Parkside/El Centro Homeowners Association v. Travelers Casualty Insurance Company of America

Filing 78

ORDER granting 71 Motion for leave to depose Dale Erlenbusch. Signed by Magistrate Judge Ruben B. Brooks on 1/11/2022. (jpp)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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PARKSIDE/EL CENTRO
HOMEOWNERS ASSOCIATION,

Case No.: 20cv1732-JAH(RBB)
ORDER GRANTING MOTION FOR
LEAVE TO DEPOSE DALE
ERLENBUSCH [ECF NO. 71]

Plaintiff,
v.
TRAVELERS CASUALTY
INSURANCE COMPANY OF
AMERICA,
Defendant.

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Presently before the Court is a Motion for Leave to Depose Dale Erlenbusch filed

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by Defendant Travelers Casualty Insurance Company of America (“Travelers”) [ECF No.

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71]. Plaintiff Parkside/El Centro Homeowners Association (“Parkside” or “HOA”) filed

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an opposition [ECF No. 73], and Travelers filed a reply [ECF No. 75]. For the reasons

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set forth below, Travelers’ motion is GRANTED.

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I.

BACKGROUND

This bad faith case arises out of an insurance policy issued by Travelers to

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Parkside that included a Directors and Officers Liability Owners Association Claims

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Made Form endorsement (“D&O Coverage”). (Compl. 4, ECF No. 1.) On July 25, 2014,

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a member of the Parkside HOA discovered that the HOA had been suspended by the
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California Secretary of State and the Franchise Tax Board had a collection account open

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due to the HOA’s failure to pay taxes. (Def.’s Req. Judicial Notice Attach. #1 [Cross-

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Compl.], at 10, ECF No. 20.) On August 14, 2014, the HOA terminated the employment

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of Linda Heater, a part-time employee of Parkside who had served as the HOA’s

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manager since 1988. (Id. at 7, 10.) Shortly thereafter, Parkside terminated its

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relationship with Martin Mohamed, the HOA’s accountant and Heater’s son-in-law. (Id.

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at 8, 10.) After Heater’s employment was terminated, a new HOA Board discovered that

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Heater had embezzled $80,000 from the HOA from January 2010 through July 2014, and

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later realized that she had embezzled at least $228,000 from 1990 through 2009. (Id. at

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11.) On October 2, 2014, Parkside reported Heater to the police. (Cinco Decl. Supp.

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Def.’s Opp’n Pl.’s Mot. Summ. J. Ex. 3 [police report], at 2, ECF No. 21.) Almost two

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years later, on August 26, 2016, Heater pleaded no contest to a felony charge of

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embezzlement under Cal. Penal Code section 504, committed between January 1, 2010,

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and July 11, 2014. (Pl.’s Opp’n Attach. #1 Steinberg Decl. Ex. 10 [Heater plea

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agreement], at 39-40, ECF No. 59.)

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On April 26, 2016, before the criminal charges against Heater were resolved and in

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response to a civil lawsuit brought by Heater against the HOA, Parkside filed a cross-

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complaint against Heater, Mohamed, and three of its former directors and officers, Dale

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Erlenbusch, Scott Devoy, and Hernan Mendez. (Def.’s Req. Judicial Notice Attach. #1

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[Cross-Compl.], at 1, ECF No. 20.) The HOA alleged that the former directors were

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negligent and breached their fiduciary duties to Parkside and caused Parkside financial

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losses by failing to properly supervise and control the activities of Heater and Mohamed.

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(Id. at 15-17, 19-20.) On March 2, 2017, Travelers declined to indemnify the three

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former directors for any losses in the lawsuit filed by Parkside against them. (Compl., 6,

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ECF No. 1.)

