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United States District Court District Of Maryland
Chambers of Ellen Lipton Hollander District Court Judge 101 West Lombard Street Baltimore, Maryland 21201 410-962-0742

April 15, 2011 MEMORANDUM TO COUNSEL Re: Millennium Inorganic Chemicals Ltd., et al. v. Nat'l Union Fire Ins. Co., et al. Civil Action No. ELH-09-1893

Dear Counsel: This memorandum addresses the discovery dispute that was brought to the Court's attention by a letter from Mr. Voigt, counsel for defendants National Union Fire Insurance Company of Pittsburgh, PA and Ace American Insurance Company (collectively, "Insurers"), dated March 7, 2011 (ECF 69). The dispute concerns an exchange of emails (the "NMB Communications"), and focuses on whether they are protected from discovery by the work product doctrine. The Court has carefully reviewed all of the parties' submissions in connection with the dispute, including the parties' letter briefs of March 15, 2011 ("Insurers Brief," ECF 72, and "Millennium Brief," ECF 73); the supplemental letter briefs filed by Millennium on March 25, 2011 ("Millennium Supp.," ECF 80) and by the Insurers on April 8, 2011 ("Insurers Supp.," ECF 91); and two affidavits and various other exhibits, including documents submitted for in camera review (among them, the NMB Communications themselves (ECF 83)). The Court has also considered the arguments advanced by counsel in the telephonic conference held on March 17, 2011. As I shall explain, I conclude that the NMB Communications are protected work product. Factual Background The underlying action is rooted in the events of June 3, 2008, when an explosion and fire occurred at the Varanus Island Gas and Oil Facility operated by Apache Energy Limited in Western Australia. The explosion and fire interrupted the natural gas supply to Western Australia, which in turn interrupted the operation of titanium dioxide manufacturing facilities near Bunbury, Western Australia, operated by the plaintiffs, Millennium Inorganic Chemicals Ltd. and Cristal Inorganic Chemicals Limited (collectively, "Millennium"). Thereafter, Millennium submitted a business interruption insurance claim to the Insurers for the losses sustained as a result of the occurrence. Millennium sought to recover under property insurance coverage issued by the Insurers for the period from May 16, 2008 to May 16, 2009. 1 By letter

Marsh USA Inc. ("Marsh"), a co-defendant, was the insurance broker that allegedly assisted Millennium in procuring the insurance coverage in effect at the time of the explosion.

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dated July 31, 2008, signed by Paul Lafferty, Senior Claims Adjuster at AIG Global Energy Claims, 2 and sent to Robert Williams of Cristal Global, the Insurers denied coverage. Ex.1A to Millennium Supp. (ECF 80-2). The discovery dispute at issue arose during the deposition of James G. Koutras, Esq., Millennium's Senior Corporate Counsel and Secretary, on January 4, 2011. See Ex.E to Insurers Brief (ECF 72-6). In particular, pursuant to Federal Rule of Civil Procedure 26(b)(3) (hereafter, "Rule 26(b)(3)"), Millennium asserted work product protection with respect to the NMB Communications. The NMB Communications consist of an exchange of three emails that occurred between Mr. Koutras and John Lambert of Newman Martin and Buchan Limited ("NMB"), during the period of September 15, 2008 to September 17, 2008. 3 See Ex.1G to Millennium Supp. (ECF 83). NMB is an insurance broker on lines of coverage for plaintiffs that are not the subject of this action. The email exchange, according to Millennium, was made in anticipation of litigation against the Insurers. The Insurers disagree that the email exchange constitutes work product made in anticipation of litigation. Set forth below is a timeline of the events surrounding the NMB Communications. 4 June 3, 2008: The gas explosion occurs on Varanus Island. In the next two days, Millennium receives "force majeure" notices from its supplier of natural gas and electricity. Sometime thereafter (the communication is not contained in the record), Millennium presents its business interruption insurance claim to the Insurers. In email correspondence with Koutras, James Wylie, an employee of NMB, discusses the services NMB will provide regarding claims on other lines of insurance that are unrelated to the Varanus Island explosion or the business insurance policy at issue in this case. See Ex.O to Insurers Supp. (ECF

