American General Life Insurance Company v. Jude
Filing
105
MEMORANDUM OPINION & ORDER : For the reasons stated herein, the Court DENIES the Judes' Renewed Motion 73 for monetary or other specific sanctions. Signed by Magistrate Judge Edward B. Atkins on 1/24/19.(JLS)cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
ASHLAND
CIVIL ACTION NO 0:17-CV-90-DLB-EBA
AMERICAN GENERAL LIFE
INSURANCE COMPANY,
PLAINTIFF,
V.
THE ESTATE OF CHAD JUDE
-----------------------
DEFENDANT.
MEMORANDUM OPINION
AND ORDER
THE ESTATE OF CHAD JUDE
and LORI JUDE,
COUNTER-PLAINTIFFS,
V.
AMERICAN GENERAL LIFE
INSURANCE COMPANY,
COUNTER-DEFENDANT.
*** *** *** ***
This matter is before the Court on Defendant/Counter-Plaintiff’s (the Judes) Renewed
Motions for Sanctions pursuant to Rule 37. [DE #73 (Motion)]. At the heart of this motion,
the Judes argue they have been unfairly prejudiced by Plaintiff/Counter-Defendant’s
(AGLIC) failure to “timely produce or supplement its discovery responses to include… Swiss
RE documents,” which they argue “formed the basis” of their decision to rescind Chad Jude’s
$1,500,000 life insurance policy. [Id. at 1; Id. at 8]. Accordingly, the Judes request: 1) these
Swiss Re documents be excluded; 2) the jury be informed of AGLIC’s failure to produce these
documents; and 3) expenses and fees associated with bringing this motion. [Id. at 14]. In
opposing this motion, AGLIC raises several arguments. [DE #75 Response]. Most
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importantly, AGLIC argues that “[t]here is no controversy here,” since they “fully complied”
with the Court’s order resolving this discovery dispute long ago. [Id. at 3].
Having evaluated the briefing and the full record under the applicable standard, the
Court finds there is no just cause that would warrant sanctions to AGLIC under Rule 37, and
therefore, DENIES the Judes’ requests outlined in the Renewed Motion for Sanctions [DE
#73].
I.
Facts and Procedural History
In this civil action, AGLIC seeks a declaratory judgment rendering Chad Jude’s life
insurance policy null and void due to alleged fraudulent and material misrepresentations
made by Mr. Jude in his application, policy amendment to his application, and medical
history. [DE. #1 (Complaint)].
On October 30, 2017, Ms. Laura Stout, an AGLIC underwriter and a deponent in
this case, sent a letter to Mr. Jude disclosing AGLIC’s decision to rescind his life insurance
policy [DE #75-1 (Letter)] on the basis of his alleged failure to fully disclose his medical
history. [DE #75-9 at 1-2]. In this letter, Stout makes reference to a condition known as
Chiari I malformation and Mr. Jude’s “fail[ure] to disclose an MRI performed due to
symptoms of dysphagia[,]” which demonstrated diagnosis of this condition. [Id. at 2 ¶ 3].
Intending to render Mr. Jude’s coverage null and void, and thus rescind his policy due to
“incorrect and incomplete” answers provided after issuance of the policy, Stout enclosed a
voluntary rescission agreement in the letter. [Id.; Id. at 4]. This lawsuit commenced as a result
of Mr. Jude’s decision not to sign and return the agreement. [See DE #73 at 2; DE #75 at 7].
The following outline represents the procedural history that ensued relevant to the
filing of this motion:
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•
December 20, 2017: Case deadlines were established in the Court’s
Scheduling Order. [DE #19].
•
February 5, 2018: By joint agreement [see DE #23], the deadlines for
Rule 26(a)(1) disclosures were extended from January 18, 2018 to
February 23, 2018. [DE #24].
•
April 5, 2018: This Court accepted the parties’ Agreed Protective Order.
See DE #32. [DE #33].
•
April 26, 2018: The Judes filed a Motion to Compel Discovery and
Impose Sanctions. [DE #34].