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In July 2018, the former directors stipulated to liability and causation, and agreed

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to permit a referee to determine damages. (Def.’s Req. Judicial Notice Attach. #2

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[Statement of Decision], at 5, ECF No. 20.) On April 13, 2019, the three former
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directors, who Parkside contends are insureds under the policy, assigned their claims

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under the Travelers D&O policy to Parkside. (Compl. 4, 6, ECF No. 1.) On November

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15, 2019, a final judgment in favor of Parkside against the former directors for $688,931

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was entered. (Id.) 1 On May 11, 2020, Travelers denied the former directors’ claims and

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the HOA’s claim for indemnification under the D&O policy. (Id.) On September 3,

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2020, Parkside initiated this lawsuit against Travelers for breach of contract and breach of

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the implied covenant of good faith and fair dealing. (Id. at 1.)

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Turning to the facts giving rise to the current motion, Travelers sought to take the
depositions of former directors Erlenbusch, Devoy, and Mendez. (Def.’s Mot. 3, ECF

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No. 71.) According to Travelers, its process server, Jesse Lopez of First Legal,

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personally served a deposition subpoena and notice of remote deposition on Erlenbusch

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on September 6, 2021, at his address at 1138 S. 8th Street in El Centro, California. (Id.

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Attach. #2 Lopez Decl. 2; see also id. Attachs. #3-5 Lopez Decl. Exs. A-C [depo.

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subpoena, notice, and proof of service].) The deposition was scheduled to take place on

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September 17, 2021, at 10:00 a.m. via remote means coordinated by Ben Hyatt Court

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Reporting. (Id. Attach. #3 at 2; id. Attach #4 at 2.) The deposition notice instructed

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recipients of the notice (i.e., Erlenbusch and Plaintiff’s counsel) to call the court reporting

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firm’s telephone number “to retrieve the necessary credentials to access the remote

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deposition, as well as information related to any technical assistance” required to attend

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the deposition. (Id. Attach. #4 at 3.) The notice also instructed the deponent to “contact

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the noticing attorney at least five (5) calendar days before the deposition to confirm your

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intent to appear at this deposition via remote means to ensure you receiving the necessary

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credentials, . . . .” (Id. at 4.)

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The $688,931 is comprised of $371,922 in damages ($173,107 for unauthorized amounts paid to
Heater/lost assessment income, $22,341 for tax penalties and interest, $5,125 for costs related to
preparation of HOA tax returns, $22,621 in increased insurance costs, and $148,728 in prejudgment
interest); $269,755 in attorney’s fees, and $47,254 in costs. (Def.’s Req. Judicial Notice Attach. #2
[Statement of Decision], at 8-9, 13-16, ECF No. 20.)
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There is some dispute about precisely what happened on September 16, 2021, the

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scheduled date of Mr. Devoy’s deposition, but according to copies of emails submitted to

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the Court, Plaintiff’s counsel, Mr. Steinberg, emailed Ms. Yanni, Defendant’s counsel, on

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1:23 p.m. that day to inquire: “Are your depos on or off? Your reporter does not have

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any logon information for these depositions. Please advise ASAP.” (Def.’s Reply

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Attach. #2 Yanni Decl. Ex. A, at 3, ECF No. 75.) At 1:46 p.m., Ms. Yanni responded,

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“We will provide the log in information. Will you be defending the witnesses?” (Id. at

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2.) Mr. Steinberg states that he spent one hour preparing for the deposition and forty-five

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minutes waiting for Mr. Devoy’s deposition to start. (Pl.’s Opp’n Attach. #2 Steinberg

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Decl. 2, ECF No. 73.) At 2:27 p.m., he emailed Yanni: “It is now 26 minutes past the

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scheduled time for this deposition and I’ve heard nothing further from you and your court

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reporting firm indicates there is no deposition scheduled.” (Def.’s Reply Attach. #2

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Yanni Decl. Ex. A, at 2, ECF No. 75.) Yanni responded three minutes later, “Mr. Devoy

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was not served, so his deposition is not proceeding today. Mr. Erlenbusch and Mr.

