CNA Memo on Application of SB 814

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Lawrence Gottlieb, OSB #070869 [email protected] Betts, Patterson & Mines, P.S. 701 Pike Street, Suite 1400 Seattle, WA 98101-3927 Telephone: 206-292-9988 Facsimile: 206-343-7053

Attorneys for Defendants Continental Casualty Company and Transportation Insurance Company

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON

PORTLAND DIVISION

SCHNITZER STEEL INDUSTRIES, INC., an Oregon corporation; and MMGL CORP., a Washington corporation, NO. 3:1 0-cv-0 1174-MO

Plaintiffs, MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE

VS. RE EFFECT OF THE SB 814

INDEPENDENT COUNSEL RULES CONTINENTAL CASUALTY COMPANY, an Illinois corporation; and TRANSPORTATION INSURANCE COMPANY, an Illinois corporation,

Defendants.

I. INTRODUCTION

Defendants Continental Casualty Company and Transportation Insurance Company

(collectively "Continental") submit this Motion in Limine to address the purported effect of

Senate Bill 814, amending ORS §465-480, on Plaintiffs Schnitzer Steel Industries, Inc. and

Schnitzer Investment Corp.’s (now MMGL) (collectively "Schnitzer") claimed right to select

MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE [Cause No. 2:10-cv-01 174-MO] 6374391/081613 1314/80360002

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Case 3:10-cv-01174-MO Document 216 Filed 08/16/13 Page 1 of 19 Page ID#: 2903

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Bingham McCutchen as independent counsel and demand full payment of Bingham’s fees at

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exorbitant Los Angeles rates.

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The key issues related to SB 814’s independent counsel rule are very simple. The act

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contains a "savings" clause specifying that the rules of construction established by the act,

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including those applicable to independent counsel, do not control when inconsistent with the

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intent of the parties. The "savings" clause applies here because the Continental policies grant

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Continental the absolute right to control the defense, which includes selection of defense

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counsel. Further, as found by the Court, there is an agreement between Continental and

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Schnitzer as to defense counsel rates.

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In addition to being contrary to the intent of the parties, applying the independent

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counsel rules as requested by Schnitzer would impermissibly negate the tripartite relationship

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that has existed between Continental, Schnitzer, and Bingham since Bingham was first retained

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as defense counsel many years ago. The attorney-client relationship and associated ethical

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rules are outside the province of the legislature and cannot be modified, or otherwise

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disregarded by statute.

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Even assuming that SB 814 were held to be applicable here, it does not (1) deprive

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Continental of the right to select independent counsel; (2) impose more than a good faith

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standard on the insurer’s selection of counsel; or (3) require the payment of excessive out-of-

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forum rates. Taken together, Continental’s main points demonstrate that SB 814’s independent

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counsel rules do not materially impact the issues in this case.

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II. RELEVANT FACTS

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Schnitzer’s claims arise from alleged contamination at certain upland sites in the

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vicinity of the Portland Harbor Superfund Site ("PHSS") with which Schnitzer is or has been

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associated as an owner and/or operator and also from its potential liability in connection with

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MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE [Cause No, 2:10-cv-01 174-MO] 6374391/081613 1314/80360002

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the PHSS. (Complaint, ¶ 19.) In 2001, Continental agreed to defend Schnitzer with respect to

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the Portland Harbor matter, subject to a full reservation of rights. (Declaration of Lawrence

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Gottlieb in Support of Defendants’ Motion for Partial Summary Judgment Re: Attorney Fees

4 and Prejudgment Interest (Docket # 79) ("Gottlieb SJ Dccl.") ¶ 2.)

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When Continental accepted the defense, Schnitzer was employing Stoel Rives as

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defense counsel. (Exhibit B (Excerpts from deposition transcript of Mathew Cusma) to

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Gottlieb SJ Decl., p.31: 11.10-16; p.36: 11.10-20).) After identifying a conflict of interest that

8 prevented Stoel Rives’ continued participation as defense counsel, Continental proposed two

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highly qualified Portland attorneys as potential replacement counsel. (Exhibit C (Exhibit 4 to

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Cusma deposition) to Gottlieb SJ Decl.) Following a pro forma effort at evaluating these local

11 attorneys, Schnitzer rejected Continental’s proffered counsel in favor of the Bingham firm in

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Los Angeles. (Exhibit A (Excerpts from deposition transcript of Thomas Zelenka) to Gottlieb

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SJ Decl., at p.158: 1.16� p.159: 1.7; p.140: 11.8-14).) Bingham charged rates far in excess of

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forum rates and significantly higher than Continental paid to defense counsel in similar matters.

