STATE OF NEW YORK PUBLIC SERVICE COMMISSION

Transcription

1 COMMISSIONERS PRESENT: Patricia L. Acampora, Chairwoman Maureen F. Harris Robert E. Curry, Jr. Cheryl A. Buley STATE OF NEW YORK PUBLIC SERVICE COMMISSION At a session of the Public Service Commission held in the City of Albany on September 19, 2007 Case 07-G-0141 Proceeding on Motion of the Commission as to the Rates, Charges, Rules and Regulations of National Fuel Gas Distribution Corporation for Gas Service BY THE COMMISSION ORDER GRANTING APPEAL (Issued and Effective September 25, 2007) Introduction Staff in the pending National Fuel Gas Distribution Corporation (Distribution or the company) 1 discovery of a consultant s report 2 rate case sought that identified the company s potential liability for environmental damage. The company claimed the report was protected by attorney-client privilege and the attorney work product doctrine and declined to provide it. Staff moved to compel production of the report, and the Administrative Law Judge (ALJ or Judge), agreeing with the company that the report was protected by both the attorneyclient privilege and the attorney work product doctrine, denied 1 2 The regulated gas utility (National Fuel Gas Distribution Corporation, Distribution or the company) is a wholly owned subsidiary of National Fuel Gas Corporation (National Fuel or the parent). The report was prepared by Integrated Environmental Solutions Corporation at the request of the law firm that National Fuel hired to pursue its affiliated companies claims against insurance carriers.

2 staff s motion. 3 Staff appealed the Judge s ruling on August 1, 2007, and the company replied on August 8, 2007, supporting the Judge s determination. dispute: Background The Administrative Law Judge summarized the underlying In this rate case, DPS Staff is challenging the amount of the insurance proceeds that were credited to Distribution. The parent company received the insurance proceeds and distributed them to the affiliates in proportion to the insurance premiums they paid. Using this method, Distribution received 51.72% of the proceeds. Instead, DPS Staff asserts that the insurance proceeds should have been distributed to the companies by the amount of their respective claims against the insurance carriers. This information was requested but not provided to DPS Staff. Using other information from another insurance settlement, Staff calculated that Distribution could be entitled to 85.41% of the proceeds at issue here. 4 The company would allocate the proceeds based on premiums; staff would use claims paid. Distribution does not dispute staff s assertion that [the] report... is the only rationale Distribution provided to support the decision to adopt the premium-based allocation methodology 5. Staff seeks the report apparently to verify the accuracy of the numbers and the reasonableness of the assumptions in the report Case 07-G-0141, National Fuel Gas Distribution Corporation for Gas Service, Ruling Concerning Staff s Request for a National Fuel Gas Document (issued July 17, 2007) (the Ruling). Ruling, p. 1. Staff s appeal, p

3 The Judge determined that the report was commissioned for civil litigation and contained an assessment of the potential damages and liabilities that the company and its affiliates could incur in litigation. He determined that the report contained highly sensitive client information that was provided to counsel and that it also constituted attorney work product that was necessary for the law firm hired by National Fuel to deal with the insurance carriers. He accordingly found that the report was protected by both the attorney-client and the attorney work product privileges and did not require that it be provided to staff. He went on, however, to note that: Nonetheless, to enable DPS Staff to pursue a correct allocation of the insurance proceeds to Distribution s ratepayers, I am directing the Company to prepare and provide to Staff a high-level summary of the IES Report that does not contain any of the details of the clients communication to their counsel and their respective agents. The high-level summary should also omit all facts and figures pertaining to any and all sites addressed in the Report. Instead, it should provide an aggregate figure(s) for all the locations identified with Distribution and a single, aggregate figure(s) for all the locations identified with the other affiliates. 6 Extraordinary Circumstances Standard Interlocutory review of Administrative Law Judge rulings is available only in extraordinary circumstances. 7 Staff states that it has met the burden of showing extraordinary circumstances because the document it seeks is integral to a 6 7 Ruling, p NYCRR

