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Siltronic Corporation v. Employers Insurance Company of Wausau

United States District Court, D. Oregon

May 31, 2018

SILTRONIC CORPORATION, a Delaware corporation, Plaintiff,
v.
EMPLOYERS INSURANCE COMPANY OF WAUSAU, a Wisconsin corporation, and GRANITE STATE INSURANCE COMPANY, a Pennsylvania corporation, Defendants.

          ORDER

          ANNA J. BROWN United States Senior District Judge

         Magistrate Judge Youlee Yim You issued Findings and Recommendation (F&R) (#418) in this case on January 3, 2018, in which she recommends the Court grant Plaintiff Siltronic Corporation's Motion (#329) for Partial Summary Judgment.

         On January 24, 2018, Defendant Employers Insurance Company of Wausau filed Objections (#429) to the F&R. On January 24, 2018, Granite State Insurance Company also filed Partial Objections (#428) to the F&R. On February 6, 2018, Siltronic filed a Response to the Objections of Wausau and Granite State. The Court heard oral argument on April 25, 2018, and thereafter sent to counsel a draft version of this Order to provide to the parties a final opportunity to submit any additional input on the Court's tentative analysis. The parties responded with various comments on May 30, 2018.

         When any party objects to any portion of the Magistrate Judge's F&R, the district court must make a de novo determination of that portion of the Magistrate Judge's report. 28 U.S.C. § 636(b)(1). See also Dawson v. Marshall, 561 F.3d 930, 932 (9th Cir. 2009); United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc) .

         The Court has completed a full consideration of the challenges to the Magistrate Judge's F&R and now issues this final Order. For the reasons that follow, the Court ADOPTS in part and DECLINES TO ADOPT in part the Magistrate Judge's F&R (#418) .

         I. Wausau's Objections

         Wausau primarily objects to the Magistrate Judge's finding that the parties' course of dealing and the procedural posture in this case reguire Wausau to provide both "independent counsel" and separate "defense counsel" to Siltronic under a Cumis-like scheme[1] even though Oregon Revised Statute § 465.483 only requires Wausau to provide "independent counsel." In particular, Wausau contends § 465.483 only requires Wausau to provide one set of counsel to Siltronic, and, therefore, the Magistrate Judge erred when she found § 465.483 required Wausau to provide two sets of counsel to Siltronic under the Cumis scheme. Moreover, Wausau contends its retention of Davis Rothwell and the later participation of Foley & Mansfield satisfied Wausau's obligation to provide "independent counsel." In any event, even if Wausau has not fulfilled its obligations under its duty to defend to date, Wausau argues it has not breached its duty to defend Siltronic because Siltronic has not suffered any damages.

         Although at times in its briefing Siltronic appears to contend it was entitled to both "independent counsel" and "defense counsel" consistent with the Cumis scheme, at oral argument Siltronic's counsel agreed Wausau could satisfy its obligations under its duty to defend if it provided only "independent counsel" to Siltronic, and counsel for Wausau acknowledged that such appointed independent counsel necessarily owed fiduciary and loyalty obligations solely to Siltronic. In any event, Siltronic contends the only counsel involved in defending Siltronic to date in the underlying Portland Harbor matters who qualifies as "independent counsel" is counsel from the law firm Jordan Ramis.

         The Court agrees with the parties' now-uncontested position that Wausau is only required to provide Siltronic with "independent counsel" that solely represents Siltronic (and not Wausau) in all underlying matters as long as Wausau's duty to defend continues; that is, until the Wausau policies are horizontally exhausted. Nevertheless, in addition to independent counsel, Wausau may (but is not required to) provide "defense counsel" who cooperates with the representation of Siltronic and who also represents the insurer. Accordingly, to the extent the Magistrate Judge recommends this Court hold that Wausau was required to provide both "independent counsel" and "defense counsel" on a prospective basis, the Court declines to adopt that portion of the F&R.

         The Court, nonetheless, adopts the Magistrate Judge's legal conclusion that Wausau is required to provide "independent counsel" to Siltronic under the terms of § 465.483. The Court, therefore, reaffirms its earlier Opinion and Order (#237) in which the Court held Siltronic is entitled to "independent counsel" selected by Siltronic.

         The Court also adheres to its previous finding that counsel from the law firm Jordan Ramis has been serving as "independent counsel" in this case. Opin. and Order (#237) at 32-33. Although Wausau contends counsel from Foley & Mansfield is capable of serving as "independent counsel, " Wausau has failed to establish that Foley & Mansfield has represented only Siltronic (and has not also represented Wausau) during the course of the underlying matters. It follows that Wausau's obligation to pay the reasonable and necessary defense costs incurred by Siltronic with Jordan Ramis as independent counsel in the underlying Portland Harbor clean-up matters includes defense of Siltronic in Confederated Tribes and Bands of the Yakama Nation v. Airgas USA, LLC, 3:17-cv-00164-PK.

         With respect to whether Wausau breached its duty to defend Siltronic, the Court concludes the record is sufficiently developed to find that Wausau breached the 1978-79 policy when it declared its policies exhausted, prematurely terminated its defense of Siltronic, and failed to pay some or all of the independent counsel fees incurred to date. The Court, however, also agrees with the Magistrate Judge that the record is not sufficiently developed to determine the extent of damages (if any) suffered by Siltronic as a result of the breach and, therefore, the Court cannot at this stage determine the extent to which Wausau bears any consequences for breaching the 1978-79 policy in this respect.

         II. Granite State's Objections

         Granite State makes two Objections to the F&R. Siltronic contests only the second of ...


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