June 30, 2008:

Marsh has informed the Court that it takes no position with regard to the discovery dispute at issue (ECF 71). 2 National Union, one of the Insurers, is a "member company of American International Group (`AIG')." Insurers Brief at 1. 3 The NMB Communications were inadvertently disclosed by plaintiffs during discovery, but the parties agree that plaintiffs have the right to "claw back" the NMB Communications if they are protected work product, in accordance with a "Stipulation and Order Governing the Production and Exchange of Confidential Material" (ECF 55-1), approved by Judge Blake on June 16, 2010 (ECF 56). These facts are drawn from the documents submitted by the parties. Although the parties dispute the import of various events memorialized in the documents, there is no dispute as to the authenticity of the documentary evidence. -24

91-4). Wylie confirms that NMB will "take on the handling" of the claims, which were previously handled by Marsh, and comments negatively on Marsh's previous work, remarking that "what Marsh are saying is total rot and yet another indicator of their appalling service attitude," opining that Marsh's "behaviour is a disgrace," and suggesting that Millennium deduct NMB's remuneration for handling the claims from Marsh's fees. Id. Wylie instructs Koutras to "have Marsh send" certain information regarding the claims to employees at NMB, including John Lambert. Id. Late July 2008: In the week before Lafferty's letter of July 31, 2008, denying coverage on plaintiffs' business interruption claim, Millennium and Marsh learn that a denial is in the offing. Koutras, Williams, and other personnel of Millennium and Marsh participate in a conference call to discuss the anticipated denial. Williams' handwritten notes from that conversation reflect that a "suit" is one of the "[r]esponses to claim" that the group considers. Ex.1C to Millennium Supp. (ECF 80-4). In the meantime, the Insurers' internal emails reflect their realization that the "CAT IS OUT OF THE BAG" regarding the forthcoming denial. Ex.1B to Millennium Supp. (ECF 80-3). On behalf of the Insurers, Lafferty issues his letter denying coverage. Ex.1A to Millennium Supp. (ECF 80-2). The letter explains in detail the reasons for the Insurers' conclusion that Millennium's loss is not covered by any of the terms of the insurance policy. Those reasons are not pertinent here. Koutras sends an email to Millennium's outside counsel, K&L Gates, outlining the facts relevant to the claim denial and discussing Millennium's legal strategy. Ex.1D to Millennium Supp. (ECF 80-4). This email has been submitted under seal and reviewed by the Court in camera. Without further disclosing its contents, it is appropriate to note that, as a component of Millennium's "planned path forward," Koutras's email indicates that Millennium should "be prepared to file a coverage action should AIG continue its denials." Id. Also in this time frame, as reflected in Millennium's "Legal Department Report" for the period of August 1-15, 2008, which was submitted under seal, Koutras directs K&L Gates to prepare a "budget" for providing a "coverage opinion" and for providing legal representation "in an insurance coverage action." Ex.1E to Millennium Supp. (ECF 82).

July 31, 2008:

August 5, 2008:

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August 14, 2008:

