Rowe et al v. Bankers Life and Casualty Company et al
MEMORANDUM Opinion and Order Signed by the Honorable Martin C. Ashman on 5/18/2011:Mailed notice(tlp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
SAMUEL ROWE and ESTELLA
ROWE, on behalf of themselves and
all others similarly situated,
BANKERS LIFE AND CASUALTY
COMPANY and BANKERS LIFE
INSURANCE COMPANY OF ILLINOIS,
Case No. 09 C 491
Judge Robert M. Dow, Jr.
Martin C. Ashman
MEMORANDUM OPINION AND ORDER
Plaintiffs Samuel and Estella Rowe ("Plaintiffs") bring this motion to compel Defendants
Bankers Life and Casualty Company and Bankers Life Insurance Company of Illinois ("Bankers
Life") to produce certain insurance examination documents. The Court rules on this motion
under District Judge Robert M. Dow Jr.'s referral for a decision pursuant to N.D. Ill. Rule 72.1.
Based on the parties' briefs and a hearing held on April 18, 2011, the Court finds that Plaintiffs'
motion is denied.
Plaintiffs have brought this action on behalf of themselves and all similarly-situated
persons against Bankers Life for the allegedly improper sales of deferred annuities to senior
citizens. Claiming various common law actions, as well as violations of the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), 28 U.S.C. § 1961, et seq., Plaintiffs allege
in their Second Amended Complaint that Bankers Life formulated a deceptive scheme involving
an untrained sales force, high-pressure tactics, and opaque sales literature designed to induce
senior citizens to purchase annuities from Bankers Life. On May 28, 2009, Plaintiffs issued their
First Request for Production of Documents. Request No. 38 asks for the production of "all
market conduct examinations sent between any State's Department of Insurance and Bankers
Life that relate to the marketing, advertising, servicing, underwriting, or sale of Your Annuities
to Senior Citizens." Bankers Life responded, in part, with the familiar objection that Plaintiffs'
request was overly broad, unduly burdensome, and irrelevant.
Notwithstanding, Bankers Life agreed to produce documents responsive to governmental
inquiries to the extent that the requested documents were not confidential or were not otherwise
barred from disclosure under any state law or regulation. Bankers Life informs the Court in its
response that it has already produced six "market conduct examinations" to the Plaintiffs. A
market conduct examination is a form of report made by state insurance agencies in order to
assess whether insurance companies are in compliance with a state's laws and regulations. See
Solarchick v. Metropolitan Life Ins. Co., No. 01-444, 2006 WL 1308073, at *1 (W.D. Pa.
May 10, 2006) (providing descriptions of market conduct examinations). Bankers Life,
however, refused to produce a report by the California commissioner of insurance. In its initial
response to Request No. 38, Bankers Life stated that no California market examination existed
for the time period included in Plaintiffs' request. Bankers Life submitted a revised response that
claimed the company could not produce the report because such disclosure is prohibited by the
California Insurance Code.
A party may file a motion to compel under Fed. R. Civ. P. 37 whenever another party
fails to respond to a discovery request or when its response is insufficient. Fed. R. Civ. P. 37(a).
Courts have broad discretion in resolving such disputes and do so by adopting a liberal
interpretation of the discovery rules. Wilstein v. San Tropai Condo. Master Assoc., 189 F.R.D.
371, 375 (N.D. Ill. 1999). Federal Rule of Civil Procedure 26 provides that the "[p]arties may
obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or
defense." Fed. R. Civ. P. 26(b)(1). Discoverable information is not limited to evidence
admissible at trial. Instead, such information is relevant "if the discovery appears reasonably
calculated to lead to the discovery of admissible evidence." Id. However, while the scope of
permissible discovery is broad, it is not unlimited. A court can limit discovery if the court
believes it is unreasonably cumulative, if the party seeking discovery has already had ample
opportunity to do so, or if the burden of the proposed discovery outweighs its likely benefit.
Fed. R. Civ. P. 26(b)(2).
Bankers Life first argues that the Court should deny the instant motion because discovery
closed in this case on July 21, 2010, and Plaintiffs' motion is late. Plaintiffs answer this
objection by noting that discovery has been taken on a "rolling basis," with various documents
produced by Bankers Life after the cutoff date, and by claiming that Bankers Life fails to show
how it would be prejudiced by responding to Request No. 38 at this time. Standing alone,
neither of these arguments is dispositive, as no clear standard controls when a motion to compel
should be considered after fact discovery has closed. The Federal Rules of Civil Procedure do
not address this issue. Instead, courts are given "extremely broad discretion in controlling
discovery" and can deny motions to compel as untimely when such action is appropriate under
the circumstances. In re Sulfuric Acid Antitrust Litig., 231 F.R.D. 331, 336 (N.D. Ill. 2005);
Wilstein, 189 F.R.D. at 375.
