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Continental Casualty Co. v. J.M. Huber Corp.

United States District Court, D. New Jersey

December 19, 2017



          JAMES B. CLARK, III, United States Magistrate Judge

         THIS MATTER comes before the Court on: (1) a motion by non-party Resolute Management, Inc. (“Resolute”) to quash the Federal Rule of Civil Procedure 30(b)(6) Subpoena served upon Resolute by Defendant J.M. Huber Corporation (“Defendant”) on March 22, 2017 and for the entry of a protective order prohibiting Defendant from inquiring into certain subjects during the future depositions of Resolute employees Connie Gianakis and Maria Menotti in this action [Dkt. No. 83]; and (2) a motion by Plaintiffs Continental Casualty Company and Transportation Insurance Company (collectively “CNA” or “Plaintiffs”) for a protective order prohibiting Defendant from inquiring into certain subjects during Defendant's 30(b)(6) deposition of Plaintiffs' corporate representative and the future individual depositions of Ms. Gianakis and Ms. Menotti [Dkt. No. 101]. Defendant opposes both Resolute's motion [Dkt. No. 86] and Plaintiffs' motion [Dkt. No. 116]. For the reasons set forth below, Resolute's motion to quash and for a protective order [Dkt. No. 83] is DENIED and Plaintiffs' motion for a protective order [Dkt. No. 101] is DENIED.[1]

         I. BACKGROUND

         From approximately 1969 to 1994, Plaintiffs issued insurance policies (the “Policies”) to their insured, Defendant J.M. Huber Corporation, a specialty engineered materials company. The Policies are subject to “incurred loss retrospective premium plans” pursuant to which Defendant's premium obligations are based upon payments and reserves on claims submitted for coverage under the Policies. Dkt. No. 37, Am. Compl. at ¶ 9. Under the Policies, the retrospective premiums are calculated annually by determining the payments and reserves on claims submitted for coverage under a policy valued as of the first day of December, and continue from year to year until either all claims submitted for coverage under the relevant policy have closed or until the maximum premium is reached. Id. at ¶ 10 These annual calculations of retrospective premiums are referred to as “Rating Plan Adjustments.” Id.

         Plaintiffs' claims in this matter arise out of unpaid invoices issued to Defendant for retrospective premiums. On or around March 12, 2012, Plaintiffs issued to Defendant invoice number EA 27327 for an additional payment of $33, 629 based upon the Rating Plan Adjustment for the Policies calculated with incurred losses valued as of February 1, 2012. On March 6, 2013, Plaintiffs issued to Defendant invoice number EA 27893 for $737, 116 for retrospective premiums valued as of February 1, 2013. Defendant did not remit payment for either invoice and on July 12, 2013, Plaintiffs filed their Complaint in this matter seeking payment for the outstanding retrospective premiums. See Dkt. No. 1, Compl. Subsequently, Plaintiffs conducted an additional annual calculation and determined that as of February 1, 2014, Defendant owed an additional $978, 222.[2] Id. at ¶ 28. Based upon the 2014 Rating Plan Adjustment, Plaintiffs filed an Amended Complaint stating claims for breach of contract, unjust enrichment, and account stated arising from Defendant's failure to pay the 2012, 2013, and 2014 invoices.

         In response to Plaintiffs' initial Complaint, Defendant filed its Answer and counterclaims on August 8, 2013. See Dkt. No. 5. In response to Plaintiffs' Amended Complaint, Defendant filed its Amended Answer and counterclaims on October 27, 2014. See Dkt. No. 38, Am. Countercl. Defendant's Amended Counterclaim asserts two causes of action for breach of contract and breach of the duty of good faith and fair dealing based upon Plaintiffs' allegedly “improper allocation and/or calculation, through and/or by their agent [Resolute], of the amount of retrospective premiums due under the Policies.” Id. at ¶ 1.

         According to Defendant, throughout the course of the “mutually professional insurer-insured relationship” between Plaintiffs and Defendant, which spanned over several decades, Defendant would submit claims to Plaintiffs for coverage, and Plaintiffs would respond by either covering those claims or providing “a reasoned basis for either contesting or not covering them.” Dkt. No. 86 at p. 1. Under the retrospectively rated policies, Defendant claims that Plaintiffs would send Defendant retrospective premium invoices and loss details in support of such invoices, which Defendant would review and pay, and any questions or disputes regarding the retrospective premium invoices “were dealt with, and resolved, in a professional and cordial manner befitting such a longstanding and mutually beneficial business relationship.” Id. at p. 2.

