Millennium Laboratories, Inc. v. Allied World Assurance Company (U.S.), Inc.

Filing 200

ORDER denying Allied World Assurance Company (U.S.), Inc's 176 Motion to Amend Responses to Requests for Admission. Court finds that AWAC's request is not supported by the Rule 36(b) factors not by good cause. Signed by Magistrate Judge Karen S. Crawford on 11/20/2014. (jah). Modified on 11/21/2014 - Ok to file, not sealed per Chambers (jah).

ORIGINAL

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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MILLENNIUM LABORATORIES,
INC.,

CASE NO. 12cv2280-BAS (KSC)

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vs.

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ORDER DENYING A WAC'S
REQUEST TO AMEND
RESPONSES TO REQUESTS
FOR ADMISSION

Plaintiff,

ALLIED WORLD ASSURANCE
COMPANY (U.S.), INC.,

[Doc. 176] (sealed)

Defendant.

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On June 12,2014, the parties filed a Joint Motion for Determination of the

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Defendant's Request to amend its responses to four of Millennium's Requests for
Admission ("RFAs") served on April 10, 2013. [Doc. 176] The four responses at issue
essentially admit that United States Department ofJustice subpoenas served in March
and August of 2012 together constitute a "claim" under an insurance policy ("the
policy") that plaintiff Millennium Laboratories, Inc., ("Millennium") purchased from
defendant Allied World Assurance Company ("AWAC"). Id. at 6-7. For the reasons
stated below, AWAC's request to amend its responses to the RFAs is DENIED.
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II
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12cv2280-BAS (KSC)

I. FACTUAL BACKGROUND
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On March 27,2012, and August 3,2012, the United States Department ofJustice

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("DOJ") served its investigative subpoenas on Millennium. [Doc. 176, p. 6] On August

4 9, 2012, Millennium's counsel sent a letter to A WAC's claims handler seeking "prompt
5 confirmation of defense coverage for all these defense costs." [Doc. 176-1, Ex. 5] On
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September 18, 2012, Millennium filed this law suit. [Doc. 1] As recited below, the

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record reflects that AWAC has repeatedly admitted throughout all stages of this

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litigation that the DOJ investigation is a "claim" under the policy.

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Even before the complaint was filed, AWAC admitted the DOJ investigation was
Specifically, Millennium alleges that in April 2012, after receiving

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a "claim."

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Millennium's initial coverage letter, A WAC's claims handler called Millennium and

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admitted that the DOJ investigation constituted a "claim" under the policy. [Doc. 176,

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p. 21] This allegation appears to be loosely supported by the deposition testimonies of

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AWAC's claims handler and Millennium's general counsel, and AW AC does not deny

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it. See [Doc. 176-2, Ex. B at 80:9-23 & Ex. C at 68:23-69:21] Shortly thereafter, on

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May 8, 2012, AWAC's claims handler wrote a letter to Millennium regarding the

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March DOJ subpoena, stating, "We will deem this Claim first made when the

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Subpoena was served on or about March 27, 2012." [Doc. 176-2, Ex. A (emphasis in

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original)]

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After hiring outside coverage counsel, A WAC admitted that the DOJ

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investigation was a "claim." In a letter written by outside counsel to Millennium dated

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September 14, 2012, counsel admitted that "Allied World did acknowledge that the

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March 27th Subpoena, subject to the Policy's other terms and conditions, potentially

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constitutes a Claim under the Policy." [Doc. 176-1, Ex. 6 at 7]

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During initial discovery, A WAC further admitted that the DOJ investigation was

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a "claim." Millennium served A WAC with its Requests for Admission on March 5,

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2013. [Doc. 176-1, Ex. 1] AWAC responded on April 10, 2013. [Doc. 176-1, Ex. 2]

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12cv2280-BAS (KSC)

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Specifically, in its responses to the RF As, AWAC admitted that the March 27 and

