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Progressive Casualty Insurance Co. v. Federal Deposit Insurance Corp.

United States District Court, N.D. Iowa, Western Division

October 3, 2014

PROGRESSIVE CASUALTY INSURANCE COMPANY, Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Vantus Bank; ARLENE T. CURRY; GARY L. EVANS; DAVID M. ROEDERE; BARRY E. BACKHAUS; RONALD A. JORGENSEN; CHARLES D. TERLOUW; JON G. CLEGHORN; ALLEN J. JOHNSON; MICHAEL W. DOSLAND; and MICHAEL S. MODERSKI, Defendants

Page 546

For Progressive Casualty Insurance Company, Plaintiff, Counter Defendant: Guy R Cook, LEAD ATTORNEY, Grefe & Sidney, P.L.C., Des Moines, IA; Lewis K Loss, Matthew J Dendinger, Loss, Judge & Ward, LLP, Washington, DC.

For Federal Deposit Insurance Corporation, as Receiver of Vantus Bank, Defendant: Andrew M Reidy, LEAD ATTORNEY, PRO HAC VICE, Lowenstein Sandler LLP, Washington, DC; Geoffrey Martin Long, LEAD ATTORNEY, PRO HAC VICE, Dickstein Shaprio LLP, Washington, DC; Joseph Mark Saka, LEAD ATTORNEY, PRO HAC VICE, Lowenstein & Sandler, LLP, Washington, DC; Richard J Kirschman, Whitfield & Eddy, PLC, Des Moines, IA.

For Arlene T Curry, Gary L Evans, David M Roederer, Barry E Backhaus, Ronald A Jorgensen, Charles D Terlouw, Jon G Cleghorn, Allen J Johnson, Michael W Dosland, Michael S Moderski, Defendants, Counter Claimants: William John Miller, LEAD ATTORNEY, Brian Andrew Melhus, David A Tank, Megan Flynn, Dorsey & Whitney, LLP, Des Moines, IA; Daniel L Hartnett, Crary-Huff-Inkster-Sheehan-Ringenberg-Hartnett-Storm, Sioux City, IA.

For Everest Reinsurance Company, Defendant: Daniel Anthony Hargraves, LEAD ATTORNEY, Hargraves, McConnell & Costigan, PC, New York, NY; Douglas A Haag, Patterson Lorentzen Duffield Timmons Irish Becker & Ordway, Des Moines, IA.

For Counter Claimant: William John Miller, LEAD ATTORNEY, Brian Andrew Melhus, David A Tank, Megan Flynn, Dorsey & Whitney, LLP, Des Moines, IA; Daniel L Hartnett, Crary-Huff-Inkster-Sheehan-Ringenberg-Hartnett-Storm, Sioux City, IA.

Page 547

MEMORANDUM OPINION AND ORDER REGARDING OBJECTIONS TO MAGISTRATE JUDGE'S AUGUST 22, 2014, DISCOVERY RULING

MARK W. BENNETT, UNITED STATES DISTRICT COURT JUDGE.

TABLE OF CONTENTS

I. INTRODUCTION

II. LEGAL ANALYSIS

A. Standard Of Review

B. Progressive's Objections

1. The challenged parts of the Order

2. Work-product disclosures

a. Judge Strand's ruling

b. Arguments of the parties

c. Analysis

3. Attorney-client privilege

a. Judge Strand's ruling

b. Arguments of the parties

c. Analysis

C. Everest's Objections

1. The challenged part of the ruling

2. Arguments of the parties

3. Analysis

III. CONCLUSION

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I. INTRODUCTION

Plaintiff Progressive Casualty Insurance Company (Progressive) filed this action, on April 25, 2012, seeking a declaration that there is no coverage under Directors & Officers/Company Liability Insurance Policy For Financial Institutions Policy No. 100322780-01 (the Vantus Policy) from Progressive for the claims asserted by the Federal Deposit Insurance Corporation, as Receiver for Vantus Bank, (FDIC-R) against the former officers and directors of Vantus Bank in Sioux City, Iowa, as such claims were stated in a May 7, 2010, letter to the directors and officers by the FDIC-R's outside counsel. The FDIC-R eventually filed a separate lawsuit, on May 20, 2013, against the former officers and directors, pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1811 et seq., alleging the gross negligence, negligence, and breach of fiduciary duty of the former officers and directors. See FDIC v. Dosland, C 13-4046-MWB. The FDIC-R's claims are based primarily on its allegations that the former officers and directors caused Vantus Bank to use $65 million--120 percent of its core capital--to purchase fifteen high risk collaterized debt obligations backed by Trust Preferred Securities (CDO-TruPS) without due diligence and in disregard and ignorance of regulatory guidance about the risks of and limits on purchases of such securities.

