Church Mutual Insurance Company v. Coutu et al

Filing 103

MEMORANDUM OPINION AND ORDER by Magistrate Judge Nina Y. Wang on 8/2/2017. Defendants' Forthwith Joint Motion To Stay Disclosures And Discovery Until The Court Rules On Defendants' Joint Motion To Dismiss 64 is DENIED. (nywlc2, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 17-cv-00209-RM-NYW
CHURCH MUTUAL INSURANCE COMPANY, a Wisconsin corporation,
Plaintiff,
v.
PHILLIP MARSHALL COUTU, an individual,
POWER ADJUSTERS, INC., a Colorado corporation,
JUDAH LEON BENSUSAN, an individual, and
ATLANTIS CLAIMS SERVICES, LLC, a Florida limited liability company,
Defendants.

MEMORANDUM OPINION AND ORDER
Magistrate Judge Nina Y. Wang
This matter is before the court on Defendants Phillip Marshall Coutu (“Mr. Coutu”),
Power Adjusters, Inc. (“Power Adjusters”), Judah Leon Bensusan (“Mr. Bensusan”), and
Atlantis Claims Services, LLC’s (“Atlantis”) (collectively, “Defendants”) Forthwith Joint
Motion To Stay Disclosures And Discovery Until The Court Rules On Defendants’ Joint Motion
To Dismiss (the “Motion” or “Motion to Stay”). [#64, filed June 5, 2017]. The undersigned
considers the Motion pursuant to 28 U.S.C. § 636(b), the Order Referring Case dated March 30,
2017 [#33], and the memorandum dated June 5, 2017 [#66]. Upon careful review of the Motion
and associated briefing, the entire case file, applicable law, and the comments offered at the July
14, 2017 Status Conference, the Motion is DENIED for the reasons stated herein.

BACKGROUND
Plaintiff Church Mutual Insurance Company (“Plaintiff” or “Church Mutual”) initiated
this action by filing its Complaint in the United States District Court for the District of Colorado
on January 23, 2017. [#1]. Plaintiff’s Complaint alleged two claims against the Defendants:
(1) civil conspiracy and (2) fraudulent concealment. [Id.]. The events giving rise to Plaintiff’s
Complaint involved an appraisal award issued to one of Church Mutual’s policyholders for
repairs completed to the policyholder’s roof following a hailstorm. [Id.]. Plaintiff alleged that
Defendants conspired to unlawfully inflate the cost of repairs needed for their own economic
gains, as each had a stake in a higher appraisal award. [Id.].
Following several extensions of time to answer or otherwise respond to Plaintiff’s
Complaint, see, e.g., [#20; #25; #29; #38], and prior to the Rule 16(b) Scheduling Conference,
the undersigned granted the Parties’ request to set a deadline of April 25, 2017 for Plaintiff to file
its Amended Complaint, and granted Defendants one final extension of May 16, 2017 to answer
or otherwise respond to Plaintiff’s Amended Complaint. See [#46]. Plaintiff filed its Amended
Complaint on April 25, 2017, and levied several new claims against Defendants. Thus, the
operative claims in this matter include:

(1) Civil Conspiracy against all Defendants; (2)

Fraudulent Concealment against all Defendants; (3) Civil RICO against all Defendants; (4) Civil
RICO Conspiracy against Messrs. Coutu and Bensusan; and (5) Colorado Organized Crime
Control Act (“COCCA”) against Messrs. Coutu and Bensusan. [#49].
The undersigned then held a Status Conference on May 10, 2017, setting a Scheduling
Conference for June 23, 2017. [#56]. On June 5, 2017, Defendants filed the instant Motion in
addition to their Joint Motion to Dismiss the Amended Complaint pursuant to Rule 12(b)(6) of