         Defendant claims that the longstanding “mutually professional” relationship between itself and Plaintiffs changed in 2010 when Berkshire Hathaway, Inc. (“Berkshire Hathaway”) through its affiliates, including Resolute and National Indemnity Company (“NICO”) entered into an agreement with Plaintiffs pursuant to which Plaintiffs' legacy asbestos and environmental pollution liabilities were transferred to NICO. Am. Countercl. at ¶ 6-7. Upon NICO's assumption of Plaintiffs' liabilities, Resolute became the third-party administrator of Defendant's asbestos and environmental claims on behalf of Plaintiffs acting as Plaintiffs' “agent and/or representative.” Id. at ¶ 8.

         As the third-party administrator of Defendant's claims, Resolute, acting as Plaintiffs' agent, issued the invoices at issue in this matter. Upon receipt of the March 12, 2012 invoice for $33, 629 in “unsubstantiated retrospective premiums, ” Defendant contacted Plaintiffs by email requesting certain information aimed at determining the basis for those premiums, including the basis for creating a file in each policy year and an identification of the specific claims used to calculate the retrospective premiums in the invoice. Id. at ¶ 15-17. Defendant contends that Plaintiffs' response to its initial email regarding the March 12, 2012 invoice did not address Defendant's specific concerns and that Defendant's subsequent inquiries regarding the basis of retrospective premiums in the invoice were likewise not satisfactorily addressed by Plaintiffs or Resolute. Id. at ¶ 19. Because Plaintiffs had purportedly failed to provide Defendant with an explanation of the basis for the retrospective premiums, Defendant advised Resolute that it appeared to Defendant that Plaintiffs and/or Resolute had “arbitrarily and capriciously transferred and/or reallocated payments for losses under the Policies from ‘closed' to ‘open' polices” which resulted in the improper calculation and assessment of additional retrospective premiums. Id. at ¶ 20. Plaintiffs and Resolute again failed to provide a response which satisfied Defendant, and Defendant submitted further inquiries which were also not sufficiently answered.

         Despite Plaintiffs' and Resolute's purported failure to provide support for the March 12, 2012 invoice, Defendant received the second invoice at issue in Plaintiffs' Amended Complaint in March 6, 2013 in the amount of $737, 116. Id. at ¶ 25. Upon receipt of the March 6, 2013 invoice, Defendant again contacted Resolute requesting an explanation of the reallocation and calculation of retrospective premiums charged. According to Defendant, it did not receive any response to its inquiries regarding the March 6, 2013 invoice. Id. at ¶ 26-27. The third and final invoice at issue in Plaintiffs' Amended Complaint in the amount of $978, 222, and dated March 17, 2014, was received by Defendant on March 25, 2014. Id. at ¶ 28.

         Defendant's counterclaim for breach of contract alleges that Plaintiffs, in violation of the terms of the Policies, through Resolute, wrongfully reallocated “decades-old payments” made under the Polices and improperly issued the retrospective premium invoices to Defendant for “incorrect and/or unsubstantiated amounts.” Id. at ¶ 48. In its counterclaim for breach of the duty of good faith and fair dealing, Defendant claims that Plaintiffs, through Resolute, “arbitrarily and capriciously” reallocated payments made under the Policies, issued incorrect retrospective premium invoices, and failed to cooperate with Defendant in its efforts to determine the basis for the disputed invoices. Id. at ¶ 53.

         Discovery in this matter has been fraught with issues, and after several failed attempts to resolve the parties' disputes without formal motions, the present motions were filed. The present motions seek to prevent Defendant from exploring certain topics during depositions in this matter and arise from Defendant's efforts to obtain discovery related to Resolute's and Plaintiffs' corporate practices and claims handling procedures and the corporate relationships between Plaintiffs, Resolute, NICO and Berkshire Hathaway. The depositions at issue can be divided into two categories: (1) Federal Rule of Civil Procedure 30(b)(6) depositions of Plaintiffs' and Resolute's corporate representatives; and (2) depositions of Resolute employees Connie Gianakis and Maria Menotti.

