United States District Court, D. Arizona
JAMES A. TEILBORG, District Judge.
Pending before the Court are Plaintiff's Motion to Reopen Discovery (Doc. 310),  Plaintiff's Motion for Summary Judgment (Doc. 281), Defendants/Counterclaimants Silverbell 290 Limited Partnership and Scott Homes Multifamily, Inc.'s Motion for Summary Judgment/Summary Adjudication (Doc. 273), Plaintiff's Motion for Violation of Rule 11 and for Sanctions (Doc. 298), and Plaintiff's Notice of Errata and Motion for Leave to Replace Incorrectly-Filed Motion for Violation of Rule 11 (Doc. 303). The Court now rules on the motions.
The Court incorporates its summary of the facts of this case from its ruling on Plaintiff Lexington Insurance Company ("Lexington")'s first motion for summary judgment:
Lexington filed this declaratory judgment action seeking a determination that it is not liable to pay Silverbell in satisfaction of a consent judgment Silverbell obtained in prior litigation against Lexington's insured, Scott Homes Multifamily, Inc. ("Scott Homes").
The basic facts giving rise to Lexington's action are as follows. Silverbell contracted with Scott Homes for the construction of the Springs at Silverbell Apartments (the "Apartments"). At all relevant times, Scott Homes was insured under a primary general liability policy (the "Evanston Policy") issued by Evanston Insurance Company ("Evanston"). Scott Homes was also insured under an excess liability policy issued by Lexington (the "Lexington Excess Policy") that "followed form" to the Evanston policy. Additionally, Scott Homes was an additional named insured on some of its subcontractors' primary policies. After the Apartments were built, Silverbell discovered construction defects in the Apartments.
Silverbell sued Scott Homes and its subcontractors for damages [(the "Underlying Lawsuit")]. Scott Homes tendered its defense to Evanston, who defended subject to a reservation of rights. Lexington declined to defend Scott Homes, asserting that it had not been provided with documentation showing all underlying coverage had been exhausted. Silverbell, Scott Homes, and Evanston subsequently entered into a settlement agreement (the "Settlement Agreement") in which (1) Silverbell and Scott Homes stipulated to a $6 million judgment against Scott Homes; (2) Evanston agreed to pay Silverbell its policy limit of $1 million in exchange for a release from further liability; (3) Silverbell agreed not to execute the judgment against Scott Homes; and (4) Scott Homes assigned to Silverbell all of Scott Homes' rights for claims arising out of the Apartments against certain subcontractors, subcontractors' insurers, primary insurers (other than Evanston), and excess insurers.
The Pima County Superior Court entered judgment for Silverbell and against Scott Homes in the amount of $6 million, as stipulated [(the "Stipulated Judgment")]. The judgment stated that the $6 million amount was awarded for "claims related to and/or damages caused by work of" seven subcontractors who Scott Homes had hired to construct the Apartments and provided an itemized breakdown of the award per subcontractor. After entry of judgment, Lexington filed the present action for a declaration that it is not liable to Silverbell under the terms of its policy.
Lexington Ins. Co. v. Scott Homes Multifamily, Inc., 2014 WL 231989, at *2 (D. Ariz. Jan. 22, 2014) (citations and footnotes omitted).
Lexington filed its first motion for summary judgment in June 2013 while discovery in this case was ongoing. (Doc. 53). The Court denied that motion, determining that the Lexington Excess Policy was excess to only the Evanston Policy and the Evanston Policy was exhausted in the payment of covered claims. (Doc. 159).
II. Motion to Reopen Discovery
The Court first rules on the motion to reopen discovery because, if granted, the Court would have to reset the dispositive motion deadline, deny as moot the pending cross-motions for summary judgment, and permit further discovery as well as the filing of new dispositive motions. Lexington moves to reopen discovery to compel Defendant Silverbell 290 Limited Partnership ("Silverbell") to produce additional documents that Silverbell allegedly improperly refused to produce.
