Memorandum in Support of Defendants' Motion in Limine Re Effect of the SB 814 Independent Counsel Rules

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Lawrence Gottlieb, OSB #070869
Igottlieb@bpmlaw.com
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
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1 Bingham McCutchen as independent counsel and demand full payment of Bingham’s fees at
2 exorbitant Los Angeles rates.
3 The key issues related to SB 814’s independent counsel rule are very simple. The act
4 contains a "savings" clause specifying that the rules of construction established by the act,
5 including those applicable to independent counsel, do not control when inconsistent with the
6 intent of the parties. The "savings" clause applies here because the Continental policies grant
7 Continental the absolute right to control the defense, which includes selection of defense
8 counsel. Further, as found by the Court, there is an agreement between Continental and
9 Schnitzer as to defense counsel rates.
10 In addition to being contrary to the intent of the parties, applying the independent
11 counsel rules as requested by Schnitzer would impermissibly negate the tripartite relationship
12 that has existed between Continental, Schnitzer, and Bingham since Bingham was first retained
13 as defense counsel many years ago. The attorney-client relationship and associated ethical
14 rules are outside the province of the legislature and cannot be modified, or otherwise
15 disregarded by statute.
16 Even assuming that SB 814 were held to be applicable here, it does not (1) deprive
17 Continental of the right to select independent counsel; (2) impose more than a good faith
18 standard on the insurer’s selection of counsel; or (3) require the payment of excessive out-of-
19 forum rates. Taken together, Continental’s main points demonstrate that SB 814’s independent
20 counsel rules do not materially impact the issues in this case.
21 II. RELEVANT FACTS
22 Schnitzer’s claims arise from alleged contamination at certain upland sites in the
23 vicinity of the Portland Harbor Superfund Site ("PHSS") with which Schnitzer is or has been
24 associated as an owner and/or operator and also from its potential liability in connection with
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1 the PHSS. (Complaint, ¶ 19.) In 2001, Continental agreed to defend Schnitzer with respect to
2 the Portland Harbor matter, subject to a full reservation of rights. (Declaration of Lawrence
3 Gottlieb in Support of Defendants’ Motion for Partial Summary Judgment Re: Attorney Fees
4 and Prejudgment Interest (Docket # 79) ("Gottlieb SJ Dccl.") ¶ 2.)
5 When Continental accepted the defense, Schnitzer was employing Stoel Rives as
6 defense counsel. (Exhibit B (Excerpts from deposition transcript of Mathew Cusma) to
7 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
9 highly qualified Portland attorneys as potential replacement counsel. (Exhibit C (Exhibit 4 to
10 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
12 Los Angeles. (Exhibit A (Excerpts from deposition transcript of Thomas Zelenka) to Gottlieb
13 SJ Decl., at p.158: 1.16 p.159: 1.7; p.140: 11.8-14).) Bingham charged rates far in excess of
14 forum rates and significantly higher than Continental paid to defense counsel in similar matters.
15 (Exhibit E (Schnitzer: Portland Harbor Hours and Rates 2002-2011) to Gottlieb SJ Decl.)
16 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
19 Continental in similar matters. (Exhibit F (November 10, 2003, Letter from David Prange) to
20 Gottlieb SJ Deci.)
21 Following a round of cross-motions for summary judgment in this coverage action, the
22 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
24 Findings & Recommendations ("March 9 F&R") (Docket # 124), at 28.) Nevertheless, the
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1 Court further found that Schnitzer reserved its right in the agreement to later seek full
2 reimbursement, while declining to reach the issue on summary judgment of whether Schnitzer
3 had a right, in the first instance, to select independent counsel. (Id.)
4 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
7 be expected to provide competent representation as of the time the selection is made." (Id. at
8 31.) In accord with the "forum rule" advocated by Continental, the Court also found that
9 Schnitzer did not "enjoy unfettered discretion to select [defense] counsel [outside the forum]
10 without regard to expense." (Id. at 32.) Instead, Schnitzer had to prove that counsel "expected
11 to provide competent representation" was not available in the forum. (Id. at 33.)
12 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
14 industry groups involved in the PHSS, passed SB 814. This act purports, among other things,
15 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.