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the Federal Rules of Civil Procedure. [#64; #65]. At the June 23, 2017 Scheduling Conference,
the undersigned set the matter for a further Status Conference on July 14, 2017. [#75]. At the
July 14 Status Conference, the undersigned discussed several issues regarding discovery in this
matter, and also heard oral arguments on the Motion to Stay. [#94]. Because the Motion to Stay
is ripe for resolution, this court considers the Parties’ arguments below. 1
LEGAL STANDARD
“The Federal Rules of Civil Procedure do not provide for the stay of proceedings while a
motion to dismiss is pending. Instead, Rule 1 instructs that the rules of procedure ‘shall be
construed and administered to secure the just, speedy, and inexpensive determination of every
action.’” Sutton v. Everest Nat'l Ins. Co., No. 07 CV 00425 WYD BNB, 2007 WL 1395309, at
*1 (D. Colo. May 9, 2007). Nonetheless, when ruling on a motion to stay, courts weigh the
following factors: (1) the plaintiff’s interests in expeditiously litigating this action and the
potential prejudice to plaintiff of a delay; (2) the burden on the defendants; (3) the convenience
to the court; (4) the interests of persons not parties to the civil litigation; and (5) the public
interest. String Cheese Incident, LLC v. Stylus Shows, Inc., No. 1:02-CV-01934-LTB-PAC,
2006 WL 894955, at *2 (D. Colo. Mar. 30, 2006). However, “stays of the normal proceedings of
a court matter should be the exception rather than the rule,” Christou v. Beatport, LLC, No. 10CV-02912-CMA-KMT, 2011 WL 650377, at *1 (D. Colo. Feb. 10, 2011), and stays in this
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Also pending before the undersigned is Defendants’ Joint Motion to Dismiss [#65];
Defendants’ Motion For Disclosure Of Settlement Agreements Between Montview Church And
Church Mutual Insurance Company And John Kezer And Church Mutual Insurance Company
Pursuant To Stipulated Protective Order Dated June 27, 2017 [#78]; interested party Keith
Frankl’s Motion To Quash Subpoena To Non-Party Keith Frankl And/Or The Frankl Law Firm,
P.C. [#91]; and Defendants’ Motion To Quash Pursuant To Fed.R.Civ.P. 45(d)(3)(B) Of
Subpeona Duces Tecum To The Frankl Law Firm And For Protective Order [#92]. These
motions are not yet fully briefed nor argued, and this court will address these by separate order.
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District are generally disfavored, see, e.g., Chavez v. Young Am. Ins. Co., No. CIVA
06CV02419PSFBNB, 2007 WL 683973, at *2 (D. Colo. Mar. 2, 2007).
ANALYSIS
Defendants request a stay of all discovery in this matter until the court disposes of their
Joint Motion to Dismiss. Defendants aver that Plaintiff’s case is “one of first impression and is
intended to throw open the flood gates of litigation[;] [h]owever, the Plaintiff has nothing more
than conclusory allegations that are subject to dismissal pursuant to Rule 12(b)(6).” [#64 at 2].
In addressing the String Cheese factors, Defendants argue that a stay will not prejudice Church
Mutual’s interests, “because it already had its day in court,” as it settled its case against the
policyholder where in it sought to vacate the appraisal award. See [id. at 2, 5]. Thus, Plaintiff
does not get “a second bite at the apple.” [Id. at 5]. Second, Defendants argue that a stay is
warranted, because a ruling in their favor on the Joint Motion to Dismiss will dispose of
Plaintiff’s whole case, and it would be burdensome on Defendants to engage in grossly excessive
and abusive discovery” the Plaintiff proposes to undertake. [Id. at 6-7]. Third, Defendants again
point to the likely success of their Joint Motion to Dismiss in dismissing Plaintiff’s case which
will relieve the court of needless discovery disputes. [Id. at 7]. As to the final two factors,
Defendants contend that Plaintiff’s suit is “groundless,” and that persons outside this matter have
no interest in such a suit. [Id. at 7]. Finally, during oral argument, counsel for Bensusan and
Atlantis, indicated that, to the extent that this court’s Recommendation was to deny the pending
Motion to Dismiss, Defendants agreed that discovery should properly commence at that time
even if the presiding judge, the Honorable Raymond P. Moore, had not yet ruled on any
objections to the Recommendation.