•
May 4, 2018: AGLIC filed a Response to DE #34. [DE #38].
•
May 9, 2018: The Court conducted the first telephonic conference to
address the discovery dispute which led to the Judes’ Motion to Compel
and Impose Sanctions. [DE #40; DE #60].
o During the call, the Court made several rulings as to certain
Requests for Interrogatories and Production of Documents
outlined in the Judes’ motion to compel. Additionally, AGLIC
was given deadlines for which to revise its privilege log, and to
submit— for an in camera review— any documents to which it
claimed were subject to privilege.
•
May 14, 2018: The Court disclosed the results of the in camera review.
o The first five documents were deemed to be privileged, and thus,
were not deemed subject to production. The Court concluded
that AGLIC’s objection as to disclosure of the sixth document
was unpersuasive and ordered AGLIC to produce it in
accordance with the parties’ protective order [DE #33]. [DE
#43].
•
May 22, 2018: As a follow-up to the matters discussed on May 9, 2018,
the Court conducted its second telephonic conference. [DE #49; DE
61].
o Therein, the parties discussed any recent progress made in their
respective cases and revealed the present need to alter case
deadlines. Towards the end of the call, counsel for AGLIC
notified the Judes’ counsel that it would be providing a “Swiss
Re Underwriting Manual” relevant to the sixth document that
was subject to production. [DE #61 at 18].
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•
•
September 21, 2018: The Judes filed this Renewed Motion for Rule 37
Sanctions. [DE #73].
•
II.
May 22, 2018: An amended scheduling order, detailing new case
deadlines discussed during the call, was entered shortly after the call
concluded. [DE #50] Notably:
o The deadline for completion of all fact discovery on the Judes’
counterclaim [ DE #15] was Friday, August 31, 2018; and
o The deadline for supplemental expert disclosures was Monday,
September 17, 2018.
October 12, 2018: AGLIC filed its Response in Opposition to the Judes’
Motion for Sanctions, [DE #75], to which no reply has been filed.
Standard of Review
It is “well established that the scope of discovery is within the sound discretion of the
trial court.” Chrysler Corp. v. Fedders Corp., 643 F.2d 1229, 1240 (6th Cir. 1981) (citing H. K.
Porter Co., Inc. v. Goodyear Tire and Rubber Co., 536 F.2d 1115 (6th Cir. 1976)). As such, “[a]
ruling by the trial court limiting or denying discovery will not be cause for reversal unless an
abuse of discretion is shown.” Id. (citing Fed. R. Civ. P. 26(b)). In this case, discovery matters
were referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(A), which Congress
enacted specifically to relieve the burden of the federal courts by permitting assignment of
certain duties to magistrate judges. Gomez v. United States, 490 U.S. 858, 869–70 (1989). See
also DE #19 ¶B (Scheduling Order). In deciding discovery disputes, a magistrate judge is
entitled to that same broad discretion, and his order is overruled only if the district court finds
an abuse of discretion. Trepel v. Roadway Express, Inc., 194 F.3d 708 (6th Cir. 1999); see also 12
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Wright, Miller & Marcus, Federal Practice and Procedure § 3069, 350 n. 20 (2d ed. 1997 &
Supp. 2010) (citing cases).1
III. Analysis
Because “AGLIC’s initial disclosures did not reference or identify Swiss Re as a source
of information to support its claim that [Mr. Jude’s] policy should be rescinded[,]” the Judes
urge this Court to impose sanctions pursuant to Rule 37(c). [DE # 73 at 9]. Precisely, the
Judes’ first request is that “[t]he Swiss Re documentation relating to Chiari 1 Malformation…
relied upon by AGLIC’S underwriter[, Laura Stout,] be excluded” pursuant to Rule 37(c)(1).
Second, they request “[t]hat the jury be informed of AGLIC’s failure to produce these
documents” pursuant to Rule 37(c)(1)(B). Lastly, pursuant to Rules 37(a)(5), (b)(2)(C), and
(c)(1)(A), the Judes “request expenses and fees associated with bringing this motion.” [Id. at
14].