4 full and complete record upon which a decision in this proceeding must be based. Distribution replies that staff s Appeal merely states that it has met the burden of showing extraordinary circumstances. It says that the information sought by staff is available through other means and staff s inability to adequately investigate the allocation methodology does not amount to extraordinary circumstances. 8 Distribution goes on to allege that staff had ample opportunities to develop the issue earlier and should not now be heard to complain. Staff has made the showing required for us to consider this appeal. In a 1997 order, we dealt with a utility s refusal to disclose stranded costs (those costs that could not be recovered from customers as a result of a change in regulation). We credited the appellant s claim that because the costs were needed to develop the record, an appeal of the judge s determination that they need not be disclosed constituted extraordinary circumstances. 9 We have also recently granted an interlocutory appeal on the schedule to be used for setting temporary rates. 10 A finding that staff had not met the extraordinary circumstances standard would discourage parties from appealing denial of discovery of most issues in rate cases and could preclude development of more robust records. In this case, denial of the appeal would have the effect of precluding staff, and ultimately the Commission, from reviewing Distribution s supposed basis for an adjustment. We would then be required to 8 9 Distribution s Response, p. 10. Case 96-E-0909, Central Hudson Gas & Electric Corporation - Rate and Restructuring, Order Granting Interlocutory Appeal (issued April 15, 1997). 10 Case 06-E-1433, Orange and Rockland Utilities, Inc. Electric Rates, Order Concerning Interlocutory Appeals (issued February 1, 2007). -4-

5 decide the case on burden of proof grounds (whether Distribution had met its burden of proving the allocation is reasonable) without seeing the underlying evidence. Given that we have an interest in the development of complete records, we will resolve this issue on the merits. The Attorney-Client Privilege The New York Civil Practice Law and Rules (CPLR) provide that an attorney shall not disclose, or be allowed to disclose, any attorney-client communication in an administrative hearing. 11 Staff claims that the privilege must yield when strong public policy requires disclosure, 12 as here because of National Fuel s reliance on it to assign $14.7 million of revenues to shareholders instead of customers. Distribution replies that staff does not dispute that the report is an attorney-client communication and says that because the report reflects communications from National Fuel s subsidiaries, (including Distribution) to its attorneys (and agents) it is exempt from disclosure. 13 We need not reach the issue of whether the attorney client privilege applies here because it seems clear that the privilege, if it existed, was waived, as discussed below. Waiver of the Attorney-Client Privilege Staff claims that the attorney-client privilege may have been waived because National Fuel provided the report to 11 CPLR 4503(a)(1). 12 Staff s Appeal, p. 6, citing People v. Mitchell, 58 N.Y.2d 368, 373 (1983). 13 Distribution s Response, p. 5, citing Johnson v. C-Land Service, Inc., 2001 U.S. Dist. Lexis 11447, (S.D.N.Y. August 9, 2001)( the attorney-client privilege affords confidentiality to communications among clients, their attorneys, and the agents of both... ). -5-

6 its insurance companies, and Distribution placed the legal opinions of its counsel in issue in the proceeding. 1) Provision of the Report to the Insurance Carriers Staff says that it is uncontested that National Fuel provided the report to its insurance carriers during settlement negotiations and that it is well established that voluntary disclosure to a third party breaches the attorney-client privilege and waives the privilege as to the communications disclosed. 14 Distribution replies conceding that the provision of the report to insurance carriers may have waived the attorneyclient privilege and asserting that it did not affect the report s status as attorney work product. 15 Distribution has not refuted staff s waiver argument. We conclude that the attorney client privilege has been waived. 2) Placing the Opinion of Counsel at Issue Staff quotes an opinion that provides that [w]here a party asserts as an affirmative defense the reliance upon advice of counsel, a party waives the attorney-client privilege with respect to all communications to or from counsel concerning the transactions for which counsel s advice was sought. 16 Staff argues that because selective disclosure is not permitted, Distribution may have waived the privilege when it stated in testimony the amount of the estimated liability of another subsidiary. 14 Staff s Appeal pp. 7-8, citing In Re: Sealed Case, 676 at 2d 793, 809 (D.C. Cir. 1982). 15 Distribution s Reply, p Staff s Appeal p. 7, quoting Village Board of the Village of Pleasantville et al v. Marshall Ratner et al, 130 A.D.2d 654 (1987). -6-