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Conversely, Church Mutual argues that a stay is unwarranted merely because Defendants
believe their Joint Motion to Dismiss will be granted; rather, the Joint Motion to Dismiss
encompasses a litany of issues, and is not likely to result in the dismissal of the Amended
Complaint in its entirety. See [#71 at 1, 6-7]. As to the first String Cheese factor, Plaintiff
argues that this weighs heavily in its favor, as it filed this case in January 2017 and in nearly six
(6) months no discovery has commenced. [Id. at 7-8]. Next, Plaintiff avers that there would be
no burden on Defendants should the court adopt a phased discovery schedule in this matter. See
[id. at 8]; see also [#87 at 3-4]. Relatedly, phased discovery will allow the case to proceed
(without becoming stagnant) as the court resolves the Joint Motion to Dismiss, which serves the
court’s interests. [#71 at 8-9]. At oral argument, Plaintiff argued that its phased discovery plan
limited discovery for a period that was roughly equivalent to the time that it would require the
court to issue a Recommendation on the Motion to Dismiss. As to the fourth and fifth factors,
Church Mutual contends that this case impacts the interests of non-parties, as evidenced by the
two (2) motions to quash a subpoena duces tecum served on interested party Keith Frankl, see
also [#91; #92], and that the allegations contained in the Amended Complaint potentially
implicate a matter of public interest. See [#71 at 9].
Here, the court focuses on the first three String Cheese factors, i.e., the prejudice to
Church Mutual in staying discovery; the burden on Defendants; and the convenience to the court.
Defendants’ arguments supporting stay are all rooted in the premise that they will prevail on the
pending Motion to Dismiss, and that, to the extent dismissal is proper, there is no available cure
to Church Mutual. But as reflected by both the briefing related to the Motion to Stay and to the
Motion to Dismiss, this court is keenly aware of the divergent views that each side in this action

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holds about its merits. And no element of the String Cheese factors requires that this court make
a preliminary determination as to the likelihood of success of either the dispositive motion or the
ultimate merits of this case. Given that the briefing and argument are not complete, and this
court has not had an opportunity to consider the merits of the Motion to Dismiss, it declines to
presume at this juncture that Plaintiff will be unable to proceed with this action in any form, on
any of the five causes of action asserted in the Amended Complaint. 2
As the court noted during the Status Conference held on July 14, 2017, it is concerned
that this case has been pending over six months without any substantive progress. Even with
discovery progressing now, the Parties agree that expert discovery will occur after the close of
fact discovery in April 2018, and the Final Pretrial Conference is set for December 2018 –
almost two years after the commencement of this action. The court further notes that the number
of causes of action and contentious nature of this action suggests that discovery may be arduous
for both the Parties and the court. And despite Defendants’ suggestion that it is more efficient
for the court to defer addressing discovery issues until after the Recommendation on the Motion
to Dismiss, this court notes three things to the contrary. First, it is the clear preference of this
District to proceed with discovery while a motion to dismiss is pending. Second, discussion
between the Parties and counsel to date suggests that discovery related to where information is
stored and by whom it is held may be a necessary predicate to substantive discovery. Third, this
particular court prefers a proactive approach to case management to one of procrastination.
Therefore, the operative inquiry is whether this court and the Parties can craft a discovery plan

