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Western Surety Co. v. United States

United States District Court, D. Arizona

December 21, 2018

Western Surety Company, Plaintiff,
v.
United States of America, Defendant.

          ORDER

          Honorable Cindy K. Jorgenson, United States District Judge

         Background

         In October 2018, the Court was made aware of a discovery dispute between Plaintiff Western Surety Company (“Western”) and Intervenor Defendant Employers Mutual Casualty Company (“EMC”). This dispute arose in connection with EMC's discovery requests seeking reserve amounts set by Western relating to Select Development & Construction, Inc. (“Select”). Western objected to those requests claiming they were burdensome and sought information that was confidential and privileged. Oral argument was held on November 7, 2018 to discuss those issues. After oral argument, Western's counsel informed the Court that Western's attorney, Doug Mraz (“Mr. Mraz”), was solely responsible for setting the reserve amounts relating to Select and filed a memorandum on November 21, 2018 alleging that the information is protected by the attorney-client privilege and work-product doctrine. (Doc. 81). EMC filed a response memorandum on November 30, 2018, opposing Western's claims of privilege and confidentiality. (Doc. 82).

         Factual Background

         In February 2012, Select entered into a contract with the County of Pima, Arizona, in connection with a road construction project (“La Canada Project”). Western provided Select with performance and payment bonds totaling $18, 750, 777.34 for this project naming Pima County as the obligee. In June and October 2013, Select entered into two contracts with Pima County in connection with two construction projects (“Magee Road Project” and “Homer Davis Project”). EMC provided Select with performance and payment bonds for these projects in the amount of $10, 969, 001.40 naming Pima County as the obligee.

         Select failed to comply with its contractual obligations for the La Canada, Magee Road, and Homer Davis Projects leaving Western and EMC with substantial losses in excess of $1.3 million. In April 2017, Pima County entered into a Settlement Agreement with Western in connection with unpaid funds arising out of the La Canada Project in the amount of $1.3 million. Subsequently, Pima County became aware that multiple parties, including EMC, were exercising their rights to that $1.3 million settlement amount and Pima County filed a motion to interplead those funds. (Doc. 32). The motion was granted and that $1.3 million is currently in dispute between Western and EMC. (Doc. 46).

         In connection with EMC's claim to the interpleaded funds, EMC alleges that Western's financial loss for the La Canada Project was due to Western's reimbursement of Select's payroll expenses. EMC claims that those reimbursement expenditures are not a performance bond loss since Western was under no contractual obligation to assist Select with continuing their business operations. In connection with this argument, EMC states that it requires the reserve amounts set by Western to determine if Western suffered the financial losses it claims.

         Analysis

         Federal Rule of Civil Procedure 26(b) establishes the relevant scope of discovery and provides, in pertinent part:

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.

         The Court has broad discretion to determine whether to compel disclosure of discovery. Phillips ex rel Estates of Byrd v. General Motors Corp, 307 F.3d 1206, 1211 (9th Cir. 2002).

         EMC propounded the following contested discovery requests upon Western:

Request for Production: Please produce any documents that support your responses to the Requests for Admission and Non-Uniform Interrogatories set forth above, including but not limited to any documents relating to reserves set by Western Surety relating to Select Development & Construction, Inc.
• Interrogatory: If Western Surety set reserves for a Performance Bond claim on the La Canada Project, please state the date any such reserves were set and the ...

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