Victaulic Company has been engaged in litigation with three insurers, part of the American Insurance Group (AIG), for approximately ten years. The lawsuit was initiated by Victaulic in late 2012, with Pillsbury, Winthrop, Shaw, Pittman, LLP serving as its legal counsel since 2013. Victaulic has achieved several legal victories, including summary adjudication, a court trial determining the duty to defend and indemnify, and a jury trial that awarded $56 million for bad faith and punitive damages. However, this judgment was reversed in 2018 due to trial court errors, leading to further litigation following the filing of an amended complaint.
In 2021, the insurers filed a motion to disqualify two Pillsbury attorneys who had previously worked for AIG claims-handling, citing conflicts of interest. This motion led to extensive legal documentation and hearings. The trial court ultimately denied the disqualification motion in a detailed 16-page order, concluding that the insurers did not meet their burden of proof. The insurers appealed, arguing that the trial court made several legal errors and that the attorneys’ conflict of interest should extend to disqualify Pillsbury as well. The appellate court affirmed the trial court’s decision, emphasizing the presumption of correctness in lower court judgments and resolving any factual conflicts in favor of Victaulic. The insurers involved are American Home Assurance Company, Insurance Company of the State of Pennsylvania, and National Union Fire Insurance Company of Pittsburgh, collectively referred to as the defendants. Victaulic, headquartered in Pennsylvania, is a global manufacturer of mechanical pipe joining systems.
Victaulic is recognized as a leading developer and manufacturer of mechanical pipe coupling systems and associated products, utilized globally across various sectors such as heating, fire protection, mining, and automotive. The legal case involves nine claims against Victaulic, which were submitted for defense to multiple insurers, including AIG Claims, managed primarily by senior claims examiner Nancy Finberg. The claims include the “Elizabeth claim,” which alleges deterioration of a plumbing component causing contamination in water, and other claims from Oregon, California, Washington, Colorado, West Virginia, and Massachusetts.
On June 21, 2012, AIG’s assistant vice president, Keith Taylor, communicated AIG's position regarding coverage, outlining reasons for potential exclusions or denials and reserving rights under existing policies. Subsequently, AIG initiated a declaratory relief action in Pennsylvania (referred to as PA1) to determine if certain claims constituted “property damage” from an “occurrence” and whether damages were excluded as business risks, referencing case law that denies coverage for faulty workmanship. PA1 was dismissed on December 31, 2013, due to jurisdictional issues.
In August 2012, Victaulic filed a separate action in California, claiming breaches of duty by the insurers in defending against the Elizabeth, Edge, and Essex claims, leading to significant legal expenses for Victaulic. The complaint included allegations of breach of contract, bad faith, intentional misrepresentation, and a request for declaratory relief. The insurers attempted to dismiss or stay the California action but were unsuccessful. By July 2013, the Pillsbury firm became Victaulic's counsel. In December 2013, the insurers countered with a cross-complaint asserting they owed no payments for seven claims. Victaulic later added two additional claims, resulting in all nine claims being part of the ongoing litigation. In May 2014, Victaulic filed a second amended complaint alleging that the insurers failed to fulfill their obligations to defend, participate, or timely pay claims, leading to unreasonable delays and refusals of benefits.
The SAC requested declaratory relief, asserting that the allegations in the underlying actions obligated the defendants to defend and indemnify under the insurance program. In April 2014, the insurers initiated a second action in Pennsylvania (PA2) to clarify two claims added by Victaulic, which was later dismissed due to the ongoing California action. Both parties pursued summary adjudication, with insurers contending that Pennsylvania law applied and claimed that "faulty workmanship" does not constitute an "occurrence" under Kvaerner, thus excluding coverage for the nine claims. Victaulic argued for a duty to defend and indemnify regarding three specific claims.