1. Discovery in this Case
Lexington's First Amended Complaint (Doc. 270) alleges, among other claims, that the Settlement Agreement and the resulting Stipulated Judgment between Silverbell and Scott Homes are products of collusion because the two entities share common ownership. (Doc. 270 at 30). The Court's Rule 16 Scheduling Order set a discovery deadline of February 7, 2014 for all claims. (Doc. 40). The Court later extended this deadline several times at the parties' requests. See (Doc. 82) (extending discovery deadline to March 7, 2014); (Doc. 200) (extending deposition discovery only to March 21, 2014); (Doc. 266) (extending deposition discovery to April 4, 2014 only for the purpose of taking Lexington's Rule 30(b)(6) deposition regarding certain topics). The Court also extended the dispositive motion deadline to May 16, 2014. (Doc. 266).
During discovery, Lexington propounded to Silverbell a set of requests to produce documents. Specifically, Lexington requested:
30. All Documents and Communications Concerning the Settlement.
31. All Documents Concerning the dates on which You negotiated the Settlement and/or discussed settlement of the Underlying Lawsuit with Scott Homes and/or Evanston.
(Doc. 204-1 at 9).
Lexington also requested from Scott Homes:
40. All Communications Concerning the Settlement.
41. All Documents Concerning the dates on which You negotiated the Settlement and/or discussed settlement of the Underlying Lawsuit with Silverbell and/or Evanston.
( Id. at 20).
Silverbell objected to Lexington's request #30 on the grounds that it was vague, ambiguous, and overbroad. ( Id. at 26). Silverbell contended that the request did not specify the persons between whom the requested communications took place. It also disputed the relevance of the requested documents and asserted that Lexington's request sought documents protected by "attorney-client privilege, the work product documents, a premature disclosure of expert opinions, and/or any other privilege or protection." ( Id. at 27). Silverbell responded that, other than the documents previously produced in the Underlying Lawsuit, it would not produce "any documents responsive to Request No. 30 at this time given the above referenced objections and the overbroad nature of this request." ( Id. )
Silverbell similarly objected to Lexington's request #31, contending it was vague, ambiguous, and overbroad because it was unclear as to which documents Lexington referred. ( Id. ) Silverbell also disputed relevance and asserted that Lexington's request sought documents protected by "attorney-client privilege, the work product documents, a premature disclosure of expert opinions, and/or any other privilege or protection." ( Id. ) Silverbell responded that, other than the documents previously produced in the Underlying Lawsuit, it would not produce "any documents responsive to Request No. 31 at this time given the above referenced objections and the overbroad nature of this request." ( Id. )
Lexington and Silverbell engaged in a meet-and-confer process both orally and in writing concerning Lexington's requests for production and Silverbell's position on the requests. (Doc. 314 ¶ 26). As part of this process, Lexington's counsel wrote a letter to Silverbell's counsel in which Lexington identified its request #30 to Silverbell and request #40 to Scott Homes as seeking all communications from anyone on behalf of Silverbell or Scott Homes with any third party concerning the Settlement Agreement between Silverbell and Scott Homes. (Doc. 321-1 at 4). Lexington identified these requests as including communications between the attorneys for Silverbell and Scott Homes and to any other party or attorney in the Underlying Lawsuit. ( Id. ) Lexington also identified its request #31 to Silverbell and request #41 to Scott Homes as similar to requests #30 and #40 "in that they seek communications between the parties during their negotiations of the settlement between Silverbell and Scott Homes." ( Id. )
Silverbell sent supplemental responses to Lexington's requests #30 and #31 in which Silverbell objected that these requests called for the production of documents protected by mediation or settlement privileges. (Doc. 314-2 at 34-35). Silverbell produced a privilege log identifying the documents it was withholding in response to Lexington's request. ( Id. )
Lexington then initiated a discovery dispute with the Court concerning, among other issues, whether communications leading up to executed settlement agreements are discoverable. See (Doc. 192). After the Court's ruling on the scope of the mediation privilege, (Doc. 239 at 5, 19-21), Silverbell produced additional documents, (Doc. 312-1 at 122-229).
2. Discovery in the Underlying Lawsuit
Scott Homes' subcontractors, defendants in the Underlying Lawsuit, issued requests for production to Silverbell in which the subcontractors asked for, among other copies, copies of all communications involving Silverbell and Scott Homes' counsel regarding the Settlement Agreement and the Stipulated Judgment against Scott Homes; all communications involving Evanston and its counsel regarding the settlement and assignment of Scott Homes' rights to Silverbell; all communications involving Steven Robson (who owned interests in both Silverbell and Scott Homes), Scott Homes' counsel, and Silverbell regarding the settlement and assignment of Scott Homes' rights to Silverbell; and all communications regarding settlement negotiations and the allocation to Scott Homes' subcontractors in the Stipulated Judgment. (Doc. 312-1 at 5). In response, Silverbell asserted attorney-client privilege and produced a privilege log for documents that Silverbell alleged were privileged (the "Privileged Documents"). ( Id. at 92).