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(Exhibit E (Schnitzer: Portland Harbor Hours and Rates 2002-2011) to Gottlieb SJ Decl.)

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While emphasizing, and reserving, its right to select defense counsel, Continental agreed to the

17 retention of Bingham in return for Schruitzer’ s acceptance of fee reimbursements at the lower

18 rates requested by Continental - rates in line with the local forum, including those paid by

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Continental in similar matters. (Exhibit F (November 10, 2003, Letter from David Prange) to

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Gottlieb SJ Deci.)

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Following a round of cross-motions for summary judgment in this coverage action, the

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Court found that the parties had entered into an agreement under which Schnitzer assented to

23 partial reimbursement of Bingham’s fees at the rates requested by Continental. (March 9, 2012

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Findings & Recommendations ("March 9 F&R") (Docket # 124), at 28.) Nevertheless, the

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MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE [Cause No. 2:10-cv-01 174-MO] 637439.1/081613 1302/80360002

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Court further found that Schnitzer reserved its right in the agreement to later seek full

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reimbursement, while declining to reach the issue on summary judgment of whether Schnitzer

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had a right, in the first instance, to select independent counsel. (Id.)

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In ruling upon Continental’s alternative argument that Schnitzer was limited to forum

5 rates, the Court concluded that the insurer fulfills its defense obligation if it proffers defense

6 counsel in the forum (or the cheapest counsel available outside the forum) that "can reasonably

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be expected to provide competent representation as of the time the selection is made." (Id. at

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31.) In accord with the "forum rule" advocated by Continental, the Court also found that

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Schnitzer did not "enjoy unfettered discretion to select [defense] counsel [outside the forum]

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without regard to expense." (Id. at 32.) Instead, Schnitzer had to prove that counsel "expected

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to provide competent representation" was not available in the forum. (Id. at 33.)

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While the parties were awaiting the Court’s ruling on a discovery matter and the official

13 reassignment of the case for trial, the Oregon legislature, at the prompting of counsel for local

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industry groups involved in the PHSS, passed SB 814. This act purports, among other things,

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to establish additional environmental claims handling rules, the right to independent counsel

16 under certain circumstances, and standards applicable to the retention and payment of such

17 counsel.

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On July 19, 2013, Schnitzer’s outside coverage counsel wrote to Continental’s counsel

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making various demands under SB 814. (Exhibit A (July 19, 2013 letter from Kristin Sterling)

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to Declaration of Lawrence Gottlieb ("Gottlieb Deci."), at 3.) In its letter, Schnitzer contended

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that SB 814 entitled it to select independent counsel and that it has selected Bingham. On this

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basis, Schnitzer demanded full payment of alleged past due attorney fees at Bingham’s full,

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exorbitant Los Angeles rates. By letter dated August 2, 2013, Continental responded to the

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July 19 correspondence, rejecting Schnitzer’s unreasonable demands. (Exhibit B (August 2,

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in

2013 letter from Larry Gottlieb) to Gottlieb Deci.) With regard to independent counsel,

Continental denied that (1) SB 814 provided Schnitzer with the asserted right to select Bingham

and (2) required payment of fees for counsel "outside the insured’s community" at rates

exceeding the "regular and customary rates" in the "community where the underlying claim

arose or is being defended." (Id. at 2.)

III. ARGUMENT

Section 7 of SB 814 governs an insured’s right to select independent counsel. Schnitzer

contends that, following the Oregon legislature’s enactment of SB 814 on June 10, 2013, it has

selected Bingham as "independent counsel" and may now recover Bingham’s full rates despite

the fact that those rates far exceed reasonable rates in the forum, including the rates typically

paid by Continental to defense counsel in similar matters. (Exhibit A to Gottlieb Decl.)

Section 7 sets forth the general independent counsel rule as follows:

If the provisions of a general liability insurance policy impose a duty to defend upon an insurer, and the insurer has undertaken the defense of an environmental claim on behalf of an insured under a reservation of rights, or if the insured has potential liability for the environmental claim in excess of the limits of the general liability insurance policy, the insurer shall provide independent counsel to defend the insured who shall represent only the insured and not the insurer.