2 August 3 subpoenas "actually constitutes a CLAIM under the POLICY." Id. at 6-7.
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In litigating dispositive pre-trial motions, A WAC admitted that the DO]

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investigation was a "claim." AWAC reasserted its position in its Opposition to

5 Millennium's Motion for Summary Judgment dated May 24, 2013, in which it argued:
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"Allied World has admitted only that the DO] Investigation constitutes a Claim under

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the Policy." [Doc. 57, p. 17 n.22]

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Upon receiving and reviewing voluminous discovery, AWAC again admitted

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that the DO] investigation was a "claim." In August of2012, Millennium produced at

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least 1.1 million documents (and likely more) in response to AWAC's discovery

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requests. [Doc. 115, p. 3] This Court extended discovery and pre-trial deadlines to give

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AWAC sufficient time to review the submissions. Id. Three months later (presumably

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after AWAC had made good progress on its discovery review), Millennium deposed

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AWAC's claims handler. In the excerpts of the transcript provided to this Court, the

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claims handler repeatedly refers to the DO] subpoenas as a "claim" (specifically, "a

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regulatory claim"). See, e.g., [Doc. 176-2, Ex. B at 47].

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For two years, A WAC repeatedly asserted that the DO] investigation was a

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"claim." Now, for the first time, AWAC seeks to reverse its position, withdraw its

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admissions, and assert that the DO] investigation was, in fact, not a "claim."

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II. DISCUSSION

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Federal Rule of Civil Procedure 36(b) governing party admissions states:

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A matter admitted under this rule is conclusively established unless the
court, on motion, ~ermits the admission to be withdrawn or amended.
Subject to Rule 16 e), the court may fermit withdrawal or amendment if
it would promote t e presentation 0 the merits of the action and if the
court is not persuaded that it would prejudice the requesting party in
maintaining or defending the action on die merits. An admiSSIOn under
this rule is not an admission for any other purpose and cannot be used
against the party in any other proceeding.

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Rule 36(b) gives this Court discretion to deny a party's request to withdraw
admissions where, as here, 1) the moving party has not shown that the withdrawal
would promote presentation of the merits of the case, and 2) the opposing party has
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12cv2280-BAS (KSC)

shown that the withdrawal would significantly prejudice its ability to defend the action.
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FED. R. CIV. P. 36(b).

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First, A WAC argues that its request to withdraw its admissions satisfies Rule

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36(b) because it would allow this "fundamental question" - whether or not the DOJ

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subpoenas constituted a "claim" - to be litigated by the parties and determined by the

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Court. [Doc. 176, p. 14] The Ninth Circuit has ruled, "[t]he first halfofthe test in Rule

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36(b) is satisfied when upholding the admissions would practically eliminate any

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presentation of the merits of the case." Hadley v. Us., 45 F.3d 1345, 1348 (9 th Cir.

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1995). Subsequent decisions have interpreted this standard to hold that Rule 36(b)

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relief is warranted only when upholding admissions would preclude a litigant from

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presenting any issues of merit to the jury. See Conlon v. US., 474 F.3d 616, 622 (9 th

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Cir. 2007) (incarcerated plaintiff should have been permitted to withdraw his de facto

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admissions when those admissions left him with no issues of triable fact, resulting in

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a grant ofdefendant's motion for summary judgment); Carden v. Chenga Sec. & Prot.

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Servs., LLC, S09-1799-WBS-CMK,2011 WL 1344557, at *2 (E.D. Cal. April 8,2011)

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("Thus, the question is not whether allowing the deemed admissions would have any

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effect on a trial on the merits of the case; it is whether it would eliminate the need to

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reach a trial on the merits at all.") In this case, upholding A WAC's admissions would

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not obviate the need for a trial. Indeed, for the past two years, the parties have been

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conducting discovery, retaining experts, and filing voluminous motions on triable

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issues that are independent from the "claim" question.