The resulting discovery dispute was referred to a special master who, in June 2014, issued a report and recommendation. ( Id. at 1). The special master recommended a finding that Silverbell and Scott Homes had impliedly waived the attorney-client privilege with respect to the Privileged Documents by entering into the Settlement Agreement because Silverbell had to prove both that Scott Homes diligently defended the lawsuit and there was no collusion between Silverbell and Scott Homes in entering into the Settlement Agreement and Stipulated Judgment. ( Id. at 5-6). The court adopted the special master's recommendations and ordered the production of the Privileged Documents. ( Id. at 69).
All but one of Scott Homes' subcontractors settled with Silverbell prior to trial. The trial began on September 25, 2014, and Lexington attempted to attend the proceedings so that it could obtain copies of the communications listed in Silverbell's privilege log, but the court sealed the proceedings and barred Lexington from the courtroom. (Doc. 312 at 2-4). The court also sealed the transcripts. ( Id. at 3-4). Lexington petitioned the Arizona Court of Appeals for a special action vacating the sealing of the courtroom. The trial settled after the first day and before the trial court had ruled on the admissibility of the attorney-client privileged communications. (Doc. 314 at 5). Lexington later amended its special action petition to request that the transcripts be unsealed; the Arizona Court of Appeals ultimately declined to exercise jurisdiction.
On October 15, 2014, Lexington filed its motion to reopen discovery with the Court. (Doc. 311).
B. Legal Standard
A motion to reopen discovery is a motion to modify the discovery deadline set in the Court's scheduling order pursuant to Federal Rule of Civil Procedure ("Rule") 16. See Bleek v. Supervalu, Inc., 95 F.Supp.2d 1118, 1120 (D. Mont. 2000); see also Yeager v. Yeager, 2009 WL 1159175, at *2 (E.D. Cal. Apr. 29, 2009). Rule 16(b)(4) permits a scheduling order to be modified only upon a showing of good cause by the party seeking amendment. See Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992). In the context of motions to reopen discovery, the Ninth Circuit Court of Appeals ("Court of Appeals") has held that good cause requires the movant to show it "diligently pursued its previous discovery opportunities" and that allowing additional discovery will preclude summary judgment. See Cornwell v. Electra Cent. Credit Union, 439 F.3d 1018, 1026 (9th Cir. 2006) (citing Panatronic USA v. AT&T Corp., 287 F.3d 840, 846 (9th Cir. 2002)).
The Court of Appeals has enumerated several factors that a court may consider in deciding whether to reopen discovery: "1) whether trial is imminent, 2) whether the request is opposed, 3) whether the non-moving party would be prejudiced, 4) whether the moving party was diligent in obtaining discovery within the guidelines established by the court, 5) the foreseeability of the need for additional discovery in light of the time allowed for discovery by the district court, and 6) the likelihood that the discovery will lead to relevant evidence." U.S. ex rel. Schumer v. Hughes Aircraft Co., 63 F.3d 1512, 1526 (9th Cir. 1995), vacated on other grounds sub nom. Hughes Aircraft Co. v. U.S. ex rel. Schumer, 520 U.S. 939 (1997). "Whether to reopen discovery rests in the court's sound discretion." Bleek, 95 F.Supp.2d at 1120 (citing U.S. ex rel. Schumer, 63 F.3d at 1526).
Before the Court turns to the merits of Lexington's motion, it must first address whether Lexington requests relief under the appropriate Federal Rule of Civil Procedure.
1. Rule 56(d)
Although a motion to reopen discovery is a motion to modify the Rule 16 scheduling order, Lexington instead cites Rule 56(d) as the basis for its motion. (Doc. 310 at 2). Rule 56(d) permits a court to grant relief to a party opposing summary judgment on the basis that the nonmovant is unable to present facts necessary to its opposition:
If a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, the court may: (1) defer considering the motion or deny it; (2) allow time to obtain affidavits or declarations or to take discovery; or (3) issue any other appropriate order.
