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American Automobile Insurance Co. v. Hawaii Nut & Bolt, Inc.

United States District Court, D. Hawaii

January 9, 2017

AMERICAN AUTOMOBILE INSURANCE COMPANY; NATIONAL SURETY CORPORATION, Plaintiffs/ Counterclaim Defendants,
v.
HAWAII NUT & BOLT, INC.; SAFEWAY, INC., Defendants/Counterclaim Plaintiffs, and DOUGLAS MOORE; MONARCH INSURANCE SERVICES, INC.; INSURANCE ASSOCIATES, INC., Additional Counterclaim Defendants.

         ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS/ COUNTERCLAIM PLAINTIFF SAFEWAY INC.'S MOTION TO COMPEL DOCUMENTS FROM PLAINTIFFS/COUNTERCLAIM DEFENDANTS AMERICAN AUTOMOBILE INSURANCE COMPANY AND NATIONAL SURETY CORPORATION

          Kevin S.C. Chang United States Magistrate Judge.

         Before the Court is Defendants/Counterclaim Plaintiff Safeway Inc.'s (“Safeway”) Motion to Compel Production of Documents From Plaintiffs/Counterclaim Defendants American Automobile Insurance Company and National Surety Corporation, filed October 20, 2016. On December 12, 2016, Counterclaim Defendants Douglas Moore, Monarch Insurance Services, Inc., and Insurance Associates, Inc. filed statements of no position. Plaintiffs/Counterclaim Defendants American Automobile Insurance Company and National Surety Corporation (collectively “Fireman's Fund” or “FF”) filed their Opposition on December 13, 2016. On December 20, 2016, Safeway filed its Reply.

         This matter came on for hearing on January 3, 2017. Steven Allison, Esq., and Stuart Fujioka, Esq., appeared on behalf of Fireman's Fund. Judith Pavey, Esq., and Maile Miller, Esq., appeared, and Terence O'Toole, Esq., appeared by phone, on behalf of Safeway. Corlis Chang, Esq., appeared on behalf of Insurance Associates, Inc., and Donna Marron, Esq., and Sasha Hamada, Esq., appeared on behalf of Douglas Moore and Monarch Insurance Services, Inc. After careful consideration of the parties' submissions, the applicable law, and the arguments presented at the hearing, the Court HEREBY GRANTS IN PART AND DENIES IN PART the Motion for the reasons set forth below.

         BACKGROUND

         As the Court and the parties are well-acquainted with the facts and procedural history of this case, the Court includes only those facts pertinent to the disposition of the instant Motion.

         On May 27, 2016, Safeway served FF with its First Request for Production of Documents (“RPOD”). Due to an anticipated substitution of counsel, Safeway granted FF an extension of time to respond to the RPOD.

         On July 14, 2016, FF's former counsel Tom Petrus & Miller LLC withdrew and Crowell & Moring LLP, along with local counsel Stuart Fujioka, appeared.

         On September 15, 2016, FF began producing documents on a rolling basis. Production continued through the end of October 2016. During this time period, counsel for the parties exchanged communications regarding the sufficiency of FF's responses and production.

         On October 20, 2016, Safeway filed the instant Motion.

         On December 16, 2016, Senior U.S. District Judge Alan C. Kay issued an Order Granting Plaintiffs American Automobile Insurance Company's and National Surety Corporation's Motion to Dismiss Breach of Contract and Reformation Counterclaims in Second Amended Counterclaim (“Dismissal Order”), which dismissed Safeway's breach of contract and reformation claims with leave to amend by January 15, 2017.

         LEGAL STANDARD

         Federal Rule of Civil Procedure (“FRCP”) 26 provides:

Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.

Fed. R. Civ. P. 26(b)(1). Relevance “has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978). At the same time, it has its “ultimate and necessary boundaries.” Id. “District courts have broad discretion in determining relevancy for discovery purposes.” Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005) (citing Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002)).

         The 2015 amendment to FRCP 26 added proportionality as a requirement for obtaining discovery. Thus, “relevancy alone is no longer sufficient to obtain discovery, the discovery requested must also be proportional to the needs of the case.” Centeno v. City of Fresno, Case No. 1:16-cv-00653-DAD-SAB, 2016 WL 7491634, at *4 (E.D. Cal. Dec. 29, 2016) (citing In re Bard IVC Filters Prod. Liab. Litig., 317 F.R.D. 562, 564 (D. Ariz. 2016)). Addressing all proportionality considerations does not rest solely with the party seeking discovery. Fed.R.Civ.P. 26(b)(1) advisory committee's note to 2015 amendment. Instead, “[t]he parties and the court have a collective responsibility to consider the proportionality of all discovery and consider it in resolving discovery disputes.” Id.

         District courts have broad discretion to limit discovery where the discovery sought is “unreasonably cumulative or duplicative, or can be obtained from some other source that is more convenient, less burdensome, or less expensive.” Fed.R.Civ.P. 26(b)(2)(C). Limits also should be imposed where the requesting party has had ample opportunity to obtain the information through discovery in the action or the discovery is outside the scope of permissible discovery under FRCP 26(b)(1). Id.