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At the same time, the Parties should not interpret the court’s ruling on this instant motion as
suggesting that Defendants will not prevail on the pending Motion to Dismiss.
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that balances the divergent interests of the Parties for the time that the Motion to Dismiss is
pending. This court concludes they can.
Defendants argue that there are “unrelated personal and business relationships between
Bensusan and Coutu or McConnell and Church Mutual” so that discovery should not be
permitted. But at the heart of the allegations asserted by Plaintiff is a relationship between the
four Defendants and their financial integration. It strikes this court that, to the extent that Church
Mutual is incorrect about the relationship between the four Defendants, none of the claims
asserted by the Amended Complaint can survive. The court is also cognizant that Defendants are
particularly sensitive about how Church Mutual might use the details of the relationship, but that
is the very purpose of the Protective Order entered by the court, i.e., to limit the access and use
of any sensitive information to certain individuals and to this action. If the relationship is what
Defendants represented at oral argument – a professional relationship in which Messrs. Bensusan
and Coutu worked together on a limited number of occasions over several years – then discovery
into that relationship should not be particularly onerous and that evidence could lead to an early
disposition of this matter. But to the extent that the relationships between the four Defendants
are more complex and may take more analysis to unravel, or Defendants raise specific bases for
non-disclosure (such as privilege), it seems to this court that it should address those issues headon rather than ignore them. Defendants have failed to persuade this court that further delay is the
appropriate course of action, and this court is satisfied that through regular status conferences, it
can limit discovery in an appropriate manner until the disposition of the Motion to Dismiss.
Accordingly, until the issuance of the Recommendation of the Motion to Dismiss,
Plaintiff should limit its discovery to the Montview matter and the relationship between the four

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Defendants. This may include formal discovery of information held by John Kezer, related to
the adjustment of the Montview claim and his relationship to the four Defendants, and other
entities controlled or managed by the four Defendants. In this first phase of discovery, to
minimize disruption to Defendants’ businesses and outside relationships, Plaintiff may serve
third party subpoenas only to the extent that they relate to these specific issues and after an
agreement by the Parties or a ruling of this court that the discovery sought is not obtainable from
Defendants. Plaintiff must defer seeking discovery related to any other insurance claim, and
Defendants need not produce any discovery regarding the adjustment of other insurance claims,
except as to information that reflects the relationship and financial arrangements between
the Defendants. Finally, in this first phase of discovery, this court will adjudicate the pending
motions to quash and any ruling of such motions will help the Parties frame the appropriate
scope of discovery moving forward.
The court expressly holds that Defendants are also permitted to seek discovery in this
initial timeframe, but is less clear what discovery Defendants believe is central to their defenses
that is in Plaintiff’s possession, custody, or control. 3 Once Defendants serve their discovery
requests, this court will adjudicate any disputes regarding their scope and/or burden after the
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Due to the pending Motions to Dismiss, Defendants have not yet answered so this court cannot
ascertain whether there may be counterclaims, but Defendants have indicated that they may
pursue an abuse of process claim against Plaintiff. [#87 at 5]. This court presumes that
Defendants assert that this action is an abuse of process, not a prior one. Under Colorado law, “a
valid abuse of process claim must allege (1) an ulterior purpose for the use of a judicial
proceeding; (2) willful action in the use of that process which is not proper in the regular course
of the proceedings, i.e., use of a legal proceeding in an improper manner; and (3) resulting
damage.” Active Release Techniques, LLC v. Xtomic, LLC, --- P.3d ----, 2017 WL 526124, at
*1-2 (Colo. App. Feb. 9, 2017) (citing Mackall v. JPMorgan Chase Bank, N.A., 2014 COA 120,
¶ 39, 356 P.3d 946 (quoting Lauren Corp. v. Century Geophysical Corp., 953 P.2d 200, 202
(Colo. App. 1998)).
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Parties engage in a robust meet and confer guided by the principles laid out in Rule 26(b)(1) of
the Federal Rules of Civil Procedure at the September 7, 2017 Status Conference. Plaintiff is
specifically directed to inform Defendants of any objection to any served discovery (even if the
deadline to respond has not yet lapsed) no later than August 28, 2017 so that issues may be
addressed during the Status Conference.
CONCLUSION
For the reasons set forth herein, IT IS ORDERED that:
(1)

Defendants’ Forthwith Joint Motion To Stay Disclosures And Discovery Until

The Court Rules On Defendants’ Joint Motion To Dismiss [#64] is DENIED.

DATED: August 2, 2017

BY THE COURT:

s/Nina Y. Wang__________
Nina Y. Wang
United States Magistrate Judge

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