Under Supreme Court and Sixth Circuit precedent, a district court has “the inherent
power to sanction a party when that party exhibits bad faith, including the party's refusal to
comply with the court's orders.” Young v. Track, Inc., 324 F.3d 409, 420 (6th Cir. 2003) (citing
Chambers v. Nasco, 501 U.S. 32, 43–50 (1991)). Federal Rule of Civil Procedure 37 generally
permits the imposition of a variety of sanctions for violations of discovery. Specifically, Rule
37(c)(1) provides sanctions for the failure of a party to make required disclosures. The Sixth
Circuit has characterized this rule as requiring “absolute compliance” with Rule 26, with the
Generally, an abuse of discretion will be found “when the…[C]ourt applies the wrong legal standard,
misapplies the correct legal standard, or relies on clearly erroneous findings of fact.” First Tech Safety Sys., Inc. v.
Depinet, 11 F.3d 641, 647 (6th Cir. 1993); see also Fleischut v. Nixon Detroit Diesel, Inc., 859 F.2d 26, 30 (6th Cir.
1988). This abuse of discretion standard is used to review a Court’s decision to not impose sanctions. Roberts ex
rel. Johnson v. Galen of Va., Inc., 325 F.3d 776, 782 (6th Cir. 2003).
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sanction of exclusion being, “automatic and mandatory unless the sanctioned party can show
that its violation was either justified or harmless.” Roberts ex rel. Johnson, 325 F.3d at 782
(emphasis added) (citing Salgado v. General Motors Corp., 150 F.3d 735, 741–42 (7th Cir. 1998).
The Sixth Circuit rests the burden on the potentially sanctioned party to prove that its actions
rose to the level of harmlessness. R.C. Olmstead, Inc. v. CU Interface, LLC, 606 F.3d 262, 272
(6th Cir. 2010). “In addition to or instead of this sanction,” and depending on the particular
circumstances, the Court retains alternative options and may determine that other sanctions
are further suited. See Fed. R. Civ. P. 37)(c)(1)(A)-(C). For example, Rule 37(c)(1)(A)
authorizes a judge to award “payment of the reasonable expenses, including attorney's fees,”
caused by the defaulting party's failure to disclose or supplement. Id. at 37(c)(1)(A). The Rule
further allows “other appropriate sanctions.” Id. at 37(c)(1)(C).
The Sixth Circuit has adopted the Fourth Circuit’s five-factor balancing test to “assess
whether a party's omitted or late disclosure is ‘substantially justified’ or ‘harmless[.]’” Howe v.
City of Akron, 801 F.3d 718, 747 (6th Cir. 2015). The factors are: “(1) the surprise to the party
against whom the evidence would be offered; (2) the ability of that party to cure the surprise;
(3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of
the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the
evidence.” Id. at 748 (quoting Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396-97
(4th Cir. 2014), and S. States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 597
(4th Cir. 2003)); see also, e.g., Abrams v. Nucor Steel Marion, Inc., 694 Fed.Appx. 974, 982 (6th
Cir. 2017); Baker Hughes Inc. v. S&S Chemical, LLC, 836 F.3d 554, 568-69 (6th Cir. 2016);
Bentley v. Highlands Hosp. Corp., No. 7:15-cv-97-ART-EBA, 2016 WL 5867496, at *10 (E.D.
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Ky. Oct. 6, 2016). “The factors simply lend themselves to the task at the heart of Rule 37(c)(1):
separating ‘honest,’ harmless mistakes from the type of ‘underhanded gamesmanship’ that
warrants the harsh remedy of exclusion.” Id.
1. The surprise to the Judes
First, the Judes argue that disclosure of the Swiss Re documents was a “complete
surprise” to them since “AGLIC knew [the Judes] needed documents related to Chiari
Malformation to prove any materiality to the risk of insurance.” [DE #73 at 11]. They further
argue that the “true relevance” of the documents was not discovered until the August 23,
2018 deposition of Laura Stout, AGLIC’s underwriter, “one week before the amended
discovery deadline.” Be that as it may, AGLIC’s Responses to Defendant’s Second Requests
for Admissions, dated June 25, 2018, directly contradicts the Judes’ suggestion that they
could be “surprised,” by the production of the Swiss Re chart. [DE #75-12 at 2-3].