7 Distribution says staff is incorrect and that courts will find such a waiver only where a party has affirmatively placed the privileged communication in issue by having commenced a lawsuit or asserted an affirmative defense that is expressly predicated upon those communications. 17 The waiver by providing the report to the insurance carriers is sufficient; this issue need not be decided. Attorney Work Product The Judge apparently found that the work product doctrine prevented disclosure to staff; 18 on appeal, staff argues that the doctrine would allow the report to be shielded from other parties if it was disclosed to staff. 19 A lawyer s mental impressions and legal analysis constitute attorney work product which shall not be obtainable absent voluntary disclosure. 20 Staff says a party seeking discovery of such privileged information must show adequate reasons, or a substantial need for the materials and an inability to obtain the equivalent of the materials without undue hardship. 21 Staff says that it was unable to investigate the reasonableness of National Fuel s allocation without examining the site specific information contained in the report. It says that the privilege exists to promote the adversary 17 Distribution s Response, p. 8, citing Manufacturers and Traders Trustco v. Servotronics, Inc., 132 A.D.2d 392 (4th Dep t 1987). 18 I find that the... Report is protected by the... attorney work product doctrine, and as such, is not available to Staff. Ruling, p the privilege would not be waived by providing the document to Staff under a protective order. Staff s appeal, p CPLR 3101(c). 21 Staff s Appeal, p. 8, citing In Re: Sealed Case, 676 at 2d 793 F.2d. 793, (D.C. Cir. 1982). -7-

8 system by safeguarding the fruits of an attorney s trial preparations and does not exist to protect a confidential relationship. It says that the essential question with respect to the waiver of this privilege by disclosure is whether the material has been kept away from adversaries. Distribution says that the report was prepared at the request and direction of counsel for use in litigation concerning insurance coverage. The company also alleges that staff s appeal simply fails to show why the high level summary directed by the Judge is insufficient. Distribution has not shown that the report constitutes work product as defined under New York law: With respect to the attorney work product exception, the case law makes clear that such exception is very narrowly construed...including only materials prepared by an attorney, acting as an attorney, which contain his analysis and trial strategy (id., at 824; see, Central Buffalo Project Corp v Rainbow Salads, 140 AD2d 943, 944). Materials or documents that could have been prepared by a layperson do not fall within the attorney work product exception (see, Bloss v Ford Motor Co., 126 AD2d 804, 805; Lamitie v Emerson Elec. Co., 208 AD2d 1081, 1083 [third-party investigation does not constitute attorney work product]). 22 Distribution has the burden of making this showing and it has failed to do so. The ALJ found that the material was protected by the work product privilege, but the parties may not, however, have carefully articulated the distinction in New York law between work product and material prepared for litigation. The ALJ s ruling states [t]he Ruling was 22 Salzer v. Farm Family Life Insurance Company, 280 AD2d 844 (3d Dept. 2001). -8-

9 commissioned for civil litigation purposes and it contains an assessment of the potential damages and liabilities that the Company, and its affiliates, could incur in litigation. It thus appears that the report may be material prepared in anticipation of litigation. 23 As such, it enjoys a qualified immunity, and we can order that it be disclosed upon a showing of need. Indeed, the ALJ required disclosure of a high level summary of the document, encouraging the parties to cooperate with each other in the production of a useful summary for the purposes of the DPS Staff review being conducted in this case. We find that staff has shown undue hardship. We will require production of the entire report. The high level summary required by the Judge does not allow staff to examine the computation of the relevant percentages; therefore, staff has a substantial need for the information. There seems to be no effective way for staff to test the conclusions contained in the report, other than production of the information contained in the report. We will require that the report be disclosed to staff subject to protections insuring its confidentiality. We will remand the matter to the Judge to devise such protections and to determine any means for addressing the merits (e.g., a limited hearing, supplemental briefing) that he finds appropriate. 23 CPLR 3101(d)(2) provide that materials...prepared in anticipation of litigation or for trial by or for another party, or by or for another party s representatives (including an attorney, consultant, surety, indemnitor, insurer or agent), may be obtained only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the case and is unable without undue hardship to obtain the substantial equivalent of the materials by other means. -9-

10 The Commission orders: 1. National Fuel Gas Distribution Corporation is directed to disclose the IEP Report to staff within ten days of this Order. 2. This proceeding is remanded to the Administrative Law Judge to devise protections for the report and to determine means for addressing the merits of the proceeding by providing for limited hearings, supplemental briefing or other procedures he finds appropriate. 3. This proceeding is continued. By the Commission, (SIGNED) JACLYN A. BRILLING Secretary -10-