One twist on the tortuous road to trial in this case is now before me. On August 22, 2014, United States Magistrate Judge Leonard T. Strand entered an Order (docket no. 102) on two motions to compel by the FDIC-R. Two parts of Judge Strand's Order are at issue here. In Objections (docket no. 106), filed September 4, 2014, pursuant to Rule 72(a) of the Federal Rules of Civil Procedure and N.D. IA. L.R. 72.1, Progressive challenges Judge Strand's conclusion that the portions of communications between Progressive and its reinsurers redacted by Progressive on the basis of the attorney-client privilege and/or work-product doctrine are not protected from discovery by the FDIC-R. In Objections (docket no. 122), filed September 5, 2014, non-party Everest Reinsurance Company (Everest) challenges Judge Strand's conclusion that the FDIC-R is entitled to obtain the documents described in its subpoena to Everest, as narrowed by the FDIC-R in communications between counsel. The FDIC-R filed separate Responses (docket nos. 106 and 129) to Progressive's and Everest's Objections, and Progressive and Everest filed Replies (docket nos. 130 and 131) in further support of their Objections.

I do not find that oral arguments are necessary to my review of Judge Strand's Order. Moreover, my crowded schedule is such that I cannot hear oral arguments soon enough to avoid further delay of the discovery process in this case. Under these circumstances, I will consider Progressive's and Everest's Objections fully submitted on the parties' written submissions. Thus, I turn to consideration of Progressive's and Everest's Objections.

II. LEGAL ANALYSIS

A. Standard Of Review

The pertinent parts of the statute and rules authorizing the powers of a federal

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magistrate judge, 28 U.S.C. § 636(b)(1)(A), Rule 72(a) of the Federal Rules of Civil Procedure, and N.D. IA. L.R. 72.1, all provide for review by a district judge of a magistrate judge's order on non-dispositive motions assigned to him or her to which objections have been filed. Where a litigant does not file a timely objection to a magistrate judge's order, triggering review by a district judge, the litigant " may not challenge the [magistrate judge's] order on appeal." McDonald v. City of Saint Paul, 679 F.3d 698, 709 (8th Cir. 2012).

Section 636(b)(1)(A) and Rule 72(a) both specify that such review allows the district judge to modify or set aside any parts of the magistrate judge's order that are " clearly erroneous or contrary to law." See also Ferguson v. United States, 484 F.3d 1068, 1076 (8th Cir. 2007) (" A district court may reconsider a magistrate judge's ruling on nondispositive pretrial matters where it has been shown that the ruling is clearly erroneous or contrary to law." (citing § 636(b)(1)(A)). Although the Eighth Circuit Court of Appeals does not appear to have clarified the meaning of " clearly erroneous" in the context of a district court's review of a magistrate judge's ruling, the appellate court's formulation of the " clearly erroneous" standard for its own review of a lower court's ruling is as follows:

A district court clearly errs if its findings are " not supported by substantial evidence in the record, if the finding[s are] based on an erroneous view of the law, or if we are left with the definite and firm conviction that an error has been made." Ostenfeld ex rel. Estate of Davis v. Delo, 115 F.3d 1388, 1393 (8th Cir. 1997).

Story v. Norwood, 659 F.3d 680, 685 (8th Cir. 2011). Like other courts, I have read " contrary to law" within the meaning of Rule 72(a) (and, hence, § 636(b)(1)(A)) to mean failure to apply or misapplication of relevant statutes, case law, or rules of procedure. See United States v. Melton, 948 F.Supp.2d 998, 1002 (N.D. Iowa 2013) (quoting Catskill Dev., L.L.C. v. Park Place Entm't Corp., 206 F.R.D. 78, 86 (S.D.N.Y. 2002)).

