Channel Construction chartered a barge on three occasions to Northland Services between 2010 and 2012. Northland used it as a platform to generate electricity and refrigeration of fish products.
In the summer of 2011, the barge began developing a starboard list, which William Tonsgard Jr., Channel’s president, was concerned might be caused by the generator.
He wrote to Northland on June 15, 2012, requesting that it examine whether the barge had suffered electrolysis when it next took the barge out on charter.
Northland responded, characterizing electrolysis as a “long-term maintenance issue” that it had neither the responsibly nor the time to address.
After Northland’s last charter ended in late 2012, the barge sailed from southeast Alaska to Seattle, carrying a cargo of scrap metal.
While passing near the San Juan Islands in Washington, the barge began to take on water. Channel contacted its maritime insurance broker, International Marine Underwriters (IMU), to arrange an emergency survey.
The barge was drydocked in Anacortes, where IMU hired surveyor Richard Blomquist to assess the damage. He issued a report on Dec. 12 that found severe hull damage caused by stray-current corrosion, otherwise known as electrolysis. The report did not address potential issues of fault.
On the same day the report was issued, IMU and Channel hired attorneys who worked together “allegedly to consider possible litigation against Northland.”
The collaboration ended in early February 2013, when IMU refused to cover the damage.
Subsequently, Channel filed for bankruptcy.
During the bankruptcy, Northland and its underwriters sought access to Blomquist and his files to conduct a so-called “Rule 2004” hearing as interested parties in the bankruptcy, and the U.S. Bankruptcy Court for the District of Alaska granted their request, explaining if Blomquist was ever Channel’s expert, this was certainly not the case “until sometime after his Dec. 12, 2012 report.”
On Oct. 11, 2014, Channel sued Northland and its underwriters alleging the damage to the barge resulted from one of their charters.
Northland served Blomquist with two subpoenas requesting the files underlying his survey report and that he testify at a deposition.
Northland theorized this evidence would show the “natural seawater electrolysis damage was being caused by Channel’s own failure to have sacrificial zincs on the barge and keep the bottom properly coated.” It followed this by filing a motion to compel the documents, and Channel moved to quash the subpoena issued for Blomquist’s appearance.
The U.S. District Court granted the motion to compel and denied Channel’s motion to quash the subpoena. (Channel Construction, Inc. v. Northland Services, Inc., et al. Western District of Washington. No. C14-1231. Feb. 24.)
The court said the Federal Rules of Civil Procedure states unless otherwise limited by court order parties “may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense.” And it cited a 1947 decision stating the discovery provisions “are to be applied as broadly and liberally as possible, [with] the privilege limitation… restricted to its narrowest bounds.” (Hickman v. Taylor, 329 U.S. 495, 506.)
“The party resisting discovery therefore bears the burden to show that its documents are protected by privilege,” the court explained.
Channel argued the files underlying Blomquist’s report were privileged work and his testimony regarding the report is also privileged because he was an expert retained for litigation at the time of the report’s preparation.
The court said that to assert either privilege requires the report to have been “prepared in anticipation of litigation” and noted there is a work product doctrine which protects trial preparation materials that reveal an attorney’s strategy, intended lines of proof, evaluation of strengths and weaknesses, and inferences drawn from interviews.
But it said because discovery rules are liberal, a court cannot allow a party to withhold relevant and non-privileged facts that remain hidden in an attorney’s file.
“The court will only deem documents work product that were prepared in anticipation of litigation,” the court said, explaining such a determination depends on the nature of the document and the facts in each particular case.
“Courts will most readily protect documents that were prepared exclusively for litigation,” the court said. “Corporate actors will often create documents for routine or investigative purposes even as they are aware that there may eventually be a possibility of litigation.”
In analyzing such dual-purpose documents, courts must determine whether the document was created because of anticipated litigation, and would not have been created in substantially similar form but for the prospect of litigation.
Channel said it had litigation in mind when Blomquist was retained, pointing to a short email written two years prior to litigation suggesting a concern that Northland may have been at fault for possible damage.
The court said the email was insufficient to protect the files or Blomquist’s testimony, because “a suggestion of possible fault is distinct from ‘an identifiable resolve to litigate.’”
“Any concern with the possibility of later litigation that may have been indicated by the email was overshadowed by the more imminent purposes of filing an internal claim with IMU and addressing the emergency that caused the barge to be put in drydock,” the court said. “The nature of the report given the circumstances of its preparation suggests that it would have been prepared regardless of whether plaintiff was concerned with fault or contemplating litigation. Courts have routinely rejected claims of work product privilege under similar conditions.
“If every drydock survey or claims investigation were deemed completed in anticipation of litigation, then very little in admiralty would escape work product privilege,” it added.
As to the motion to quash the subpoena, the court said Channel lacks standing to protect Blomquist’s testimony, because Blomquist is a non-party to the litigation.
This column was published in the May 2015 issue of American Shipper.