         A. 30(b)(6) Depositions

         The primary relief sought in the current motions relates to the 30(b)(6) depositions of Plaintiffs' and Resolute's corporate representatives. Defendant served Plaintiffs with a 30(b)(6) deposition notice on March 16, 2017, which seeks testimony on twenty (20) topics and the production of all documents related to those topics. See Dkt. No. 100, Thomas Cert. at Ex. A (the “CNA Notice”). Subsequently, on March 22, 2017, Defendant served Resolute with a 30(b)(6) Subpoena seeking testimony on twenty-three (23) topics and the production of all documents related to those topics. See Dkt. No. 83, Chakraborty Decl. at Ex. A. (the “Resolute Subpoena”). Both Plaintiffs and Resolute responded to Defendant with several objections. The parties were unable reach any sort of consensus regarding the scope of the depositions, which led to Resolute's present motion seeking to quash the Resolute Subpoena in its entirety [Dkt. No. 83] and Plaintiffs' present motion seeking the entry of a protective order barring Defendant from inquiring into certain topics during its deposition of Plaintiffs' corporate representative [Dkt. No. 101].

         Although Plaintiffs and Resolute are separate entities and Resolute is not a party to this matter, the arguments set forth in support of their respective motions are largely interchangeable. In support of their motions, Plaintiffs and Resolute argue that Defendant's 30(b)(6) deposition topics are vastly overbroad, would cause Plaintiffs and Resolute to suffer an undue burden, and seek information beyond what is relevant to the issues in this case. Plaintiffs and Resolute assert that discovery in this matter should be limited solely to the calculation of the retrospective premiums which form the basis of Plaintiffs' claims and that Defendant's attempted inquiries into Plaintiffs' and Resolute's general corporate practices and claims handling procedures and their corporate relationships far exceed the scope of permissible discovery. Additionally, Resolute and Plaintiffs argue that because Defendant seeks similar if not identical information from both Resolute and Plaintiffs, Defendant's discovery efforts are unreasonably duplicative.

         In response, Defendant argues that the discovery it seeks from Resolute is targeted at investigating Resolute's coordination with Plaintiffs in administering Defendant's account and Resolute's role in “reallocating historical losses to generate revenue in the form of retrospective premiums” and is directly relevant to its allegations that Resolute's and its affiliates' internal policies encourage improper conduct aimed at increasing profits in connection with claim handling attempts to derive improper benefits from Plaintiffs' insureds. Dkt. No. 86 at p. 9. As to the discovery sought from Plaintiffs, Defendant claims that it is entitled to information regarding Plaintiffs' business relationship with Resolute to the extent that such a relationship affected Plaintiffs' conduct, and that its request for information regarding Plaintiffs' claims handling practices both before and after Plaintiffs entered their agreement with NICO will allow Defendant to investigate whether Plaintiffs' handling of Defendant's claims changed when Resolute took over as third-party administrator.

         B. Resolute Employee Depositions

         In addition to the relief sought by Plaintiffs and Resolute regarding the 30(b)(6) depositions, Plaintiffs and Resolute seek the entry of a protective order barring Defendant from inquiring into certain topics during its depositions of Resolute employees Connie Gianakis and Maria Menotti.[3] The protective order application by Plaintiffs and Resolute requests that any limitations governing the 30(b)(6) depositions also apply to the depositions of Ms. Gianakis and Ms. Menotti. In support of their requests for a protective order, Plaintiffs and Resolute claim that Defendant should not be permitted to use the depositions of Resolute employees to obtain information which it is barred from seeking during the 30(b)(6) depositions, and that in light of Defendant's depositions of other employees of Plaintiffs and Resolute and its intent to conduct the 30(b)(6) depositions at issue, the depositions of Ms. Gianakis and Ms. Menotti would be unreasonably duplicative.

         In opposition to Plaintiffs' and Resolute's requests for a protective order, Defendant claims that Ms. Gianakis and Ms. Menotti are “key witnesses.” Dkt. No. 116 at p. 33. According to Defendant, Ms. Menotti “made the initial recommendation to open additional trailer files so that [Defendant's] old asbestos losses could be used to generate retrospective premiums” and Ms. Gianakis was involved in the “meetings between [Plaintiffs] and Resolute when Resolute decided to create money by setting up the trailer files” and was “ultimately responsible for reallocating [Defendant's] old asbestos losses in order to create money through the generation of retrospective premiums.” Id. In response to Plaintiffs' and Resolute's duplicity argument, Defendant claims that Ms. Gianakis and Ms. Menotti are key fact witnesses with unique knowledge which does not unduly overlap with that of other witnesses deposed by Defendant.