Laws 2013, Ch. 350, § 7(1) (emphasis added). Section 7 then describes the standards

applicable to the selection and payment of independent counsel. However, taken together, and

in light of the specific facts at issue, these provisions do not support Schnitzer’s position. To

find otherwise would be contrary to the terms of the Continental policies and would require the

Court to read language into SB 814 that Schnitzer may have hoped for, but failed to secure, in

seeking passage of the act.


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A. Allowing Schnitzer to Select Bingham As Independent Counsel Under SB 814 Is

2 Contrary to the Intent of the Parties to the Continental Policies

Of significance here, Section 7 is one of the three provisions of the act that are subject 3

to the "savings" clause - "The rules of construction set forth in [Section 7] do not apply if the 4

application of the rule results in an interpretation contrary to the intent of the parties to the 5

general liability insurance policy." Id., § 4(8). This is an important circumstance with regard 6

to the independent counsel rule when, as here, there is policy language granting the insurer the 7

right to control the defense. 8

The language in the Continental policies at issue in this case triggers the "savings" 9

clause because it clearly provides that the insurer "shall have the right and duty to defend any 10

suit against the insured." The emphasized language has been held to afford "an insurer the 11

right to control the defense," which also necessarily includes the right to select defense counsel. 12

Carolina Cas. Ins. Co. v. Boiling, Walter & Gawthrop, 2005 WL 1367096 (E.D.Cal. May 31, 13

2005) (citing cases); Travelers Property Cas. Co. ofAmerica v. Centex Homes, 2013 WL 14

1411135, at *6 (N.D.Cal. April 8, 2013). Thus, the independent counsel rule in Section 7 is 15

inconsistent with the intent of the parties. Pursuant to the "savings" provision, the language of 16

the policies controls, and Section 7 does not apply. Consequently, Schnitzer does not have the 17

right to now select Bingham as independent counsel under SB 814. Bingham, therefore, 18

continues to operate within the tripartite relationship that exists under existing Oregon 19

insurance law when an insurer, like Continental, provides a defense. 20

Even if the policies did not grant Continental the right to control the defense, this Court 21

has found that the parties entered into an "agreement" concerning the retention of Bingham as 22

defense counsel and the fee structure under which Bingham was to be paid. Although the 23

Court further found that the fee arrangement was subject to a reservation of rights, that 24

circumstance does not undercut the fact that there is an existing agreement governing 25




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Bingham’s retention as defense counsel. Notably, this agreement did not establish Bingham as

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Schnitzer’s "independent counsel." Rather, Bingham simply assumed Stoel Rives’ role as

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defense counsel within the traditional tripartite insurance defense relationship and has operated

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in that role to date. In keeping with this agreement, Bingham has treated both Schnitzer and

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Continental as its clients, informing Continental, among other things, of its defense strategy in

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the underlying action and negotiating billing questions directly with Continental.

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SB 814 did not, by operation of law, undo this existing agreement. Accordingly,

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applying Section 7 now to "transform" Bingham into independent counsel would be

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inconsistent with this agreement - thereby also triggering the protections of the act’s "savings"

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In sum, given the clear language of the policies concerning Continental’s control over

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the defense and the separate agreement with Schnitzer regarding retention of Bingham as

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defense counsel, the "rules of construction" set forth in Section 7 do not apply. Schnitzer,

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therefore, does not have a right under this section (even assuming the section grants such a

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right, discussed below) to force Continental to "provide" Bingham as independent counsel to

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Schnitzer. Under these circumstances, Bingham owes, and continues to owe, a duty of loyalty

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to both Schnitzer and Continental as current clients of the firm.