In December 2014, the court denied the insurers’ motion and partially granted Victaulic’s, determining that the insurers had a duty to defend the three claims, as they potentially involved "property damage" from an "occurrence." The ruling referenced Indalex Inc. v. National Union Fire Insurance Co., which dismissed the insurers' arguments. The court identified triable issues regarding indemnity for covered losses and bifurcated the case, prioritizing the declaratory relief claim for a bench trial, designated as phase 1.
The phase 1 trial occurred over 12 days in February and March 2015, concluding with a ruling on June 10 that affirmed the insurers' duty to defend and indemnify Victaulic in all underlying actions except for one claim, where indemnity could not be determined until resolution. Subsequently, phase 2 was established for a jury trial addressing breach of contract, bad faith, and punitive damages. This phase involved extensive witness testimony and over 110 exhibits, focusing primarily on Victaulic’s bad faith claim, highlighting the insurers' unreasonable litigation actions against Victaulic.
The trial court initially excluded certain evidence, but after Victaulic's phase 1 presentation, the court reconsidered and allowed it in phase 2. Victaulic's counsel accused the insurers of breaching their promises and acting adversarially by suing Victaulic. During its case-in-chief, Victaulic examined AIG Claims personnel, including Finberg, as adverse witnesses regarding the insurers' litigation positions. The court’s ruling permitted improper interrogation of Finberg using the insurers' responses to requests for admissions (RFAs), which the court further compounded by involving itself in questioning and concluding that Finberg had perjured herself. Following this, Finberg claimed her Fifth Amendment privilege against self-incrimination in front of the jury, and her testimony remained in the case. Victaulic's closing argument emphasized Finberg’s alleged dishonesty in the RFAs. The jury deliberated for five hours, ultimately ruling in favor of Victaulic on all six questions and awarding exact damages for breach of contract and significant bad faith attorney fees. The jury found clear and convincing evidence of fraud or malice and awarded $46 million in punitive damages. Subsequently, the trial court awarded Victaulic approximately $5.5 million in cost of proof sanctions due to the insurers' refusal to acknowledge potential coverage. The insurers’ motions for judgment notwithstanding the verdict and a new trial were denied, prompting their appeal. In February 2018, the appellate court reversed the trial court's decisions, ruling that it erred in allowing the RFAs for cross-examination and in its conduct during Finberg's examination. Following remand, Victaulic filed a third amended complaint alleging bad faith based on the insurers' contradictory coverage positions and strategic manipulation in their dealings.
On May 14, 2021, insurers filed a motion to disqualify attorneys Scott Greenspan and Arthur Aizley from the Pillsbury firm, marking the third attempt to disqualify the firm. The first attempt occurred in October 2015 after a jury verdict, aimed at preventing Pillsbury from prosecuting criminal contempt charges against the insurers, which were later dropped. The second attempt in 2018, following a remand, was based on allegations of improper questioning of a defense witness at trial and was denied by the court, which noted potential tactical abuse in the disqualification motion.
The current motion included declarations from four individuals: Thomas Chaseman and Michael Parker, both AIG Claims attorneys; Reuben Cahn, representing the insurers; and Lawrence Klein, a former partner at Sedgwick, LLC, where Greenspan and Aizley previously worked. Chaseman's and Cahn's declarations were particularly lengthy, at 85 and 90 pages respectively. In opposition, Victaulic submitted declarations from its partner Joseph Jean, chief legal officer Mark Van De Voorde, and both Greenspan and Aizley, along with a declaration from David Keyko, Pillsbury's chief ethics counsel.
Central to the motion was Greenspan's work history at Sedgwick, where he began in 2003 and became a service partner under Klein, who managed the firm's relationship with AIG Claims. Greenspan stated that his role involved handling day-to-day tasks on insurance cases but did not recall being involved in cases where bad faith claims or product liability issues were central, nor did he remember handling any cases for AIG involving Victaulic. He emphasized his focus on litigation rather than expertise in insurance coverage or claims handling, asserting that his work on coverage issues was conducted under Klein's direction.