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Mendez are scheduled for 10 and 2 tomorrow and have been served.” (Id.) At 4:45 p.m.,

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Yanni emailed Zoom meeting information for the Erlenbusch and Mendez depositions to

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Mr. Steinberg. (Id. Attach. #3 Yanni Decl. Ex. B, at 2.)

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The following day, September 17, Mr. Erlenbusch did not appear for his

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deposition. (Def.’s Mot. Attach. #6 Yanni Decl. 2, ECF No. 71.) On September 21,

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2021, four days after the scheduled date of the deposition, Mr. Erlenbusch emailed Ms.

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Yanni the following:

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Rebekah,

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I called the # on the attached Deposition Request (Which was for Ivan
Mendez and not myself) and was informed that I was not on any list. I
contacted Mr. Steinberg and he informed me he had the same response. I
was awaiting a call Thursday and Fri [September 16 and 17, 2021] and no
one contacted me. I have no problem complying with any requests
concerning this matter as I have stated before.

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(Pl.’s Opp’n Attach. #1 Erlenbusch Decl. Ex. B, at 16, ECF No. 73.) Mr. Erlenbusch

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attests to the same in his declaration. (Id. at 2.) After receiving his email, Ms. Yanni

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spoke with Mr. Erlenbusch, who advised that he would appear for a deposition. (Def.’s

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Mot. Attach. #6 Yanni Decl. 3, ECF No. 71.) Ms. Yanni asked Mr. Steinberg to stipulate

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to proceed with the deposition, but Mr. Steinberg declined. (Id.) Travelers now seeks

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leave of court to proceed with the deposition after the fact discovery deadline of

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September 20, 2021.

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II.

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LEGAL STANDARDS

A notice of deposition must state the time and place of the deposition and, if

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known, the deponent’s name and address. Fed. R. Civ. P. 30(b)(1). A deposition may

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take place by remote means. Id. R. 30(b)(4). The scheduling order issued by the court is

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required to limit the time to join other parties, amend the pleadings, complete discovery,

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and file motions. Fed. R. Civ. P. 16(b)(3). The schedule may be modified only for good

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cause and with the judge's consent. Id. R. 16(b)(4). The "'good cause" standard under

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Rule 16(b) "primarily considers the diligence of the party seeking the amendment."

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Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992); see also Fed.

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R. Civ. P. 16 advisory committee notes to 1983 Amendment ("[T]he court may modify

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the schedule on a showing of good cause if it cannot reasonably be met despite the

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diligence of the party seeking the extension."). This is unlike the liberal amendment

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policy of Federal Rule of Civil Procedure 15(a), which governs amended and

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supplemental pleadings, and which focuses on the bad faith of the party seeking

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amendment and the prejudice to the opposing party. Johnson, 975 F.2d at 609. While the

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court is not required to consider prejudice under Rule 16(b), it may supply an additional

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reason to deny a motion to modify a scheduling order. See Coleman v. Quaker Oats Co.,

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232 F.3d 1271, 1295 (9th Cir. 2000). The focus of the inquiry is on the moving party's

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reasons for seeking modification. Johnson, 975 F.2d at 609. "If that party was not

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diligent, the inquiry should end" and the motion to modify should not be granted. Id.

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III.
A.

DISCUSSION

Motion for Leave to Take Deposition

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Travelers contends that Mr. Erlenbusch was properly served with the deposition

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subpoena. (Def.’s Mot. 4-5, ECF No. 71.) Defendant is not presently seeking an order

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compelling Mr. Erlenbusch’s deposition or holding him in contempt because he has

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agreed to his deposition, but is seeking leave of court to proceed with the deposition after

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the fact discovery cutoff, which was September 20, 2021. (Id. at 6.) Plaintiff argues that

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Mr. Erlenbusch’s failure to appear was a problem of Travelers’ own making because

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Erlenbusch was not properly served with the deposition subpoena and Travelers failed to

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provide him with the Zoom credentials in advance of the deposition. (Pl.’s Opp’n 3-5,

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ECF No. 73.) Parkside also argues that prejudice exists because its counsel prepared and

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waited for two depositions (Mr. Devoy’s and Mr. Erlenbusch’s) that did not go forward.