I will apply these standards in my consideration of Progressive's and Everest's Objections.

B. Progressive's Objections

1. The challenged parts of the Order

In the part of Judge Strand's Order to which Progressive has leveled its Objections, Judge Strand considered the FDIC-R's motion to compel Progressive to produce the portions of certain communications with and from its reinsurers that Progressive had redacted on the basis of attorney-client privilege and/or the work product doctrine. I find it helpful to consider separately the Objections concerning disclosure of purported work-product information and purported attorney-client privileged information.[1]

2. Work-product disclosures

a. Judge Strand's ruling

As to the FDIC-R's motion to compel production of purported work product, Judge Strand concluded, as follows:

Work Product Doctrine. FDIC-R argues the reinsurance information is not protected by the work product doctrine because the information was created in the ordinary course of Progressive's business. I agree. The

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documents were prepared and distributed to the reinsurance companies and broker for business purposes. Progressive itself admits that the documents were provided for case updates pursuant to the reinsurance agreements, or in response to specific requests, and included the matter's history, its present posture, current activity, assessments of coverage and liability issues, amounts paid and reserved, and plans for future handling. Doc No. 75 at 10. Those are all typical business purposes for the reinsurance industry. Progressive has not met its burden of showing that these documents were " prepared or obtained because of the prospect of litigation." Simon [v. G.D. Searle & Co.], 816 F.2d [397,] 401 [(8th Cir. 1987)]. Therefore, they are not subject to protection under the work product doctrine.

Order (docket no. 102), 7.

b. Arguments of the parties

In its Objections, Progressive argues that the question concerning disclosure of purported work product is not simply whether Progressive's communications with its reinsurers were prepared in the ordinary course of business, as Judge Strand premised in his Order. Rather, Progressive argues, the question is whether those communications contain opinion work-product information that pertains specifically to anticipated, and ultimately filed, coverage litigation with the FDIC-R and/or litigation between the FDICR and the officers and directors. Progressive argues that such protected information includes information regarding Progressive's litigation and mediation strategies and reserve information that Judge Strand has previously held is protected from disclosure.[2]

In response, the FDIC-R argues that Judge Strand's conclusion that Progressive created or received the alleged work-product information in the ordinary course of its business is not clearly erroneous. Indeed, the FDIC-R argues that Progressive admitted that the documents at issue were ordinary business documents. Furthermore, the FDICR argues, with respect to claims-related communications, insurance companies usually are required by contract to notify their reinsurers of any claims for which the insurance companies may seek reinsurance coverage, and are required to provide the following: (1) a description of the claim; (2) the insurance company's analysis of whether its policy provides coverage for its policyholder; and (3) the estimated overall exposure.

In reply, Progressive argues that the law is " clear" that, even though a document as a whole may have been prepared in the ordinary course of business, material

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contained in such a document may still be protected as opinion work product prepared in anticipation of litigation.

c. Analysis

As Judge Strand noted, in this diversity case, the court " applies federal law to work product claims." PepsiCo, Inc. v. Baird, Kurtz & Dobson, L.L.P., 305 F.3d 813, 817 (8th Cir. 2002) (citing Baker v. General Motors Corp., 209 F.3d 1051, 1053 (8th Cir. 2000) ( en banc )). " The work product doctrine was designed to prevent 'unwarranted inquiries into the files and mental impressions of an attorney,' and recognizes that it is 'essential that a lawyer work with a certain degree of privacy, free from unnecessary intrusion by opposing parties and their counsel.'" Simon v. G.D. Searle & Co., 816 F.2d 397, 400 (8th Cir. 1987) (quoting Hickman v. Taylor, 329 U.S. 495, 510-11, 67 S.Ct. 385, 91 L.Ed. 451) (internal citations omitted). Further, " in order to protect work product, the party seeking protection must show the materials were prepared in anticipation of litigation, i.e., because of the prospect of litigation." PepsiCo, Inc., 305 F.3d at 817 (citing Binks Mfg. Co. v. National Presto Indus., Inc., 709 F.2d 1109, 1118-19 (7th Cir.1983)).[3]

Whether documents were prepared in anticipation of litigation or in the ordinary course of business is a factual determination. Simon, 816 F.2d at 401. The Eighth Circuit Court of Appeals set ...


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