Fed. R. Civ. P. 56(d) (formerly numbered as 56(f)).
Because a party may move for summary judgment while discovery is spending, Rule 56(d) "provides a device for litigants to avoid summary judgment when they have not had sufficient time to develop affirmative evidence." United States v. Kitsap Physicians Serv., 314 F.3d 995, 1000 (9th Cir. 2002). The rule applies "where the nonmoving party has not had the opportunity to discover information that is essential to its opposition." Metabolife Int'l, Inc. v. Wornick, 264 F.3d 832, 846 (9th Cir. 2001) (emphasis added) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n.5 (1986)).
Rule 56(d) "is not meant to re-open discovery in general, to obtain information that is already in the party's possession, or to merely support evidence that is already in the party's possession." Slama v. City of Madera, 2012 WL 1067198, at *2 (E.D. Cal. Mar. 28, 2012); see also Dumas v. Bangi, 2014 WL 3844775, at *2 (E.D. Cal. Jan. 23, 2014) ("Rule 56(d) does not reopen discovery; rather it forestalls ruling on a motion for summary judgment in cases where discovery is still open and provides the prospect of defeating summary judgment.").
Thus, Lexington's motion is improper under Rule 56(d), and the Court instead treats the motion as one under Rule 16.
2. Lexington's Diligence
Lexington argues the Court should reopen discovery to permit Lexington to discover evidence that could defeat Silverbell's motion for summary judgment on Lexington's claims of fraud and collusion because Lexington learned only after the close of discovery that Silverbell did not comply with Lexington's requests for production. (Doc. 311 at 2, 10). Lexington has the burden of proving that it "diligently pursued its previous discovery opportunities." Cornwell, 439 F.3d at 1026.
Lexington has not shown that it diligently pursued its previous discovery opportunities in this case. Because Lexington learned of the existence of the Privileged Documents after the cutoff of discovery in this case, Lexington knew that it could use these documents only if it filed a motion to reopen discovery. Yet Lexington waited four months from June to October before filing such a motion. During these four months, the parties fully briefed their dispositive motions. The Court can only infer from Lexington's delay that Lexington sought to gain a tactical advantage from reading the fully-briefed cross-motions before it decided whether to pursue using the Privileged Documents. Such dilatory tactics are not diligence.
Lexington attempts to show diligence by pointing to its efforts in the Underlying Lawsuit to obtain the Privileged Documents. (Doc. 311 at 7). It argues that it made diligent efforts because it "made every conceivable effort to obtain the evidence in the underlying action." ( Id. at 2). Lexington points to its September 2014 efforts to attend the trial in the Underlying Lawsuit to obtain information from the Privileged Documents and its filing of a petition for special action with the Arizona Court of Appeals. ( Id. at 8-11). Lexington reiterates that it, in essence, tried its hardest to obtain the information in the Underlying Lawsuit. ( Id. at 11-13).
Lexington confuses diligence in obtaining physical possession of documents with diligence in pursuing discovery. As Lexington's motion demonstrates, a party can use the discovery process to request copies of documents not yet in the requesting party's possession. Lexington did not have to seek copies of the Privileged Documents in the Underlying Lawsuit prior to filing a motion to reopen discovery. Thus, Lexington's four-month attempt to obtain the Privileged Documents through the Underlying Lawsuit bears no relationship to Lexington's pursuit of discovery opportunities in the present case. Lexington is not seeking to reopen discovery in the Underlying Lawsuit. Rather, it seeks to reopen discovery in this case. Thus, Lexington must demonstrate its diligence in pursuing discovery in this case. This it has failed to do.
Accordingly, the Court will deny Lexington's motion to reopen discovery.
III. Motions for Summary Judgment
A. Summary Judgment Standard
Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "A party asserting that a fact cannot be or is genuinely disputed must support that assertion by... citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits, or declarations, stipulations... admissions, interrogatory answers, or other materials, " or by "showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Id. 56(c)(1)(A), (B). Thus, summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Initially, the movant bears the burden of pointing out to the Court the basis for the motion and the elements of the causes of action upon which the non-movant will be unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to the non-movant to establish the existence of material fact. Id. The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts" by "com[ing] forward with specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Fed.R.Civ.P. 56(e) (1963) (amended 2010)). A dispute about a fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant's bare assertions, standing alone, are insufficient to create a material issue of fact and defeat a motion for summary judgment. Id. at 247-48. However, in the summary judgment context, the Court construes all disputed facts in the light most favorable to the non-moving party. Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir. 2004).