Greenspan had no significant involvement with Megan Watt, Finberg, or Chaseman—individuals named by defendants in claims decisions—nor was he aware of any operational guidelines or “playbook” for handling similar cases. His work at Sedgwick was based on individual case specifics. Aizley, who played a minor supportive role, similarly had limited client interaction and was unaware of any procedures or strategies. Both Greenspan and Aizley did not participate in the insurers' declaratory judgment cases in Pennsylvania, this case, or any related to Victaulic’s insurance program or product liability claims, particularly those involving denials under the faulty workmanship doctrine. Although they encountered bad faith claims, these were peripheral to the main coverage issues they dealt with, and none were related to the bad faith claims in the current case, which alleged litigation positions contrary to internal assessments and manipulation of claims. Greenspan elaborated in his declaration on his past work, particularly in construction defect litigations like MGM City Center and Pacific Coast Steel, as well as healthcare-related matters, including Sun Healthcare Group and Small Smiles Holding litigations. He ceased working on AIG matters in 2013, left Sedgwick in 2014, and later shifted focus to real estate litigation, with limited involvement in a bad faith claim against an AIG company. In early 2018, after expressing interest in joining policyholder-side firms, he sought a conflict waiver from AIG’s Deputy General Counsel, who granted waivers for various firms but labeled Pillsbury a "Red Zone" firm due to its litigation approach regarding Victaulic. Greenspan did not immediately join Pillsbury following this meeting.
In March 2020, Pillsbury contacted Greenspan regarding potential employment to handle Covid-19 insurance cases. By November 2020, after a conflict analysis, Pillsbury offered him a position but imposed an "ethical wall" to prevent him from engaging with the Victaulic case. This wall was communicated orally on his first day and confirmed in writing in January 2021. Aizley was similarly hired in February 2021 and also screened from the Victaulic case, with the wall confirmed in writing in April 2021. Both Greenspan and Aizley have not worked on or shared information regarding the Victaulic case. Victaulic's chief legal officer testified to having no interaction with either attorney.
Following Victaulic's opposition to motions from the insurers, the insurers submitted multiple supplemental declarations and requested in camera review. Aizley left Pillsbury during the appeal process, and Victaulic objected to the in camera review and the supplemental declarations, while also requesting judicial notice of numerous documents.
During a hearing on June 18, Judge Brand raised concerns about the volume of materials submitted, which totaled over 2,000 pages. He subsequently denied the insurers' motions in a detailed 16-page order issued on July 19, determining that the insurers did not meet their burden of proof on several points. Procedural rulings included the denial of requests for in camera reviews of certain documents and an evidentiary hearing. Judge Brand noted the contrasting narratives presented by the parties regarding Greenspan and Aizley's work, particularly addressing Greenspan's prior experience at Sedgwick and clarifying misunderstandings concerning his role under partner Lawrence Klein.
Judge Brand identified two key defects in the insurers' motion. First, there was uncertainty about whether the defendants, apart from non-party AIG Claims, were clients of Sedgwick, leading to the conclusion that the defendants did not establish a prior attorney-client relationship with Greenspan and Aizley. Second, the defendants failed to show that either Greenspan or Aizley had the necessary direct and personal relationship with them to presume access to confidential information. Judge Brand found no evidence suggesting Aizley had such a relationship, while he favored Greenspan's testimony over Klein's claims of Greenspan's autonomy, citing Greenspan's role as subordinate to Klein, who was the primary contact with AIG and earned significantly more.
The court ruled that defendants did not demonstrate that Greenspan's relationship with them met the criteria from relevant case law, nor did they fulfill the substantial relationship test necessary to invoke a presumption of confidentiality. Specifically, Judge Brand stated defendants failed to prove that any information obtained by Greenspan or Aizley during previous representation was relevant to current litigation involving Pillsbury and Victaulic. He noted the absence of evidence showing that either had knowledge of defendants' actions regarding Victaulic or participated in decisions about coverage or policy development.
