims File. From my in
camera review, I find that the attorney-client privilege
attaches to multiple documents contained in the Claims File.
Such documents include lengthy multipage reports by
Harleysville's counsel to their client of the results of
the attorneys' factual investigation and analysis of the
law, as well as advice on litigation tactics and strategy.
These documents are the epitome of privilege.
work product doctrine belongs to the attorney and confers a
qualified privilege on documents prepared by an attorney in
anticipation of litigation.” Solis v. Food
Emp'rs Labor Relations Ass'n, 644 F.3d 221, 231
(4th Cir. 2011) (citing, inter alia,
Hickman, 329 U.S. at 509-14). As with the
attorney-client privilege, the burden of showing that the
work-product protection applies lies with Harleysville. From
my in camera review, I find that the work-product protection
applies to multiple documents contained in the Claims File.
Privilege and Protection Were Not Waived.
Disclosure Was Inadvertent.
attorney-client privilege “may be expressly or
impliedly waived by the client's conduct.”
Walton, 694 S.E.2d at 549. “[T]here
is no bright line rule for what constitutes waiver”;
instead, courts must “consider the specific facts of
each case in making a waiver determination.”
Id. “The proponent of the privilege has the
burden to establish that the attorney-client relationship
existed, that the communication under consideration is
privileged, and that the privilege was not waived.”
privileged document is inadvertently or involuntarily
disclosed, the court must determine whether that disclosure
constitutes a waiver of the attorney-client privilege.
Id. at 550. An inadvertent disclosure may occur
where a document is produced “knowingly, but
mistakenly” or where the client “unknowingly
provid[es] access to a document by failing to implement
sufficient precautions to maintain its
confidentiality.” Id. at 552. An involuntary
disclosure may occur where a document is “knowingly
produced by someone other than the holder of the privilege
through criminal activity or bad faith” and
“without the consent of the proponent of the
privilege.” Id. at 551.
the facts presented by this case, I find that disclosure of
the privileged materials in the Claims File was inadvertent.
The evidence shows that when investigator Cesario uploaded
the Claims File to the Box Folder, he unknowingly made the
Claims File available to NICB. NICB, in turn, unknowingly
made the Claims File available to Insureds' counsel.
Neither Harleysville nor Harleysville's counsel were
aware the Insureds' counsel had access to the Claims File
until they discovered the Claims File among documents
produced by Insureds' counsel. Moreover,
Harleysville's disclosure of the Claims File was intended
for Harleysville's counsel, not for Insureds' counsel
or NICB. This is a case where the client unknowingly and
unintentionally made privileged documents available to a
third party, and such disclosure is inadvertent under the
asserts that the disclosure of the Claims File was
involuntary because it “was accomplished through
[Insureds'] Counsel's misconduct.” Pls.'
Objs. 2, ECF No. 73. This is incorrect. A document is not
disclosed by the person who receives the document; it is
disclosed by the person who sends it. Here, the disclosure
was made by Harleysville when it uploaded the Claims File to
the same Box Folder it had used to share the video with NICB.
Insureds' counsel did not conduct themselves
appropriately, and there is evidence to support
Harleysville's assertion that they “attempted in
bad faith to conceal [their] access of the [Box Folder] and
procurement of [the Claims File], ” id., but
it would defy logic to conclude that Insureds' counsel
disclosed the documents by viewing them.
to the extent that Harleysville objects to the magistrate
judge's finding that the disclosure was inadvertent, such
objection is overruled.
There Was No Waiver.
found that Harleysville's disclosure was inadvertent, I
must now determine whether the attorney-client privilege has
been waived. “[W]aiver may occur [through inadvertent
disclosure] if the disclosing party failed to take reasonable
measures to ensure and maintain the document's
confidentiality, or to take prompt and reasonable steps to
rectify the error.” Walton, 694 S.E.2d at 552.
determine whether the privilege has been waived, courts must
consider five factors:
(1) [T]he reasonableness of the precautions to prevent
inadvertent disclosures, (2) the time taken to rectify the
error, (3) the scope of the discovery, (4) the extent of the
disclosure, and (5) whether the party asserting the claim of
privilege . . . has used its unavailability for misleading or
otherwise improper or overreaching purposes in the