Bankers Life's argument gives the Court some pause, as Plaintiffs do not seriously argue
why this motion could not have been brought at an earlier time. Nevertheless, two factors
persuade the Court that the parties', as well as the Court's, interests are best served by finding the
motion not to be barred as untimely. First, the allegations involved in this class action are
complex; Plaintiffs' Second Amended Complaint is seventy-five pages long and contains
fifty-three attachments. Courts have shown a willingness to consider motions to compel that
could have been filed at an earlier date when extensive fact and expert discovery may be
involved in a case. See U.S. S.E.C. v. Sentinel Mgt. Group, Inc., No. 07 C 4684, 2010 WL
4977220, at *6 (N.D. Ill. Dec. 2, 2010). Second, the discovery Plaintiffs seek is very limited.
Bankers Life does not dispute that it possesses the document that Plaintiffs request, nor does it
argue in its response that producing the California market examination would be burdensome.
Were that the case, the Court would be more reluctant to consider a motion that Plaintiffs could
have filed at a more reasonable time after Bankers Life submitted its revised response to Request
No. 38 on December 18, 2009. As this case has not been set for trial, and as the class
certification issue has not been decided, the Court finds that Plaintiffs' motion should not be
dismissed as untimely.
The California Insurance Code
Bankers Life argues that the California Insurance Code prevents it from disclosing a
market conduct report that the California insurance commissioner undertook in relation to
Bankers Life. Section 735.5 of the California Insurance Code governs the publication and
disclosure of preliminary and final examinations made by the California commissioner of
insurance. Subsection (a) of § 735.5 authorizes the commissioner to exercise discretion in
releasing examination reports and information in the furtherance of legal or regulatory actions;
subsection (b) authorizes the commissioner to provide the same information to a variety of state
and federal agencies, either with the relevant insurance company's consent or with a written
agreement by the receiving agency not to disclose the information. Cal. Ins. Code § 735.5(a) &
(b). Neither subsection applies to this case. Section 735.5(c), however, provides:
All working papers, recorded information, documents, and copies thereof
produced by, obtained by, or disclosed to the commissioner or any other person in
the course of an examination made pursuant to this article shall be given
confidential treatment and are not subject to subpoena and shall not be made
public by the commissioner or any other person, except to the extent provided in
subdivision (a) or (b).
Cal. Ins. Code § 735.5(c).
As an initial matter, both parties assume that the provisions of the California Insurance
Code govern how the Court should decide this evidentiary dispute. The ground for relying on
California's privilege law is not self-evident under the facts of this case, however, and neither
party addresses the complex issues that can arise in applying state-law privileges to federal
lawsuits. When civil actions arise under a court's diversity jurisdiction, a court determines
privileges in accordance with state law. Budinich v. Beckton Dickinson & Co., 486 U.S. 196,
198 (1988) ("[S]tate law generally supplies the rules of decision in federal diversity cases . . . .");
Grochocinski v. Mayer Brown Rowe & Maw LLP, 251 F.R.D. 316, 321 (N.D. Ill. 2008).
Plaintiffs bring this action under both RICO and state common law. When a plaintiff's principal
claim arises under federal law, with supplemental jurisdiction exercised over state-law
allegations, "the federal common law of privileges should govern all claims of privilege raised in
the litigation." Wilstein, 189 F.R.D. at 376.
In this case, however, Plaintiffs do not allege that their common law claims fall within
the Court's supplemental jurisdiction. Instead, they rely on the Class Action Fairness Act
("CAFA") to specifically invoke diversity jurisdiction, as well as federal question jurisdiction
under RICO. CAFA eliminates the ordinary requirement of complete diversity between parties
and authorizes federal courts to exercise diversity jurisdiction over a class action if only one
representative plaintiff is diverse from one defendant, and the aggregate claims exceed $5
million. 28 U.S.C. § 1332(d). The Second Amended Complaint makes such allegations and
cites the diversity statute, 42 U.S.C. § 1332, as a basis for this Court's jurisdiction. (Second
Amend. Comp. at ¶ 14).
The parties overlook that courts do not necessarily apply state privilege laws when, as
here, jurisdiction arises under both federal question jurisdiction and the diversity statute. See
Eagle Precision Techs., Inc. v. Eaton Leonard Robolix, Inc., No. 03 CV 352, 2005 WL 6453567,
at *4 (S.D. Cal. May 12, 2005) (citing cases). As several courts have noted, "it is not
immediately clear what law should apply" when a plaintiff invokes a court's jurisdiction in the
manner Plaintiffs have done here. See, e.g., Garza v. Scott and White Memorial Hosp., 234
F.R.D. 617, 624 (W.D. Tex. 2005); see also Martin v. Lafon Nursing Facility of Holy Family,
Inc., 244 F.R.D. 348, 351 (E.D. La. 2007). Nevertheless, as both parties in this case rely on the
California Insurance Code for the rule of decision, the Court will not disturb their assumption
and will interpret that statutory provision as the parties request.