Judge Brand concluded that the work done by Greenspan and Aizley was largely unrelated to the current litigation, recognizing that the legal issues they addressed were too general to establish a substantial relationship with this case. The defendants did not demonstrate that Greenspan or Aizley had relevant, specific information. Brand rejected the argument that their previous construction litigation experience was substantially related, particularly after Greenspan's strong rebuttal. He noted that any litigation strategies learned prior to their departure from Sedgwick might no longer be applicable and had been publicly disclosed by the defendants. Additionally, he confirmed that Pillsbury had implemented ethical walls to prevent any confidential information from being shared with other attorneys.
In his analysis, Judge Brand referenced the differing circumstances from the Farris case, highlighting the lack of pervasive involvement by Greenspan and Aizley compared to attorney Wilkins in the defendants' practices. He emphasized that the defendants failed to meet their burden in proving a substantial relationship, particularly regarding the former client status, direct relationship, and materiality of the prior representation's information.
Following this, the defendants filed a notice of appeal and a petition for writ of mandate, which was summarily denied. The document also outlines general principles regarding attorney disqualification, emphasizing the need for careful examination of disqualification motions to balance a client's right to chosen counsel against ethical standards. The court's authority to disqualify attorneys is rooted in maintaining justice and public trust in the legal system, underscoring the importance of confidentiality in attorney-client communications.
The attorney-client privilege is a fundamental principle that supports the right of individuals to seek confidential legal advice, requiring attorneys to protect their clients' secrets. This obligation is codified in the Business and Professions Code. The standard of review for disqualification motions is that a trial court's decision is examined for abuse of discretion, particularly when it has resolved factual disputes. An abuse of discretion occurs if the decision is unreasonable or arbitrary. The burden on insurers appealing such decisions is significant, especially if they failed to meet their evidentiary burden at trial. The appellate inquiry focuses on whether the evidence was uncontradicted and compelling enough to warrant a judgment in favor of the appellant. In this context, the insurers have not demonstrated an abuse of discretion or met the requirements outlined in relevant case law, particularly regarding disqualification based on conflicts of interest as stipulated in the California Rules of Professional Conduct. Disqualification hinges on the existence of a substantial relationship between prior and current representations, as discussed in significant case law.
Attorney Wilkins represented plaintiff Jessen in a case against Hartford, which sought to disqualify Wilkins and his firm due to Wilkins's previous representation of Hartford while at another firm. In response, Wilkins presented federal court orders where similar disqualification attempts were denied, leading the trial court to rule that Hartford was collaterally estopped from raising the issue again. However, the Court of Appeal reversed this decision, stating that the trial court should have applied the substantial relationship test for disqualification.
The Court outlined a two-step process for evaluating disqualification motions in cases of successive representation. First, the court must determine if the attorney had a direct and personal relationship with the former client; if so, disqualification is warranted, and the only remaining point is to assess the connection between the two representations without considering the attorney's knowledge from the prior case. If not directly personal, the court must evaluate the likelihood of the attorney acquiring relevant confidential information based on the similarities between the representations.
The standard of review for these decisions is abuse of discretion, which is constrained by applicable legal principles. The insurers argued that Attorneys Greenspan and Aizley should be disqualified due to their prior work for AIG in similar cases. Their arguments included claims of inherent similarity in the cases, the necessity for disqualification based on precedent, and assertions that the trial court’s analysis conflicted with established case law regarding the substantial relationship test. They claimed that the prior and current cases involved the same claims handlers and issues, suggesting a strong connection that would indicate the attorneys had confidential information relevant to the current case. However, the claims of similarity were described as exaggerated, lacking substantial evidence to prove that the attorneys possessed any confidential information pertinent to the current action.