18 On July 19, 2013, Schnitzer’s outside coverage counsel wrote to Continental’s counsel
19 making various demands under SB 814. (Exhibit A (July 19, 2013 letter from Kristin Sterling)
20 to Declaration of Lawrence Gottlieb ("Gottlieb Deci."), at 3.) In its letter, Schnitzer contended
21 that SB 814 entitled it to select independent counsel and that it has selected Bingham. On this
22 basis, Schnitzer demanded full payment of alleged past due attorney fees at Bingham’s full,
23 exorbitant Los Angeles rates. By letter dated August 2, 2013, Continental responded to the
24 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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1 A. Allowing Schnitzer to Select Bingham As Independent Counsel Under SB 814 Is
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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
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to the "savings" clause - "The rules of construction set forth in [Section 7] do not apply if the
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application of the rule results in an interpretation contrary to the intent of the parties to the
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general liability insurance policy." Id., § 4(8). This is an important circumstance with regard
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to the independent counsel rule when, as here, there is policy language granting the insurer the
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right to control the defense.
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The language in the Continental policies at issue in this case triggers the "savings"
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clause because it clearly provides that the insurer "shall have the right and duty to defend any
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suit against the insured." The emphasized language has been held to afford "an insurer the
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right to control the defense," which also necessarily includes the right to select defense counsel.
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Carolina Cas. Ins. Co. v. Boiling, Walter & Gawthrop, 2005 WL 1367096 (E.D.Cal. May 31,
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2005) (citing cases); Travelers Property Cas. Co. ofAmerica v. Centex Homes, 2013 WL
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1411135, at *6 (N.D.Cal. April 8, 2013). Thus, the independent counsel rule in Section 7 is
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inconsistent with the intent of the parties. Pursuant to the "savings" provision, the language of
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the policies controls, and Section 7 does not apply. Consequently, Schnitzer does not have the
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right to now select Bingham as independent counsel under SB 814. Bingham, therefore,
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continues to operate within the tripartite relationship that exists under existing Oregon
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insurance law when an insurer, like Continental, provides a defense.
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Even if the policies did not grant Continental the right to control the defense, this Court
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has found that the parties entered into an "agreement" concerning the retention of Bingham as
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defense counsel and the fee structure under which Bingham was to be paid. Although the
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Court further found that the fee arrangement was subject to a reservation of rights, that
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circumstance does not undercut the fact that there is an existing agreement governing
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1 Bingham’s retention as defense counsel. Notably, this agreement did not establish Bingham as
2 Schnitzer’s "independent counsel." Rather, Bingham simply assumed Stoel Rives’ role as
3 defense counsel within the traditional tripartite insurance defense relationship and has operated
4 in that role to date. In keeping with this agreement, Bingham has treated both Schnitzer and
5 Continental as its clients, informing Continental, among other things, of its defense strategy in
6 the underlying action and negotiating billing questions directly with Continental.
7 SB 814 did not, by operation of law, undo this existing agreement. Accordingly,
8 applying Section 7 now to "transform" Bingham into independent counsel would be
9 inconsistent with this agreement - thereby also triggering the protections of the act’s "savings"
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11 In sum, given the clear language of the policies concerning Continental’s control over
12 the defense and the separate agreement with Schnitzer regarding retention of Bingham as
13 defense counsel, the "rules of construction" set forth in Section 7 do not apply. Schnitzer,
14 therefore, does not have a right under this section (even assuming the section grants such a
15 right, discussed below) to force Continental to "provide" Bingham as independent counsel to
16 Schnitzer. Under these circumstances, Bingham owes, and continues to owe, a duty of loyalty
17 to both Schnitzer and Continental as current clients of the firm.
18 B. SB 814 Does Not Negate the Existing Tripartite Relationship Between Continental,
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Schnitzer, and Bingham
Aside from the fact that SB 814 does not apply by virtue of the "savings" provision, it is
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equally clear that, even absent this circumstance, SB 814 cannot negate the existing tripartite
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relationship. During the course of this coverage action, Schnitzer has acknowledged that the
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parties have been operating within a tripartite relationship. For example, in responding to
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Continental’s motion in limine seeking unfettered access to interview the original defense
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lawyers proffered by Continental (and allegedly found to be unqualified by Schnitzer) in the
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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").