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Second, Millennium has met its burden ofshowing that A WAC's request would

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result in prejudice under Rule 36(b). In assessing prejudice, courts look not only to the

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stage of litigation at which the request to withdraw is made, but also to whether the

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opposing party has "relied heavily" upon the admission. See id. at 1348, 1349 (citing

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999 v. c.J.T. Corp., 776 F.2d 886,869 (9th Cir. 1985)). Both factors here weigh in

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favor ofMillennium. While the case is not yet set for trial, A WAC nonetheless raises

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its request at a late stage in the litigation. Fact discovery has been closed since January
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12cv2280-BAS (KSC)

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31, 2014, and expert discovery since May 23, 2014. [Doc. 129] The parties filed a

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second round of Motions for Summary Judgment on May 23, 2014, and these

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potentially-dispositive motions are now pending before the District Court. [Docs. 156,

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161] Furthermore, Millennium has demonstrated that it relied significantly upon

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AWAC's admission through every stage of the case thus far. As stated, "Millennium

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made decisions about the course and scope of its discovery based on conclusive

7 removal of the 'Claim' issue from the case." [Doc. 176, p. 23] For example,
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Millennium retained two experts to prepare reports, but did not believe it was necessary

9 to ask either of them to examine or opine on the claim issue. Id.
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Not only do the Rule 36(b) factors weigh against AWAC, but A WAC fails to

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adequately explain why its request to withdraw was raised at such a late stage in the

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litigation. A WAC states that its request to withdraw is based on its review of

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"millions" of documents and depositions of witnesses that have been produced in the

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year and a half since its initial response to Millennium's RF As. [Doc. 176, p. 3] Yet

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fact discovery concluded in January of2014, and Millennium produced the bulk of its

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discovery as early as August or September of 2013. See [Doc. 115, p. 3] Indeed,

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Millennium asserts that the single document that A WAC relies upon to support its new

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position - a Tolling Agreement between Millennium and the DOJ - was produced and

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highlighted to A WAC on April 25, 2013, more than a year before the filing ofthe Joint

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Motion andjust two weeks after AWAC's RFA responses. I [Doc. 176, p. 4] This Court

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finds that A WAC's delayed request to withdraw its admissions evinces a lack of

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diligence which has pervaded its management ofthe instant and related cases, and does

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not give rise to good cause. See [Docs. 84, 129, 135]; Millennium Labs., Inc., v.

24 Danvin, 12cv2742-BAS (KSC) [Doc. 271].
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I The parties' briefin~ suggests that the catal;rst for A WAC's request to amend
its admissions was not the milIions of documents' produced in discovery, but rather
27 a new theory propounded by A WAC's expert witness, who in Millennium's words
"did not even come up witli the new theory until he issued his rebuttal re~ort" dated
28 May 2, 2014. [Doc. r76, pp. 4-5, 16 n.3, 24] Even if this is true, AWAC does not
explain why its expert could not have fonnulated his theory earlier.

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Had A WAC moved to withdraw its admissions earlier in the discovery process,

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2 the parties would have been able to adjust their document requests, witness depositions,
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expert analyses, and pre-trial litigation strategies accordingly. By raising the issue

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now, however, AWAC seeks to inject new issues into the case that would potentially

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alter the entire scope of trial. To prepare to litigate this new issue, the parties would

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likely need to propound additional document requests, re-depose witnesses, and

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In short, AWAC's request would likely

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necessitate a complete re-opening ofdiscovery. 2 This Court is not inclined to take such

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dramatic action at this late stage in the litigation absent a stronger showing of good

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cause.

III. CONCLUSION

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For the above reasons, this Court finds that AWAC's request is not supported

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by the Rule 36(b) factors nor by good cause. Accordingly, A WAC's request to amend

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its RFA responses is DENIED.

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Date: November

,2014

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tates Magistrate Judge

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2 Even A W AC recognizes that its request to withdraw the admissions would
necessitate that this Court re-open discovery. See [Doc. 176,p. 16 n.3] ("Allied World
would not object to a Millenmum's expert supplementing hIS report on this issue.")

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