Defendants did not demonstrate any legal error in Judge Brand's ruling, primarily because they failed to establish a prior attorney-client relationship. The absence of such a relationship negates the rule against representing a former client, as established in case law (Meehan v. Hopps). Defendants were responsible for proving the existence of former representation but only provided declarations from AIG Claims employees and a partner at Sedgwick, which lacked sufficient detail and clarity regarding their involvement. The declarations were vague, using terms like "AIG member companies" without clearly identifying the relationships or responsibilities involved. Additionally, documents revealed that Sedgwick LLP was traditionally retained by AIG Claims, an entity not mentioned by the defendants, further complicating the situation.
Defendants’ attorney acknowledged the complexity of AIG's structure, explaining that AIG is a holding company and the insurers themselves do not employ claims handlers. Claims are processed by AIG Claims, which employs individuals to manage claims and determine coverage, acting as agents for the insurers. This structure has remained consistent in the current case and previous litigations involving Mr. Greenspan and Mr. Aizley. Sedgwick maintained a master agreement with AIG Claims to represent its insurers, highlighting the interconnectedness of AIG's various entities in handling claims and coverage issues. Overall, the defendants' arguments and evidence were insufficient to clarify their claims of a prior attorney-client relationship, which was crucial for their defense.
Defendants refer to a summary from Chaseman, AIG Claims' associate general counsel, indicating that Greenspan and Aizley billed numerous hours to various AIG Claims offices. However, they fail to provide evidence of retaining Sedgwick for representation and instead rely on declarations from Greenspan and Aizley regarding unrelated litigations. The assertion that AIG Claims acts as the defendants' "legal agent" under Rule 1.13 of the Rules of Professional Conduct is rejected, as the rule relates to lawyers representing organizations rather than affiliates or agents. Defendants do not present any evidence of AIG Claims acting as their agent in matters associated with Greenspan and Aizley at Sedgwick.
The claim regarding the ability of a “paper company” to possess confidential information necessary for disqualification is also unsubstantiated. The only evidence cited by defendants is Greenspan's statement regarding monitoring a trial for AIG Claims, which is irrelevant to the current case. They reference Morrison Knudson Corp. v. Hancock, Rothert, Bunshoft to argue that subsidiaries sharing operations should be treated as a single entity for conflict purposes; however, the cited case actually emphasizes the need for demonstrated integration, which is lacking here.
Judge Brand's ruling, asserting that the insurers did not prove a prior attorney-client relationship nor a direct personal relationship with Greenspan or Aizley, is upheld. Defendants do not argue disqualification based on actual possession of confidential information but rather on the presumption that such information was acquired while representing AIG Claims.
The presumption of disqualification of counsel involves specific conditions, notably a direct professional relationship where the attorney provided legal advice closely related to the current representation. Evidence indicated that Greenspan and Aizley lacked direct communication with any officers or employees of the defendant insurers. Greenspan was primarily supervised by Klein, who managed the relationship with AIG Claims and limited Greenspan’s involvement to day-to-day litigation tasks without significant strategic input. Judge Brand credited Greenspan’s testimony over Klein's, establishing that factual determinations by the trial court are binding on reviewing courts. Aizley was found to have no direct relationship with AIG Claims, serving only as an associate supporting Greenspan with discovery and mediation tasks, rarely interacting with AIG personnel, and not providing strategic advice.
The insurers emphasized the importance of maintaining ethical standards and public trust, stating that disqualification aims to protect a former client's confidential information as outlined in the Rules of Professional Conduct. Rule 1.9 prohibits attorneys from representing clients against former clients only if the new matter is substantially related to the former representation, involving a significant risk of breaching confidentiality. The attorneys may represent clients adverse to former clients if the matters are not substantially related, and mere relevance does not meet the materiality threshold required to trigger disqualification.