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B. SB 814 Does Not Negate the Existing Tripartite Relationship Between Continental,

19 Schnitzer, and Bingham

Aside from the fact that SB 814 does not apply by virtue of the "savings" provision, it is 20

equally clear that, even absent this circumstance, SB 814 cannot negate the existing tripartite 21

relationship. During the course of this coverage action, Schnitzer has acknowledged that the 22

parties have been operating within a tripartite relationship. For example, in responding to 23

Continental’s motion in limine seeking unfettered access to interview the original defense 24

lawyers proffered by Continental (and allegedly found to be unqualified by Schnitzer) in the 25




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underlying action, Schnitzer admitted that both the insured and the defending insurer are clients

of the attorneys engaged in the defense of the insured. As stated by Schnitzer in its response:

Under Oregon law, when an insurer accepts the defense of an insured, lawyers consulted on behalf of or otherwise acting for the insured dually represent both the defending insurer and the insured. See OSB Formal Opinion No. 2005-121 ("As a general proposition, a lawyer who represents an insured in an insurance defense case has two clients: the insurer and the insured."). Although the insured is the "primary client whose protection must be the lawyer’s ’dominant’ concern," the insurer and insured both qualify as clients of the consulted lawyer. Id.; see also OSB Formal Opinion No. 2005-157.

(Plaintiffs’ Opposition to Defendants’ Motion in Limine (Docket #146) (emphasis added by

Schnitzer).) In granting Continental’s motion, this Court noted Schnitzer’s admission and

further found that it was consistent with the law governing the insurance defense context:

Indeed, because defendants are Schnitzer’ s insurers and are undertaking Schnitzer’ s defense in connection with the Portland Harbor matter, and therefore hold the lawyer-client privilege in common with Schnitzer in connection with that matter, see United States v. Gonzalez, 669 F.3d 974, 977-978 (9th Cir. 2012), it is difficult to see how Schnitzer could properly assert the lawyer-client privilege as against the defendants in connection with any communications Schnitzer might have had with any attorney regarding the Portland Harbor action.

(Opinion and Order (Docket #166), atlO n. 2.) In light of Schnitzer’s admission and this

Court’s express acknowledgment of the nature of the attorney-client relationship in this context,

there is no dispute that both Continental and Schnitzer are Bingham’ s clients. The existence of

this relationship is significant for two primary reasons.

First, SB 814 does not automatically convert any existing tripartite attorney-client

relationships into bipartite attorney-client relationships on the date of its enactment. 1 It does

’Additionally, Schnitzer’ s intent to use Bingham as independent counsel does not alleviate Bingham’s duties to Continental. In re Conduct of Vaile, 300 Or. 91, 97, 707 P.2d 52 (1985) (attorney could not "by his subjective or secret analysis eliminate a current client and decide that he was only representing another party on that particular transaction").




not even purport to do so; rather, the plain language of SB 814 simply creates a duty on the part

of insurers who are defending under a reservation of rights to provide "independent counsel" to

their insureds. Continental has not "provided" Bingham to Schnitzer as independent counsel

for its defense. Similarly, in addition to defeating the intent of the parties, it would not be

permissible to now retroactively declare that Bingham has always been "independent" of

Continental merely because of the enactment of SB 814. Continental has been Bingham’s

client since Bingham first substituted in the underlying case for Stoel Rives. The parties have

operated under this arrangement for many years - sharing confidential information and

supporting a common interest. There is no authority for permitting the retroactive negation of

this attorney-client relationship by legislative fiat. Bingham’s relationship with Continental,

therefore, remains unchanged by the passage of SB 814.

Second, to the extent that Schnitzer now contends that SB 814 grants it the right to

select "independent counsel" (discussed below), it cannot select Bingham because this selection

would result in a conflict with its former client, Continental. In this regard, the Oregon Rules

of Professional Conduct ("RPC") govern Bingham’s relationship with Continental. With

respect to former clients, RPC 1.9 provides:

A lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that Person’s interests are materially adverse to the interests of the former client unless each affected client gives informed consent, confirmed in writing.

Or. R. Prof. Conduct 1.9. Here, Schnitzer essentially asserts a right to terminate the tripartite

relationship and to retain Bingham to represent it in the same matter in which Bingham

previously also represented Continental. RPC 1.9 prohibits this arrangement because it involves

the same matter and Schnitzer’ s interests are "materially adverse" to Continental’s with respect

to the exorbitant attorney fee rates that Schnitzer has agreed to pay Bingham and which it seeks



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to recover in full from Continental. Further, Continental will not give its consent to this

2 I representation.

3 ; The legislature simply does not have the power to alter the nature of attorney-client

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relationships or the ethical rules that apply to those relationships. Attorneys admitted to

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practice in Oregon are officers of the court. ORS § 9.010(1). It is the judiciary’s function to

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regulate the practice of law, which it does through the Oregon Bar Association. Rules

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regulating professional conduct of lawyers (disciplinary rules) are formulated by the Board of

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Governors of the Oregon State Bar, approved by members of the Bar, and adopted by the

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Supreme Court; they have the status of law. ORS § 9.490; Kidney Ass ’n of Oregon, Inc. v.