Plaintiffs first argue that only the California commissioner of insurance holds the
privilege provided under § 735.5. The Court agrees with this analysis. On its face, subsection
(c) suggests that the insurance commissioner is not the only person who might release market
report information; the statute prohibits the public release of such information either by the
commissioner "or any other person." Cal. Ins. Code § 735.5(c). California courts, however,
have agreed with Plaintiffs that "the Insurance Commissioner is the sole holder of the
privilege[.]" Gallimore v. State Farm & Casualty Ins. Co., (2003) 102 Cal. App. 4th 1388, 1395
n.6. Federal courts are bound by a state supreme court's interpretation of state law. Finch v.
Ford Motor Co., 327 F. Supp.2d 942, 943-46 (N.D. Ill. 2004). In the absence of any analysis of
§ 735.5 by the California Supreme Court, however, this Court accepts the appellate court's
interpretation in Gallimore of the California Insurance Code.
Plaintiffs rely on Gallimore to argue that, as Bankers Trust does not hold the privilege
provided under § 735.5, it cannot use it to protect the market report that Plaintiffs seek. On this
point, however, Plaintiffs press too far, as Gallimore strongly suggests that Bankers Life can do
just what Plaintiffs object to. In Gallimore, an insured plaintiff brought suit against an insurance
company, alleging misconduct in the handling of claims. The plaintiff relied primarily on a
market conduct examination it had obtained outside the discovery process, and the insurance
company sought dismissal on the ground that plaintiff's claim was based on confidential
information.1 The trial court granted dismissal under California's "anti-SLAPP" statute (strategic
lawsuit against public participation statute). Cal. Code Civ. P. § 425.16.
In reversing the trial court's dismissal, the appellate court took note that the insurer had
argued that the plaintiff could not prevail on its claims at trial because the market conduct report
was confidential under § 735.5. According to the court, however, the relevant issue for dismissal
was the nature of the allegedly wrong acts the insurance company undertook, not the evidence
that the plaintiff would need to produce in order to substantiate its allegations. Gallimore, 102
Cal. App. 4th at 1400. Nevertheless, the Gallimore court noted that the insurance company
"may well be correct" that the market conduct report was, in fact, confidential, privileged, and
inadmissible at trial. Id. In so doing, the court left undisturbed the trial court's ruling that,
contrary to the plaintiff's contention in that case, the privilege inherent to the insurance report
under § 735.5 was not waived by an unauthorized dissemination of it, and Gallimore quoted the
trial court's decision on this issue at some length:
To conclude otherwise would be violative of the statutory provisions and
underlying public policy giving rise to the privilege in the first instance. Those
insurers that submit information to the Insurance Commissioner, believing it to be
confidential and not usable against them in a proceeding at law, would face an
unforeseen risk if some third party released such material in a public forum. The
risk, of course, would be the filing of lawsuits against insurers based upon
information that was released to the Commissioner under the good faith belief
that it could not be used against them.
Id. at 1395 n.6. This language clearly finds that, notwithstanding the fact that the California
insurance commissioner holds the privilege provided for under § 735.5, an insurance company
like Bankers Life can still stand behind the confidentiality of such a report, as well as the
Although not entirely clear, the plaintiff appears to have obtained the report from a
website maintained by the California Senate. Gallimore, 102 Cal. App. 4th at 1395 n.6.
information submitted by the company as part of the report, as a matter of California public
The Court sees no reasonable basis why Gallimore does not support Bankers Life's
position in this dispute. As Bankers Life notes, another California state court has recently
reached the same conclusion on this issue. See Paul v. Blue Shield of Cal., No. RG 08396057 et
al., 2010 WL 4919551, at *1 (Cal. App. Dep't Super. Ct. June 18, 2010) ("Defendant shall not
produce any documents or information that fall within the scope of California Insurance Code
section 735.5(c) as such documents and information are confidential). As this Court must follow
state court interpretations of state law, Pisciotta v. Old Nat. Bancorp, 499 F.3d 629, 635-36 (7th
Cir. 2007), the Court agrees with Gallimore and Paul that Bankers Life's California market
conduct examination is a confidential document that Bankers Life is not required to produce.
For all these reasons, the Court finds that the California market conduct report is
privileged, and Plaintiffs' motion to compel [Dckt. 147] is denied.
Dated: May 18, 2011.
MARTIN C. ASHMAN
United States Magistrate Judge
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