A presumption of former counsel's possession of confidential information arises only if there is a substantial risk that such information could influence the current representation, specifically when it can be reasonably concluded that it would materially benefit the present client's case. For disqualification to be warranted, the information from the previous representation must be directly pertinent or critically important to the current matter. In a recent case, the court reversed a disqualification ruling, emphasizing that generalized claims of similarity between past and present cases are insufficient. The defendants argued that former attorneys Greenspan and Aizley had access to confidential materials that could affect their current representation, but the court found no evidence that they worked on relevant cases against Victaulic or had developed any critical strategies. Assertions about knowledge of general business practices or litigation strategies do not justify disqualification under California law. Furthermore, both Greenspan and Aizley denied acquiring confidential claims handling strategies, and much of the information claimed to be confidential was publicly discussed by the defendants’ lawyers. The potential harm to Victaulic from disqualification was highlighted, as it would result in irreparable damage given the significance and financial stakes of the current case. The defendants’ arguments for disqualification, citing prior cases, were deemed exaggerated and mischaracterized.
The trial court denied disqualification of attorney Wilkins, countering the insurers' claim that his prior work was limited to specific facts relevant to a single claim. The denial was based on the principle of collateral estoppel, as two federal courts had previously rejected motions by Hartford to disqualify him. Although the Court of Appeal reversed the trial court's decision, it did not mandate Wilkins's disqualification but rather instructed the trial court to assess whether information from Wilkins's former representation of Hartford was relevant to his current case against Hartford. The Court of Appeal noted that the test for disqualification was not a rigid standard.
The insurers mischaracterized the case of Farris, which also involved Wilkins. In Farris, disqualification was warranted due to Wilkins's extensive prior representation of Fireman’s Fund, where he handled numerous cases and engaged in strategic discussions with key personnel. The court highlighted Wilkins's significant role in shaping Fireman’s Fund’s policies on claims handling, distinguishing it from the current circumstances.
Additionally, Victaulic challenged the insurers' argument regarding a broad corporate policy to deny benefits, labeling it as a new and improper assertion since it was not included in their original motion to disqualify. Victaulic pointed out that the insurers had failed to mention this alleged scheme or provide relevant evidence during the motion process, undermining their claims.
Defendants cited a closing argument not referenced in their motion or reply, drawing from the record of a previous appeal rather than any submitted documents. Their references to a 36 Victaulic motion were also made without including it in the motion to disqualify. Although discovery requests were attached to a supplemental declaration submitted shortly before the final hearing, there was no mention of a company-wide scheme in that declaration. The insurers' reply brief challenged defendants' claims, arguing that the allegations of a company-wide scheme originated from Victaulic’s own filings. Key materials included Victaulic’s motion for leave to file a third amended complaint and its closing argument during a 2015 trial, wherein Victaulic accused AIG of orchestrating a "no coverage" scheme to limit exposure to claims. The insurers' assertions regarding a company-wide scheme mischaracterized the nature of Victaulic's claims, which discussed changes in AIG's underwriting practices rather than a conspiracy to deny claims. The insurers relied on a small excerpt from the closing argument while the broader context detailed Victaulic's focus on various contentious issues. Furthermore, the argument concerning the disqualification of Greenspan and Aizley lacked merit, as they themselves were not disqualified, and Pillsbury had implemented measures to prevent information sharing within their firm.
Defendants acknowledge that an ethical wall prevents the disclosure of confidential information held by Greenspan. However, they argue that these protections were not implemented in a timely manner, as formal screening was established months after Greenspan's hiring and only after complaints about Aizley. Judge Brand dismissed this argument, noting that Pillsbury had orally established an ethical wall for both Greenspan and Aizley before their respective hires—Greenspan in November 2020 and Aizley in February 2021. This wall prohibited them from participating in the case or accessing relevant information. The defendants failed to adequately challenge the sufficiency of these procedures or demonstrate any abuse of discretion by Judge Brand. Consequently, the order denying the motion to disqualify is affirmed, and Victaulic is entitled to recover its costs on appeal. The case is recorded as Victaulic Company v. American Home Assurance Company et al. in the Alameda County Superior Court, presided over by Judge Jeffrey S. Brand.
