Sticky

Used to calling balls and strikes—though apparently not very well—MLB Umpire Angel Hernandez failed to throw a strike when asking a federal court to adopt a “Union Relations Privilege” in his discrimination case against Major League Baseball. In fact, his privilege pitch missed the strike zone in Ricky Vaughn (“Wild Thing”) fashion, but I’ll follow  Bob Uecker’s lead and say it was “just a bit outside.” Hernandez v. The Office of the Commissioner of Baseball, 2019 WL 2535445 (SDNY June 20, 2019). Available here.

It’s Torre’s Fault

A much-criticized umpire, Angel Hernandez has argued with many MLB managers over his behind-the-plate and on-the-field calls, including former Yankees Manager Joe Torre. Now retired, one of Torre’s duties as MLB’s EVP of Baseball Operations is to oversee MLB umpires.

Hernandez sued MLB claiming that the League discriminated against him by failing to assign him to work World Series games. He blames the treatment on Torre’s “history of animosity” towards him stemming from his Yankees managerial career, but also because of his race and national origin.

You Want Me to Adopt What?

In the lawsuit, MLB sought production of Hernandez’s communications with his union, the Major League Baseball Umpires Association. Hernandez objected on privilege grounds, and asked the federal court to adopt and apply a “union relations privilege” that purportedly protects from discovery a union member’s conversations with union executives and representatives.

Privilege Adoption Standards

The court took the opportunity to explain—and remind us—of the high standards one must meet to persuade a court to adopt a new common-law evidentiary privilege. Courts begin with the presumption that everyone has a duty to give testimony (the “every man’s evidence” maxim) and that privilege exemptions from this duty are “distinctly exceptional.”

Privileges are neither “lightly created nor expansively construed,” and the privilege proponent must persuade the court that the putative privilege “has a public good transcending the normally predominant principle of utilizing all rational means for ascertaining the truth.” With these principles in mind, courts use these criteria for new-privilege determinations—

  1. The communication at issue was made in confidence;
  2. Confidentiality is essential to the maintenance of the parties’ full and satisfactory relationship;
  3. The community has decided that it should “sedulously foster” the relationship; and
  4. The injury caused by the communication’s disclosure “plainly outweighs the important societal interest in obtaining the evidence necessary to ensure the correct disposal of litigation.”

No Union Relations Privilege

The court surveyed the privilege-landscape and found that many federal courts have rejected the existence of a union relations privilege. A couple of courts have applied a privilege, sometimes called a labor relations privilege, to protect communications between union members and union representatives “during the course of disciplinary proceedings,” as you can read about in this post.  But even if right, that was inapplicable to Hernandez’s situation.

So, no privilege, and I’ll turn it over to Uecker to provide the final outcome of Hernandez’s privilege pitch.

Sticky

Insurance claims adjusters and in-house counsel—listen up. A ruling from a federal Magistrate Judge reveals the uncertainty of the attorney–client privilege and work-product doctrine in the claims-handling process.

The Court ordered production of a claims adjuster’s emails, claims notes, and an “inter-office memorandum.” This privilege rejection came even though the documents involved the insurer’s in-house counsel. Olsen v. Owners Ins. Co., 2019 WL 2502201 (D. Colo. June 17, 2019). You may read the opinion here.

Claims Handling and a UIM Lawsuit

It all began with a car wreck involving Varejo Manzaneras and Ken Olsen. Olsen was injured, couldn’t work, and made a claim against Manzaneras’s insurance company. Olsen accepted Manzaneras’s policy limits and turned to his UIM carrier, Owners, for additional funds.

Nicolas Zeman adjusted the UIM claim, and communicated regularly with Owner’s in-house counsel, Andrew Torrey, about various claim-related issues. They apparently took too long for Olsen’s liking, resulting in Olsen filing a bad-faith claim against Owners and requesting Zeman’s claims file.

Owners objected to providing emails and memos between Zeman, the claims adjuster, and Torrey, the in-house lawyer, on privilege and work-product grounds. The involvement of the in-house lawyer made the privilege claim air-tight right? Wrong.

“No Categorical Rule”

The Magistrate Judge’s opinion contains many privilege headlines that may surprise claims adjusters and attorneys who work with them. The Judge said that, “in the context of insurance claims and investigations, not every document drafted by counsel or every communication with counsel” is privileged. And that, “typically, claims investigations arising in the first-party context … are made in the ordinary course of business and are discoverable.”

“Indeed,” the Court reminded us, “the roles of claims handler and attorney are not mutually exclusive.” And “the mere fact that an attorney is involved in a communication or drafting does not automatically render that communication or document” privileged.

The Court continued that, if the insurer’s in-house attorney communicates “in a manner consistent with a claims adjuster,” the privilege does not apply.  There is no “categorical rule” that the privilege covers all adjuster–attorney communications because of an “ever-present threat of liability for bad faith claims handling.”

Privilege Loss

With these legal principles in mind, the Magistrate Judge rejected the privilege for these emails and documents:

  • Zeman’s emails to Torrey and outside counsel after Olsen filed the UIM lawsuit (because they were “administrative” and did not provide or request legal advice).
  • Outside counsel’s emails to Zeman stating she had no conflicts and requesting “underlying information” (because no legal advice requested).
  • Zeman’s email to Torrey “expressing doubt” as to Olsen’s medical claims (because Zeman “did not seek legal advice”).
  • Torrey’s email to Zeman responding to an update and requesting more “factual information” (because no legal advice requested).
  • Zeman’s “inter-office memorandum” to Torrey “concerning” Olsen’s insurance claim (because the memo was “akin to an investigative file subject to discovery,” and the privilege does not protect a lawyer’s fact-investigation results regarding “the validity of a claim”).

Surely Work Product Applies?

Not here, the Judge said, because Owners did not anticipate litigation at the time of making the communications. The Judge found that Owners could not reasonably anticipate bad-faith litigation solely upon the filing of a UIM claim.

Owners also argued that it anticipated bad-faith litigation before creating those communications because Olsen’s counsel “boasts an active practice in bad faith breach of insurance contract cases.” This “boasting” may be true, as you can see here, but if I had a nickel for every boastful lawyer ….

PoP Analysis

This isn’t over. Owners intends to object the Magistrate Judge’s opinion—see its stay motion here—and seek plenary review by the District Judge. Will the District Judge view Owners’ privilege assertions differently?

The Magistrate Judge said that “the touchstone of the attorney–client privilege is that legal advice is sought and exchanged.” I would say it a bit differently: the privilege covers communications—including those containing facts—from a corporate employee to an in-house lawyer made so that the lawyer can render legal advice to the corporation. Here, the adjuster sent the in-house lawyer factual communications, which the privilege should cover if it was for legal-advice purposes.

If Owners ultimately falls short, then it is likely due to the lack of legal-advice evidence.  It essentially said that the privilege is self-evident on the emails and documents, and did not submit any evidence—from its adjuster or its in-house counsel—explaining why the communications were necessary for the in-house lawyer to provide Owners with legal advice.

Indeed, the Magistrate Judge repeatedly stated that, “without more,” she could not glean a legal-advice component from the communications she examined in camera.

In the end, the take-away is that courts often view the claims-handling process as a routine business practice for insurance companies rather than a legal-advice endeavor. For further proof of this statement, see this post and this one.

And stay tuned for the District Judge’s decision.