Weekly Law Resume - May 23, 2013: Insurers May Exercise the Attorney-Client Privilege On Behalf of Dissolved Corporate Insured

by Low, Ball & Lynch
Contact

Mary Melendrez et al., v. Superior Court of the State of California, County of Los Angeles
COURT OF APPEAL, SECOND APPELLATE DISTRICT (April 30, 2013)

Petitioners and Plaintiffs Mary Melendrez, individually and as personal representative of the Estate of Lario Melendrez, and several heirs (collectively “Melendrez”) filed a wrongful death action against defendant and respondent Special Electric Company, Inc. (“SECO”). Melendrez alleged that decedent died of mesothelioma as a result of asbestos exposure from products manufactured and supplied by SECO. Prior to the wrongful death lawsuit, SECO filed for Chapter 11 bankruptcy. By virtue of the bankruptcy, SECO was converted to a “shell” corporation whose sole function was to transmit asbestos lawsuits to its insurers for defense and resolution. John Erato (“Erato”) served as SECO’s post-bankruptcy director and president.

Melendrez served SECO’s counsel with requests for admission (“RFAs”) in support of the wrongful death action. SECO’s counsel prepared and signed unverified objections and denials to the RFAs. Melendrez moved under CCP § 2033.280 for an order deeming that the RFAs be admitted, arguing that an unverified response is “tantamount” to no response under California law. SECO opposed the motion, stating that it was impossible for SECO’s counsel to provide verified responses to the RFAs. Its only officer and director, John Erato, resigned rendering him unavailable to waive the attorney client-privilege or authorize defense counsel to sign verifications on SECO’s behalf.

At the hearing, SECO represented that it based its denials of the RFAs on deposition testimony and attorney-client communications. At the trial court’s suggestion, Melendrez served SECO with form interrogatory 17.1 requiring disclosure of facts, witnesses and documents supporting SECO’s denials of the RFAs. SECO’s counsel provided substantive but unverified responses to form interrogatory 17.1. Melendrez moved to compel verified responses or to depose SECO’s counsel who signed the response. In opposition, SECO again represented that it had no officer or director who could waive the attorney client-privilege or authorize defense counsel to sign verifications on its behalf. SECO offered to stipulate that the substantive responses would be admissible at trial. Accordingly, the trial court denied Melendrez’s motion to compel and deemed SECO’s responses to both the RFAs and form interrogatory 17.1 to be verified. Melendrez filed a petition for writ of mandate challenging the trial court’s rulings. While the writ proceedings were pending, SECO was dissolved.

The Court of Appeals held that the trial court’s rulings were in error. The Court of Appeals first addressed the issue of who could waive the attorney-client privilege on behalf of a dissolved corporation with no officers, directors, or employees. Pursuant to CCP §§ 2030.250 (a) and 2033.240 (a), substantive responses to RFAs and interrogatories must be signed by the responding party under oath. If a party is a corporation, one of its officers or agents must sign its discovery responses. The Court of Appeals ruled that SECO’s attorneys are agents who could verify its discovery. Even though John Erato resigned as SECO’s director and president, the shareholders could still elect a new director via the bankruptcy reorganization plan. The newly appointed director could then assert or waive the attorney client privilege and authorize attorney verification of discovery.

The Court of Appeal questioned whether SECO was still in existence due to its subsequent dissolution. If SECO ceased to exist, Evidence Code § 953 (d) provides that the attorney-client privilege is held by SECO’s “successor, assign, trustee in dissolution, or any similar representative.” Here, SECO existed in name only to pass claims to its insurance companies for resolution under existing insurance policies. The insurance companies were the de facto assignees of SECO’s insurance policy assets and claims. As such, the insurance companies held and could exercise SECO’s attorney-client privilege. No conflict of interest exists because the insurers owe SECO a duty of good faith. The Court of Appeals stated “we see no reason to assume the insurers would violate this duty if given the authority to waive or assert SECO’s attorney-client privilege in the context of this litigation.”

The Court of Appeals remanded the case to the trial court to determine whether SECO existed beyond a mere “shell” for transmission of insurance claims to its insurers. If so, SECO’s counsel could be ordered to seek appointment of a new director or officer. If not, SECO’s insurers would be deemed to hold the attorney-client privilege. The designated holder of the attorney-client privilege could decide whether to waive the privilege for the limited purpose of allowing SECO’s counsel to verify its discovery responses. However, if SECO chose not to waive the attorney-client privilege to provide verified discovery to Melendrez, the trial court was directed to rule as required for any discovery motion where the discovery responses are unverified.

COMMENT

If a corporation has dissolution or bankruptcy mechanisms to appoint a director, officer or managing agent to exercise its attorney-client privilege and verify its discovery responses, it should do so. If a corporation no longer exists, the attorney-client privilege is de facto assigned to its insurer. Insurers who hold the attorney-client privilege on behalf of dissolved corporations must carefully consider limited waivers of the privilege to provide verified discovery responses in defense of claims. Failure to do so could result in adverse discovery rulings including rulings that unverified responses to RFAs be deemed admitted.

For a copy of the complete decision see:

http://www.courts.ca.gov/opinions/documents/B243320.PDF

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Low, Ball & Lynch | Attorney Advertising

Written by:

Low, Ball & Lynch
Contact
more
less

Low, Ball & Lynch on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.