Wylie, of NMB, again writes to Koutras to coordinate NMB's handling of the unrelated insurance claims previously handled by Marsh. As a postscript to his email, apparently in reference to Millennium's claim arising out of the Varanus Island explosion, Wylie states: "Regarding the Australian BI loss if you want to have an off the record chat with anyone regarding the Marsh/AIG lack of progress then let me know as we may have some thoughts for you." Ex.O to Insurers Supp. (ECF 91-4). At Koutras's direction, Marsh obtains an extension until December 2008 of Millennium's deadline to file a "Sworn Proof of Loss" with the Insurers regarding the claim, for the purpose of contesting the Insurers' denial of coverage. See Ex.A to Insurers Brief (ECF 72-2). Koutras and other Millennium personnel meet with representatives of Marsh to discuss the claim and "what needed to be done to respond to the denial letter and file their proof of loss," as well as to plan for an "upcoming meeting with AIG" that is scheduled for late October. The meeting of September 11 is summarized in an internal Millennium memorandum authored by Koutras. See Ex.C to Insurers Brief (ECF 72-4). Koutras opines in the memorandum that "AIG denied coverage because there was no contract between Millennium and Apache, and AIG views Apache as an indirect supplier to Millennium." Id. at 4-5. According to Koutras, Marsh did not "expect AIG to change its position unless we are able to provide facts that establish a direct relationship between Apache and Millennium." Id. at 5. The memorandum concludes: "Additional actions [sic] items include obtaining additional counsel from our outside insurance coverage attorneys and responding to the AIG denial letter and preparing/filing our proof of loss with AIG . . . ." Id. at 6. The NMB Communications between Koutras and John Lambert of NMB take place. 5 See Ex.G to Millennium Supp. (ECF 83). 6 In the initial email on September 15, Lambert

Late August 2008:

September 11, 2008:

September 15-17, 2008:

Wylie of NMB and Williams of Millennium are both "courtesy copied" on the emails, but do not participate in the exchange. As noted, Millennium has filed the NMB Communications under seal for in camera review. However, the Insurers' attorneys are familiar with the contents because, as indicated, the NMB Communications were inadvertently disclosed by plaintiffs during discovery. -46

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informs Koutras that "James" (apparently James Wylie) has forwarded him some documents to review, and asks Koutras to provide him with additional documents as well as "a brief outline as to causation, loss, etc." Koutras responds later the same day with an email stating his views as to the relevant facts surrounding the Varanus Island explosion, the supply of natural gas to Western Australia, and Millennium's insurance claim. On September 17, Lambert replies with a frank assessment of the merits of Millennium's insurance claim and suggestions as to additional documentation that Koutras may want to review. Late October 2008: In the week before the scheduled meeting with representatives of the Insurers, Koutras sends an email to colleagues at Millennium, stating: "We have identified at least four separate arguments to present to AIG" at the meeting. Ex.D to Insurers Brief (ECF 72-5). However, in the same time frame, internal emails among personnel of the Insurers state that they "are hard pressed to understand what if anything the insured and[/]or Marsh can present that would change our opinion," and that they intend to meet with Koutras as "a courtesy." Ex.2 to Millennium Supp. (ECF 80-9). Koutras and other Millennium personnel, along with representatives from Marsh, meet with representatives of the Insurers at Marsh's offices in Philadelphia, to discuss the denial of Millennium's claim. The Insurers do not change their position as a result of this meeting, but, according to Koutras's deposition testimony, indicate that they will not "give [Millennium] a formal reply until [Millennium] file[s] [its] formal submission with them" in December. Ex.E to Insurers Brief at 341 (ECF 72-6). Millennium continues to prepare its submission to the Insurers challenging the denial of the claim. Koutras submits to the Insurers a twelve-page letter presenting in detail Millennium's argument that Millennium's loss should be covered by the policy provided by the Insurers. The Insurers respond to Koutras's letter of December 31, 2008, reiterating their denial of Millennium's claim. See Insurers Supp. at 5. Millennium files suit in this Court.

October 30, 2008:

November 2008:

December 31, 2008:

February 3, 2009:

July 17, 2009:

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Additional facts are included in the discussion. Discussion The work product doctrine is embodied in Rule 26(b)(3)(A) of the Federal Rules of Civil Procedure, which states: Ordinarily, a party may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party's attorney, consultant, surety, indemnitor, insurer, or agent). But . . . those materials may be discovered if: (i) they are otherwise discoverable . . . ; and (ii) the party shows that it has substantial need for the materials to prepare its case and cannot, without undue hardship, obtain their substantial equivalent by other means. (Emphasis added.) The parties' dispute focuses on the element of "prepared in anticipation of litigation." 7 The federal rules do not define these terms; rather, their meaning has been developed in case law. See 2 EDNA SELAN EPSTEIN, THE ATTORNEY-CLIENT PRIVILEGE AND THE WORK PRODUCT DOCTRINE 826 (5th ed. 2007) ("Epstein"). Millennium concedes that "it bears the burden of demonstrating that the NMB Communications were created in anticipation of litigation." See, e.g., Sandberg v. Va. Bankshares, Inc., 979 F.2d 332, 355 (4th Cir. 1992) ("The burden of proof rests with . . . the party asserting the work product doctrine, to demonstrate that the notes were prepared in anticipation of litigation."), vac'd on other grounds, 1993 WL 524680 (4th Cir. 1993). See also In re Grand Jury Proceedings, 616 F.3d 1172, 1185 (10th Cir. 2010); In re Prof'ls Direct Ins. Co., 578 F.3d 432, 439 (6th Cir. 2009); Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124, 138 (3d Cir. 2000); Rambus, Inc. v. Infineon Technologies AG, 220 F.R.D. 264, 272 (E.D. Va. 2004). But, the parties disagree with respect to the proper standard in this jurisdiction that governs the determination of whether a document has been prepared in anticipation of litigation, within the meaning of Rule 26(b)(3). Plaintiffs urge this court to apply the "because of" test, while the Insurers urge the court to apply the "primary motivating purpose" formulation. The work product doctrine applies to material prepared prior to the commencement of litigation, so long as there is "`some possibility of litigation.'" APL Corp. v. Aetna Cas. & Sur. Co., 91 F.R.D. 10, 15 (D. Md. 1980) (quoting In re Grand Jury Investigation, 599 F.2d 1224, 1229 (3d Cir. 1979)). Nevertheless, "while litigation often results from an insurance company's denial of a claim, it cannot be said that any document prepared . . . after such a claim has arisen
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At least for purposes of the present dispute, the Insurers do not argue that they have a "substantial need for the materials to prepare [their] case and cannot, without undue hardship, obtain their substantial equivalent by other means," under Rule 26(b)(3)(A)(ii). Therefore, I need not consider that exception to work product protection. -6-

is prepared in anticipation of litigation. . . ." APL, 91 F.R.D. at 17. Rather, the documents in issue must have been prepared "`because of the prospect of litigation.'" Id. at 20 (citation omitted; emphasis in APL). The "because of" test, on which Millennium relies, asks "`whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation.'" United States v. Deloitte LLP, 610 F.3d 129, 137 (D.C. Cir. 2010) (citation omitted). With the exception of the Fifth Circuit, it appears that all of the circuits that have addressed the matter, including the Fourth Circuit, have adopted the "because of" test. See Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Murray Sheet Metal Co., Inc., 967 F.2d 980, 985 (4th Cir. 1992) ("The document must be prepared because of the prospect of litigation when the [party asserting work product protection] faces an actual claim or a potential claim following an actual event or series of events that reasonably could result in litigation.") (emphasis in original); see also, e.g., Deloitte, 610 F.3d at 136; Sandra T.E. v. S. Berwyn Sch. Dist. 100, 600 F.3d 612, 622 (7th Cir. 2010); Prof'ls Direct, 578 F.3d at 439 (citing United States v. Roxworthy, 457 F.3d 594 (6th Cir. 2006)); In re Grand Jury Subpoena, 357 F.3d 900, 907 (9th Cir. 2004); PepsiCo, Inc. v. Baird, Kurtz & Dobson LLP, 305 F.3d 813, 817 (8th Cir. 2002); Maine v. U.S. Dept. of the Interior, 298 F.3d 60, 68 (1st Cir. 2002); Montgomery County v. MicroVote Corp., 175 F.3d 296, 305 (3d Cir. 1999); United States v. Adlman, 134 F.3d 1194, 1195 (2d Cir. 1998). 8 Commentators who have addressed the work product doctrine also give credence to the "because of" test. In 8 CHARLES ALAN WRIGHT, ARTHUR R. MILLER & RICHARD L. MARCUS, FEDERAL PRACTICE AND PROCEDURE

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