Finally, when multiple parties submit cross-motions for summary judgment, the Court considers each motion on its own merits but must consider all of the evidence presented in determining whether a genuine issue of material fact exists. Fair Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001).
B. Lexington's Motion for Summary Judgment
Lexington moves for summary judgment on its claim for a declaratory judgment that it is not liable to Silverbell under the terms of the Lexington Excess Policy as well as on Silverbell's counterclaims for bad faith and punitive damages. (Doc. 281 at 2). As an initial matter, Silverbell correctly points out in its response to Lexington's motion that Lexington's motion exceeds the seventeen page limit prescribed by Local Rule of Civil Procedure ("Local Rule") 7.2(e)(1). Subtracting the caption and certificate of service from Lexington's motion, the Court finds the motion to be eighteen pages in length. Accordingly, the Court will not consider the eighteenth page of Lexington's motion.
1. Breach of the Lexington Excess Policy
Lexington argues that Scott Homes breached several provisions of the Lexington Excess Policy when it entered into the Settlement Agreement and the law does not excuse these breaches. (Doc. 281 at 6).
The Lexington Excess Policy provides that it follows the conditions and limitations of the Evanston Policy:
1. Following Form - It is agreed that this policy, except as herein stated, is subject to all conditions, agreements and limitations of and shall follow the underlying policy/ies in all respects....
(Doc. 270-1 at 8). Both policies contain cooperation clauses:
[T]he first Named Insured and any other involved Insured must:
c) cooperate with us in the investigation, settlement or defense of the claim or suit....
( Id. at 9) (Lexington Excess Policy).
2. Duties In the Event of Occurrence, Offense, Claim or Suit.
c. You and any other involved Insured must:
(3) Cooperate with us in the investigation, settlement or defense of the claim or "suit"....
(Doc. 270-2 at 49) (Evanston Policy).
Scott Homes tendered its defense to Lexington on multiple occasions prior to the execution of the Settlement Agreement, beginning on November 18, 2011. (Doc. 282 ¶ 13). Lexington acknowledged a tender but never formally responded to Scott Homes. (Doc. 10-4 at 2). On March 22, 2012, Silverbell advised Lexington of an upcoming mediation scheduled in the case and of Silverbell's intent to make a four million dollar settlement demand prior to the mediation; Silverbell noted its willingness to enter into a Damron agreement if Lexington declined to participate in settlement negotiations and invited Lexington to so participate. ( Id. at 3). In addition to mediation on April 26, 2012, the parties held a second mediation on June 29, 2012, Lexington attended the latter. (Doc. 282 ¶¶ 25, 27).
On July 2, 2012, Scott Homes advised Lexington by letter that Scott Homes, Silverbell, and Evanston were finalizing the Settlement Agreement and this would "result in the exhaustion of the underlying Evanston Primary Policy and trigger Lexington's obligation defend [sic] Scott Homes... in this case." ( Id. at 6). Scott Homes asked for Lexington to notify Scott Homes in writing no later than July 13, 2012 as to whether Lexington would defend Scott Homes, and stated that Lexington's failure to respond or to disclose its coverage position would result in Scott Homes proceeding to discuss a settlement with Silverbell that "incorporates a Damron agreement and assignment of rights against Lexington/Chartis." ( Id. )
On August 31, 2012, Lexington sent a letter to Scott Homes in which it acknowledged that there was a "potential for coverage" under the Lexington Excess Policy, subject to a reservation of rights, but in which it also stated that "[w]e currently have no information indicating that all applicable underlying limits are exhausted, and coverage under the Lexington Policy therefore is not implicated at this time." (Doc. 283-1 at 96). Lexington reiterated that the purpose of its letter was to advise Scott Homes of "potential coverage issues and to reserve all of Lexington's rights and defenses under the Lexington Policy and at law, including the right to deny coverage, in the event that Scott Homes' underlying insurers pay or are held liable to ...