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Ferguson, 315 Or. 135, 141, 843 P.2d 442 (1992). The purpose of the disciplinary rules is "to

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govern the supervision and discipline of attorneys," and the Supreme Court and Oregon State

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Bar have exclusive jurisdiction to enforce them. Brown v. Or. State Bar, 293 Or. 446, 451, 648

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P.2d 1289 (1982); Vavrosky MacCoil Olson Busch & Pfeifer PC v. Employment Dep ’t, 212 Or.

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App. 174,187, 157 P.3d 312 (2007); O.R.S. § 9.010(2) ("The Oregon State Bar is a public

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corporation and an instrumentality of the Judicial Department of the government of the State of

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Oregon").

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As part of its core powers the Oregon Supreme Court has the constitutional authority to

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discipline attorneys and judges. Ramsteadv. Morgan, 219 Or. 383, 399-400, 347 P.2d 594,

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601-02 (1959). While the legislature may regulate the legal profession and the practice of law

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to some extent, it may not do so if it unduly interferes with the exercise of these judicial

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functions. State ex rel. Acocella v. Allen, 288 Or. 175, 604 P.2d 391 (1979). Under this same

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analysis, many jurisdictions have held that rules of professional conduct for attorneys prevail

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over state statutes to the extent that a potential inconsistency exists. 2

24 2 See, e.g., Opinion of the Justices to the Senate, 376 N.E.2d 810, 814 & n,15 (Mass.

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1978) (if the judicial department promulgates a rule imposing on practicing attorneys standards




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To negate Continental’s status as Bingham’ s client and to allow Schnitzer to retain

Bingham as independent counsel, in violation of RPC 1.9, would contravene the above legal

principles - usurping the roles of the Oregon State Bar and the Supreme Court. Thus,

Continental was, and still is, Bingham’s client and Bingham cannot qualify as independent

counsel under SB 814.

C. Continental Has the Right To Select Independent Counsel

Even assuming Section 7 of SB 814 applies here, it does not bestow the right to select

independent counsel upon Schnitzer. 3 The provision only states that, under certain

higher than or in conflict with those imposed by legislation, the judicial rule prevails); Weems v. Supreme Court Comm. on Prof Cond., 523 S.W.2d 900, 905-06 (Ark. 1975) (acts of legislature with regard to regulating and defining practice of law are to be considered in aid of judicial prerogative to regulate practice of law and not in derogation thereof); Howard v. State Comm’n on Ethics, 421 So.2d 37, 38 (Fla. Ct. App. 1982) (statutes merely supplement Canons of Professional Responsibility adopted by Supreme Court, and do not interfere with plenary jurisdiction of Supreme Court to regulate practice of law under Constitution); Grecaa, Inc. v. Omni Title Services, Inc., 588 S.E.2d 709, 710 (Ga. 2003) (No statute is controlling as to the civil regulation of the practice of law; In re Succession of Parham, 755 So.2d 265, 270 (La. Ct. App. 1999) (a statute may have no effect in so far as it is in conflict with rules governing attorney’s conduct); Sharood v. Hatfield, 210 N.W.2d 275, 279-80 (Minn. 1973) (statute purporting to regulate practice of law was unconstitutional as usurpation by the legislative branch of the government of the judicial function of regulating the practice of law). As numerous courts have found, legislative changes do not trump an attorney’s ethical responsibilities. See, e.g., Miller v. Paul, 615 P.2d 615 (Alaska 1980) (attorneys must conform to high ethical standards regardless of whether statutory rights permit contrary conduct); Matter ofAungst, 467 N.E.2d 698 (Ind. 1984) (existence of legal duties, whether statutory or in common law, cannot relieve lawyer from compliance with code of professional responsibility); Pabst v. State, 192 P.3d 630 (Kan. 2008) (all attorneys are subject to the Kansas Rules of Professional Conduct regardless of what legislative enactments might implicitly permit); Smith County Educ. Assn v. Anderson, 676 S.W.2d 328 (Tenn. 1984) (legislature is without authority to enact laws which impair the attorney’s ability to fulfill his ethical duties as an officer of the court).