         Federal Rule of Civil Procedure 26 governs the scope of discovery in federal litigation and provides that:

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). Rule 26 is to be construed liberally in favor of disclosure, as relevance is a broader inquiry at the discovery stage than at the trial stage. Tele-Radio Sys. Ltd. v. De Forest Elecs., Inc., 92 F.R.D. 371, 375 (D.N.J. 1981). While relevant information need not be admissible at trial in order to grant disclosure, the burden remains on the party seeking discovery to “show that the information sought is relevant to the subject matter of the action and may lead to admissible evidence.” Caver v. City of Trenton, 192 F.R.D. 154, 159 (D.N.J. 2000). Upon a finding of good cause, a court may order discovery of any matter relevant to a party's claims, defenses or the subject matter involved in the action. “Although the scope of discovery under the Federal Rules is unquestionably broad, this right is not unlimited and may be circumscribed.” Bayer AG v. Betachem, Inc., 173 F.3d 188, 191 (3d Cir. 1999).

         Pursuant to Rule (26)(b)(2)(C), courts are required to limit discovery where:

(i) 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;
(ii) the party seeking discovery has had ample opportunity to obtain the information by discovery in the action; or
(iii) the proposed discovery is outside the scope permitted by Rule 26(b)(1).

         Similarly, pursuant to Rule 26(c), “[t]he court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense[.]” In moving for a protective order, the “burden of persuasion [is] on the party seeking the protective order.” Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1121 (3d Cir. 1986). The party seeking a protective order “must show good cause by demonstrating a particular need for protection.” Id. Establishing “good cause” requires the movant to “specifically demonstrate [ ] that disclosure will cause a clearly defined and serious injury. Broad allegations of harm, unsubstantiated by specific examples, however, will not suffice.” Glenmede Trust Co. v. Thompson, 56 F.3d 476, 483 (3d Cir. 1995) (citing Pansy v. Borough of Stroudsburg, 23 F.3d 772, 786 (3d Cir. 1994)).

         Discovery sought via a subpoena issued pursuant to Rule 45 must fall within the scope of discovery permissible under Rule 26(b). OMS Investments, Inc. v. Lebanon Seaboard Corp., 2008 WL 4952445 (D.N.J. Nov. 18, 2008). In addition, pursuant to Rule 45(d)(1), “[a] party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena” and the Court has a responsibility to enforce this duty. However, it is the party claiming undue burden that must establish same. Nye v. Ingersoll Rand Company, Civ. No. 08-3481(DRD), 2011 U.S. Dist. LEXIS 7383, *6, 2011 WL 253957 (D.N.J. Jan. 25, 2011); OMS Investments, 2008 U.S. Dist. LEXIS 94165 at *2, 2008 WL 4952445. If a subpoena falls outside the scope of permissible discovery, the Court has authority to Quash or modify it upon a timely motion by the party served. Fed.R.Civ.P. 45(d)(3).

         Specifically, four circumstances exist which require the Court to quash or modify a subpoena. Rule 45(d)(3)(A) provides that:

(A) On timely motion, the court for the district where compliance is required must quash or modify a subpoena that:
(i) fails to allow reasonable time to comply;
(ii) requires a person to comply beyond the geographical limits specified in Rule 45(c);
(iii) requires disclosure of privileged or other protected matter, if no exception or waiver applies; or
(iv) subjects a person to undue burden.

Id. In contrast, a court may quash or modify a subpoena where it requires “disclosing a trade secret or other confidential research, development, or commercial information.” Rule 45(d)(3) (B)(i).

         The burden of the party opposing the subpoena “is particularly heavy to support a motion to quash as contrasted to some more limited protection such as a protective order In re Domestic Drywall Antitrust Litig., 300 F.R.D. 234, 239 (E.D. Pa. May 15, 2014). (internal quotation marks omitted); see also Malibu Media, LLC v. John Does 1-15, No. 12-2077, 2012 WL 3089383, at *5 (E.D. Pa. July 30, 2012) (moving ...

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