         In the event a party fails to respond to a discovery request, the party who served the discovery request may file a motion to compel. Fed.R.Civ.P. 37(a)(3)(B)(iii)-(iv). An incomplete or evasive answer or response is deemed a failure to answer or respond. Fed.R.Civ.P. 37(a)(4). The motion to compel must include a certification that the “movant has in good faith conferred or attempted to confer with the person or party failing to make disclosure or discovery in an effort to obtain it without court action.” Fed.R.Civ.P. 37(a)(1); see also Local Rule 37.1(a), (b).

         ANALYSIS

         By way of this Motion, Safeway requests an order: 1) compelling FF to provide appropriate responses and/or objections to all of the requests; 2) compelling FF to produce the documents and ESI in the form requested by Safeway; 3) compelling FF to respond to and produce the documents and ESI responsive to those requests they refuse to respond to (RPOD nos. 7, 17, 20, 24, 25, 25, 27, 29, 30, 31, 32, 33, 35, 36, 38, 39, 47, 49, 50, 51, 53, 54, 55, 56, 57, and 58); 4) compelling FF to produce responsive documents and ESI to the requests for which they have unreasonably limited or withheld production (RPOD nos. 8, 9, 13, 26, 34, 42, 45, and 48); and 5) awarding Safeway its reasonable attorneys' fees and costs incurred in connection with this Motion.

         As an initial matter, the Court addresses FF's contention that Safeway did not engage in a meaningful meet and confer. Rule 37.1 of the Local Rules of Practice for the U.S. District Court for the District of Hawaii (“Local Rules”) provides:

The court will not entertain any motion pursuant to Fed.R.Civ.P. 26 through 37, including any request for expedited discovery assistance pursuant to LR37.1(c), unless counsel have previously conferred, either in person or by telephone, concerning all disputed issues (including the requirement that discovery be proportional to the needs of the case), in a good faith effort to limit the disputed issues and, if possible, eliminate the necessity for a motion or expedited discovery assistance.

Local Rule 37.1(a). Although it would have been preferable for the parties to have resolved or more effectively limited the subject disputes without involving the Court, the Court finds that the meet and confer requirement was satisfied. Therefore, the Court now turns to the merits of the disputes.

         A. Claims and Underwriting Files in the Underlying Lawsuit

         Safeway seeks all of HNB's claims and underwriting files in the underlying lawsuit and does not accept FF's claims of attorney client privilege and work product doctrine with respect to the portions of the files that have been withheld. FF represents that all claims and underwriting files for HNB have been produced, with the exception of privileged communications and documents with separate coverage counsel and information on reserves. FF claims that it is unaware of any additional non-privileged responsive documents and that it has produced all non-privileged documents responsive to RPOD nos. 8, 9, 13, 17, 29, 30, 31, 32, 33, 34, and 36. Safeway believes the Court should conduct an in camera review to determine whether the withheld documents have been appropriately designated as privileged/protected.[1]

         The Court accepts counsel's representations concerning the content of the withheld documents, as well as the representation that all non-privileged documents have been produced. The Court declines to order further production or conduct an in camera review of all withheld documents in this category based solely on Safeway's speculation that FF has improperly designated the documents as privileged or protected. Accordingly, the Court DENIES the Motion to the extent it seeks further production and/or an in camera review of all documents from the claims and underwriting files from the underlying lawsuit for which FF asserts privilege/protection.[2]

         Notwithstanding the foregoing, the Court shall make a limited exception with respect to Safeway's Exhibit L, which is a document entitled Corporate Position Statement, Coverage Issues and Declaratory Relief Actions. Safeway identifies this document as a policy manual that should be produced, but FF's counsel explained at the hearing that this is a unique document. Per FF's counsel, FF asked coverage counsel to make determinations about positions. Exhibit L was prepared by coverage counsel and advises FF about how claims are to be handled.[3] The Court will review this document in camera to determine whether the redactions are warranted. FF is directed to provide the Court with an unredacted copy of this document by January 16, 2017.

         B. Reserves Information

         Safeway requests an order compelling the production of documents relating to the setting of reserves. It asserts that information concerning the setting of reserves is probative of FF's assessment of HNB's exposure, as well as FF's exposure. FF has objected to the production of reserves information, characterizing the same as nothing more than educated guesses about what an insurer may be required to pay if coverage exists and the costs of defending a case.

         “In an insurance context, the term ‘reserve' refers to ‘a fund of money set aside by a bank or an insurance company to cover future liabilities.'” Metropolitan Life Ins. Co. v. Ogandzhanova, No. CV-12-372-PHX-GMS, 2013 WL 1442581, at *1 (D. Ariz. Apr. 9, 2013) (quoting Black's Law Dictionary (9th ed. 2009)). The method of calculating reserves is central to the relevance of the reserve information. If calculations rely on automatic factors rather than an analysis of the factual or legal merits of the insured's specific claim, the relevance diminishes significantly. Id. at *2. By contrast, “when calculation of the reserve amount ‘entail[s] an evaluation . . . based upon a thorough factual consideration', the information will be relevant.” Id. (citation and internal quotations omitted).

         Here, FF's counsel conceded at the hearing that although the setting of reserves is in part an accounting exercise to comply with statutory/regulatory schemes, some analysis is conducted. The Court therefore finds that the reserves information with respect to HNB's claim is relevant and proportional to the needs of the case. FF is ordered to produce all non-privileged documents responsive to the requests related to reserves information. Bernstein v. Travelers Ins. Co., 447 F.Supp.2d 1100, 1107-08, 1116 (N.D. Cal. 2006) (finding ...


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