To the extent the Court finds that Section 7 of SB 814 applies here, it must still treat the section as only furnishing rules of construction. As such, assuming arguendo that the right to independent counsel is found to be implicated, the act does not trump the language in the




circumstances, the insurer must "provide" the insured with independent counsel. It does not

state that the insured may, on its own initiative, "retain," "hire," or "select" such counsel.

Courts are not to read language into a statute that is not there and are instructed to apply a

statute as written. ORS. § 174.010 ("In the construction of a statute, the office of the judge is

simply to ascertain and declare what is, in terms or in substance, contained therein, not to insert

what has been omitted, or to omit what has been inserted. . ."). By comparison, the California

statute governing retention of independent counsel also indicates that the insurer must

"provide" such counsel under certain circumstances, but then repeatedly speaks in terms of the

insured’s "selection" of independent counsel. See Cal.Civ.Code § 2860.

Absent a specific directive in the statute granting the right to select independent counsel

to the insured, the Court should follow the substantial authority that bestows this right upon the

insurer. For example, in Federal Ins. Co. v. X-Rite, Inc., 748 F.Supp. 1223 (W.D. Mich. 1990),

the court rejected the insured’s contention that a conflict of interest gave it the absolute right to

select counsel. On this point, the court held:

Unless "right to defend" is to be deemed mere surplusage, which has not been argued, it must be viewed as conferring upon Federal some prerogative with respect to the defense beyond simply paying expenses. This prerogative cannot, in a conflict of interest situation, include an absolute right to control the litigation. On the other hand, X�Rite’s apparent presumption that the conflict of interest, posing a potential of prejudice to its interests, automatically and completely negated all prerogative, is not reasonable.

Id. at 1228 -1229.

The X-Rite court then went on to hold that "the ’right to defend’ can hardly be deemed

to contemplate anything less than participation in selection of counsel, which contractual right

ought to be enforced unless contrary to public policy." Id. Finally, focusing on public policy,

Continental policies granting it the right to select defense counsel in this case, independent, defense counsel.


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I the court concluded that Michigan public policy required the insurer to "act with the utmost

I good faith." Id. Thus, to find that the insurer’s participation in selecting independent counsel

I somehow breached that good faith duty led to the unwarranted presumption that insurer-

I selected counsel could not adequately represent the insured. Id, (further observing: "The Court

is unable to conclude that Michigan law professes so little confidence in the integrity of the bar

of this state .,,).4

The Oregon Supreme Court has similarly found that there is minimal danger of a

I potential conflict of interest between the insurer and the insured in the insurance defense

context. See Ferguson v, Birmingham Fire Ins. Co., 254 Or. 496, 490 P.2d 342 (1969). It is, in

fact, the concern over the conflict of interest that has motivated some jurisdictions to require

the insured to make the selection. Not only has the Oregon Supreme Court declined to find

such a conflict in this arena, but SB 814 itself, unlike the California statute, stops short of

stating that a conflict of interest justifies retention of independent counsel. Instead, Section 7

only details two triggering circumstances: (1) defense under a reservation of rights or (2) if the

insured faces excess exposure for an environmental claim under a general liability policy. By

not predicating the independent counsel requirement upon a conflict of interest, SB 814 does

not implicate the conflict of interest principles that some courts use to justify granting the right

of selection to the insured. See, e.g., Previews, Inc. v. California Union Ins, Co., 640 F.2d

1026, 1028 (9th Cir.1981).

See also, Cay Divers, Inc. v. Raven, 812 F.2d 866, 870 (3rd Cir. 1987); New York State Urban Development Corp. v. VSL Corp., 738 F.2d 61, 65-66 (2nd Cir. 1984); Howard v. Russell Stover Candies Inc., 649 F.2d 620, 625 (8th Cir. 1981); US. Fidelity & Guaranty Co. v. Louis A. Rosen Co., 585 F.2d 932, 937-39 (8th Cir. 1978).


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There is, thus, no basis in SB 814 or Oregon case law for granting the right to select

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independent counsel to Schnitzer. Continental retains this right commensurate with its

3 continuing right to control the defense.