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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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1 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
4 relationships or the ethical rules that apply to those relationships. Attorneys admitted to
5 practice in Oregon are officers of the court. ORS § 9.010(1). It is the judiciary’s function to
6 regulate the practice of law, which it does through the Oregon Bar Association. Rules
7 regulating professional conduct of lawyers (disciplinary rules) are formulated by the Board of
8 Governors of the Oregon State Bar, approved by members of the Bar, and adopted by the
9 Supreme Court; they have the status of law. ORS § 9.490; Kidney Ass ’n of Oregon, Inc. v.
10 Ferguson, 315 Or. 135, 141, 843 P.2d 442 (1992). The purpose of the disciplinary rules is "to
11 govern the supervision and discipline of attorneys," and the Supreme Court and Oregon State
12 Bar have exclusive jurisdiction to enforce them. Brown v. Or. State Bar, 293 Or. 446, 451, 648
13 P.2d 1289 (1982); Vavrosky MacCoil Olson Busch & Pfeifer PC v. Employment Dep ’t, 212 Or.
14 App. 174,187, 157 P.3d 312 (2007); O.R.S. § 9.010(2) ("The Oregon State Bar is a public
15 corporation and an instrumentality of the Judicial Department of the government of the State of
16 Oregon").
17 As part of its core powers the Oregon Supreme Court has the constitutional authority to
18 discipline attorneys and judges. Ramsteadv. Morgan, 219 Or. 383, 399-400, 347 P.2d 594,
19 601-02 (1959). While the legislature may regulate the legal profession and the practice of law
20 to some extent, it may not do so if it unduly interferes with the exercise of these judicial
21 functions. State ex rel. Acocella v. Allen, 288 Or. 175, 604 P.2d 391 (1979). Under this same
22 analysis, many jurisdictions have held that rules of professional conduct for attorneys prevail
23 over state statutes to the extent that a potential inconsistency exists. 2
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See, e.g., Opinion of the Justices to the Senate, 376 N.E.2d 810, 814 & n,15 (Mass.
25 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
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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, XRite’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).
[Cause No. 2:10-cv-01 174-MO]
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(206) 292-9988
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1 There is, thus, no basis in SB 814 or Oregon case law for granting the right to select
2 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
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special criteria upon the selection of independent counsel. Rather, Section 7 speaks broadly in
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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
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insurer mandated that it "act reasonably in selecting as independent counsel an experienced
25
[Cause No. 2:10-cv-01 174-MO]
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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
[Cause No. 2:10-cv-01 174-MO]
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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. §
3 20.075(2)(c) (in determining the amount of an award of attorney fees, a court shall consider the
4 "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
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community) (see Blumv. Stenson, 465 U.S. 886, 895 (1984); Schwarz v. Secretary of Health &
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Human Servs., 73 F.3d 895, 906 (9th Cir. 1995)). As applied to this action, the statute
8
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unequivocally requires that Portland rates apply - not the far higher rates charged by Bingham
10 in Los Angeles.
11 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.
15
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.
18 Of particular reliance to this coverage action, Section 7 does not specify a different
19 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
23
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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."
[Cause No. 2:10-cv-01 174-MO]
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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
3 Halley v. Stafford, 284 Or. 523, 527, 588 P.2d 603 (Or. 1978) (holding that "statutes codifying
4 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
8
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
11 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,
15
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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
18 interpreting the reasonable rate in the forum as only a "floor," allowing the insured to hire
19 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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Schnitzer now claims to possess. Schnitzer’s unreasonable position is not supported by the
25
[Cause No. 2: 10-cv-01 174-MO]
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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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[Cause No. 2:1 O-cv-O 1174-MO]
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(206) 292-9988

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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
[Cause No. 2:10-cv-01 174-MO]
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Memorandum in Support of Defendants' Motion in Limine Re Effect of the SB 814 Independent Counsel Rules

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Memorandum in Support of Defendants' Motion in Limine Re Effect of the SB 814 Independent Counsel Rules