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(Id. at 5.) Plaintiff further asserts that good cause to permit the deposition after the fact

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discovery deadline is lacking because Travelers has had over a year to depose the former

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directors, their testimony is not necessary because Travelers’ denial had nothing to do

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with the former directors, the pertinent legal issues are currently pending in motions

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before Judge Houston, and Travelers did not argue in any of the motions that it needed

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discovery from the former directors. (Id. at 5-6.)

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Based on his email to Defendant’s counsel, Mr. Erlenbusch was clearly expecting

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to be deposed on September 17, 2021, and remains willing to sit for his deposition. (Pl.’s

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Opp’n Attach. #1 Erlenbusch Decl. Ex. B, at 16, ECF No. 73.) Travelers noticed the

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deposition in advance of the fact discovery deadline, but the deposition did not proceed

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on the scheduled date due to confusion and logistical issues. Defendant acted diligently

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in seeking relief when it realized it would not be able to comply with the scheduling

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order. Mr. Erlenbusch likely possesses relevant information; it is, after all, the former

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directors’ claims against Travelers that Parkside is pursuing in this litigation through the

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assignment of those claims by the directors to Plaintiff. That Travelers did not argue any

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need for Erlenbusch’s deposition in relation to the summary judgment motions is not
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pertinent because litigants are "obligated to prepare [their] case[s] in a diligent manner"

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consistent with the court's scheduling order even while pursuing other means of

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proceeding with the case. See Osakan v. Apple Am. Grp., No. C 08-4722 SBA, 2010

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WL 1838701, at *4 (N.D. Cal. May 5, 2010). Reopening fact discovery to permit

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Travelers to take Mr. Erlenbusch’s deposition will not prejudice Parkside, as it will not

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delay any other deadlines in the case. In sum, Travelers has established good cause for

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modifying the scheduling order as required by Fed. R. Civ. P. 16(b), particularly because

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this Court, like other courts, prefers that cases be resolved on their merits. See, e.g.,

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Caldwell v. Bloomin’ Brands, Inc., Case No. ED CV 19-754-DMG (MRWx), 2021 WL

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3264145, at *1 (C.D. Cal. Apr. 8, 2021) (granting application to reopen discovery to

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permit deposition even though Plaintiff was mistaken about the discovery deadline and

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did not schedule the deposition until one week before the discovery deadline). Travelers

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has proceeded with sufficient diligence for the Court to find that good cause exists to

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reopen fact discovery for the limited purpose of taking Erlenbusch’s deposition. See

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Johnson, 975 F.2d at 609 (the good cause standard under Rule 16(b) primarily considers

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the diligence of the party seeking the amendment). Accordingly, Travelers’ motion for

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leave to depose Dale Erlenbusch is GRANTED.

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B.

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Civil Local Rule 2.1 Professionalism
In its September 30, 2021 order, this Court directed both sides to “address whether

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their actions relating to the scheduling of Mr. Erlenbusch’s deposition were consistent

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with Civil Local Rules 2.1(a)(2)(f) (requiring counsel ‘to attempt to resolve disputes

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promptly, fairly and reasonably, with resort to the Court for judicial relief only if

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necessary’) and (a)(3)(b) (expecting counsel ‘to treat adverse witnesses, litigants and

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opposing counsel with courtesy, fairness and respect’).” (Order 2, Sept. 30, 2021, ECF

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No. 68.) The Court is disappointed that neither party addressed Rule 2.1 in its brief but

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assumes that counsel have reviewed the entirety of this rule and will be mindful of its

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application to circumstances such as these going forward.

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IV.

CONCLUSION

For the reasons set forth above, Travelers’ Motion for Leave to Depose Dale
Erlenbusch is GRANTED.
IT IS SO ORDERED.

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Dated: January 11, 2022

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