4 D. SB 814 Does Not Impose Anything Beyond a Good Faith Standard in the Selection

5 of Qualified Independent Counsel

6 Assuming, again, that Section 7 of SB 814 is applicable, the act does not impose any

7 special criteria upon the selection of independent counsel. Rather, Section 7 speaks broadly in

8 requiring the retention of counsel "experienced in the type and complexity of the environmental

9 claim at issue." Laws 2013, Ch. 350, § 7(2)(a)(A). This section further defines "experienced,"

10 somewhat redundantly, as "an established environmental practice that includes substantial

11 defense experience in the type and complexity of the environmental claim at issue." The act

12 does not define any of the other qualifying terms, such as "established" or "substantial." Id., §

13 7(2)(c).

14 Although the above-quoted language appears to be unique, other statutory schemes that

15 expressly grant the right to select counsel upon the insured impose similar duties upon the

16 insured in making that selection. For example, under the California Cumis statute, the insured

17 has the right to select counsel but is required to ensure that selected counsel "possess certain

18 minimum qualifications which may include that the selected counsel have. . . at least five years

19 of civil litigation practice which includes substantial defense experience in the subject at issue

20 in the litigation." Cal.Civ.Code § 2860. The insured has been held to a "good faith" standard

21 in selecting appropriate counsel, both in terms of experience and billing practices. See, e.g.,

22 Center Foundation v. Chicago Ins. Co., 227 Cal. App. 3d 547, 560, 278 Cal. Rptr. 13, 21

23 (1991). The Center Foundation court found that the insured’s reciprocal good faith duty to the

24 insurer mandated that it "act reasonably in selecting as independent counsel an experienced

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attorney qualified to present a meaningful defense and willing to engage in ethical billing

I practices." Id.

Similarly here, in ruling on the parties’ motions for summary judgment, this Court held

that the "hallmark of the duty of care an insurer owes to its insured thus appears to be the

reasonableness of the insurer’s arrangements in behalf of its insured. (See March 9, 2012 F&R

at 30-3 1.) In this vein, the Court further held:

[A]n insurer is compliant with the duty of care it owes to its insured when, in the duty to defend context, it selects counsel to defend its insured that, under all of the circumstances, can reasonably be expected to provide competent representation as of the time the selection is made.

(Id. at 31.)

Section 7 is not inconsistent with this ruling. It merely places sidebars on the general

reasonableness standard, specifying "substantial" experience with similar types of

environmental claims. Significantly, these general standards, interpreted in accord with a

reasonableness standard, do not impose a special, high standard on the selection of independent

counsel based upon the insured’s allegation that the case involves particularly complex issues.

As long as the insurer makes a reasonable selection, the court should find that it acted in good

faith in making that selection in conformance with the statute.

E. SB 814 Applies a Single Local Forum Standard to the Rates of Independent Counsel

To the extent it is found applicable here, Section 7 does not leave the insured the option

of paying any exorbitant billing rate that happens to be charged by independent counsel.

Instead, Section 7 provides that "[t]he obligation of the insurer to pay fees to independent

counsel and environmental consultants is based on the regular and customary rates for the type

and complexity of environmental claim at issue in the community where the underlying claim



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1 arose or is being defended." Laws 2013, Ch. 350, § 7(3)(a). This provision appears to be a

2 hybrid of Oregon law concerning the recovery of attorney fees (see Or. Rev. Stat. §

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20.075(2)(c) (in determining the amount of an award of attorney fees, a court shall consider the

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"fee customarily charged in the locality for similar services.")) and the forum rule (creating a

5 strong presumption in favor of selecting the locality where the district court sits as the relevant

6 community) (see Blumv. Stenson, 465 U.S. 886, 895 (1984); Schwarz v. Secretary of Health &

7 Human Servs., 73 F.3d 895, 906 (9th Cir. 1995)). As applied to this action, the statute

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9 unequivocally requires that Portland rates apply - not the far higher rates charged by Bingham

10 in Los Angeles.

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Continental anticipates that Schnitzer will argue that Section 7 merely sets a floor and

12 not a ceiling on fees. To accept this interpretation would be to read something into the statute

13 that simply does not exist. Such a reading is contrary to Oregon law requiring that statutes be

14 construed as written, not as a party would prefer them to have been written. ORS § 174.010.

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16 Section 7 sets a single standard for determining the reasonableness of independent counsel fees

17 that must be applied in all circumstances involving an environmental claim.

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Of particular reliance to this coverage action, Section 7 does not specify a different

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standard for out-of-forum counsel. The act only states that "[i]f independent counsel who meet

20 the requirements specified in this paragraph are not available within the insured’s community,

21 then independent counsel from outside the insured’s community who meet the requirements of

22 this paragraph must be considered." Laws 2013, Ch. 350, § 7(2)(a)(B). Notably, this provision

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24 does not mandate the retention of out-of-forum counsel - it only states that such counsel must

25 be "considered." Further, the act fails to define the meaning of" not available."

MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE [Cause No. 2:10-cv-01 174-MO] 6374391/081613 1302/80360002



1 Given SB 814’s incorporation of the "forum rule," the standards articulated in Section 7

2 as to out-of-forum counsel must be interpreted in accord with "forum rule" case law. See

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Halley v. Stafford, 284 Or. 523, 527, 588 P.2d 603 (Or. 1978) (holding that "statutes codifying

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the common law are to be construed in a manner consistent with the common law"). Applying

5 that case law here, the insured must prove by, substantial evidence, that qualified, in-forum

6 counsel were unavailable. See Gates v, Deukmejian, 987 F.2d 1392, 1397 (9th Cir. 1992)

7 (meeting this burden with "numerous" declarations from in-town and out-of-town lawyers

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9 attesting to both the complexity of the litigation at issue and the unavailability of in-town

10 lawyers with the necessary experience to handle the representation). Accordingly, Section 7

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does not in any way undercut the insurer’s right to insist upon the retention of reasonably

12 qualified defense counsel in the forum while demanding a high degree of proof (substantial

13 evidence) that such counsel was "not available."

14 If the insured is able to satisfy this heavy burden, it may retain out-of-forum counsel,

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16 but at rates decided in accord with the single standard specified in Section 7(3)(a) - which is

17 limited to forum rates. There is no support in SB 814, or under other Oregon law, for

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interpreting the reasonable rate in the forum as only a "floor," allowing the insured to hire

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counsel outside the forum at substantially higher rates.

20 IV. CONCLUSION

21 Continental respectfully requests that the Court find that the passage of SB 814 does not

22 bestow upon Schnitzer the rights to the retention and payment of independent counsel that

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24 Schnitzer now claims to possess. Schnitzer’s unreasonable position is not supported by the

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MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE [Cause No. 2: 10-cv-01 174-MO] 637439.1/081613 1302/80360002

- 17 - Betts Patterson Mines One Convention Place Suite 1400 701 Pike Street Seattle, Washington 981013927 (206) 292-9988


1 facts at issue, the rules applicable to the attorney-client relationship in Oregon, or even the

2 language of the act itself.

3 DATED this 16th day of August, 2013.

4 BETTS, PATTERSON & MINES, P.S.

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7 By /s/Lawrence Gottlieb

Lawrence Gottlieb, OSB #07086 8

Attorneys for Defendants

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MEMORANDUM IN SUPPORT OF DEFENDANTS’ MOTION IN LIMINE [Cause No. 2:1 O-cv-O 1174-MO] 6374391/081613 1302/80360002



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CERTIFICATE OF SERVICE

I hereby certify that on August 16, 2013, I electronically filed the foregoing document

with the Clerk of the Court using the CM/ECF system and the document is available for

viewing and downloading from the CM/ECF system. I also certify that the foregoing document

is being served electronically via the Court’s CM/ECF notice system upon the following

counsel of record: Counsel for Plaintiffs

Scott J. Kaplan STOEL RIVES, LLP 900 SW Fifth Ave., Ste. 2600 Portland, OR 97204

Joseph W. Montgomery, III John E. lole Rebekah Byers Kcehowski JONES DAY 500 Grant St., Ste. 4500 Pittsburgh, PA 15219-2514

Louis A. Ferreira Stoel Rives LLP 900 SW 5th Ave., Ste. 2600 Portland, OR 97204-1268

DATED August 16, 2013.

By /s/Lawrence Gottlieb Lawrence Gottlieb, OSB 4070869 Attorneys for Defendants


19- Betts Patterson Mines One Convention Place Suite 1400 701 Pike Street Seattle, Washington 98101-3927 (206) 292-9988


CNA Memo on Application of SB 814

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transportation

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