2.
Please admit that the Swiss Re Underwriting chart “Syringomelia and
syringobbulbia Life ratings” (Bates #290) will not be used in support of
American General’s claim to rescind the $1,500,000 life insurance policy.
RESPONSE: Denied. Though American General is not required to take a position at
this time on what evidence it intends to offer at trial, 000290 contains information that
is relevant to the claims and defenses at issue in this litigation. 000290 specifically
references “Arnold-Chiari malformation.” Mr. Jude was diagnosed with Chiari
malformation on August 15, 2015, and on October 4, 2015, he had Arnold Chiari
Malformation decompression surgery.
Id.
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Under these circumstances, the Court fails to see any plain surprise by the Judes. Apart
from the clear evidence above, proving the Judes were aware of the possible significance and
relevance of the Swiss Re chart, it is also clear from the parties’ discussions that AGLIC’s
counsel was able to provide Defendants with “any and all documentation or manuals that
discuss or describe how and when the charts are to be used.” [DE # 75-14; DE# 75-15
(AGLIC May 22, 2018 Email Response)]. See also DE #61 at 18 (Transcript of May 22, 2018
Telephone Conference). Consequently, the Court does not recognize the Judes’ surprise
concerns as valid in this scenario, and thus, this factor weighs heavily in favor of denying
Defendants’ request for imposing sanctions.
2. Ability to cure the surprise
Second, the Judes argue there was not “enough time to conduct discovery on the
document.” [DE #75 at 15]. However, at the May 22, 2018 telephonic conference, this Court
determined that an extension of time was warranted, specifically to accommodate discovery
focused on the Swiss Re chart. [DE #49; DE #50]. Indeed, Defendants’ counsel’s letter, dated
May 18, 2018, further explains the reasons necessitating Defendants’ need for this extension.
Counsel’s reasons were explained during the telephonic conference, and this Court agreed.
Thus, this factor indeed supports the Howe idea of a cure.
3. Extent to which allowing the evidence would disrupt the trial
Third, the main reason for stating that AGLIC’s “nondisclosure” would have a “major
impact” on the trial is because Defendants state they are without an expert witness. However,
this factor weighs against the Judes from the inception. As of this date, there is no trial
scheduled in this matter and the case stands submitted on motions for summary judgment.
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Further, Defendants’ argument that they were unable to retain an expert witness lacks any
merit. It is evident that counsel was aware of the need for additional time for which to
supplement his report, which is why the Court granted the parties request for an extension.
See DE #50; DE #61; DE #75-14 at 2 ¶2.
4. Importance of the evidence
Fourth, the Judes argue that the Swiss Re documents “may be the most significant
piece of evidence in this case.” [DE #73 at 13]. Defendants base this proposition on the basis
of Laura Stout’s deposition testimony, where she disclosed that she “consulted” the document
in determining whether to rescind Mr. Jude’s policy. [DE #75-8]. Here, the Court certainly
agrees with the Judes that the Swiss Re chart is an important piece of evidence. Veritably, the
outcome of the Court’s in camera review indicated consensus on this issue. During review, the
Court concluded that five of the documents in question were privileged and should not be
produced; however, as to the “sixth document”— which was “printed out by [Plaintiff] in the
review and investigation process of determining whether Chad Jude had symptoms during
the application process”—we concluded it was both relevant and surely did not meet the
threshold of protection by either the attorney-client privilege or the work-product doctrine.
[DE #41 at 3]; [DE #43].
This Court made the determination regarding the importance of the Swiss Re chart
back in May 14, 2018. The subject of this determination continued to the Court’s May 22,
2018 telephonic conference. Correspondingly, the Court found the parties’ request for an
extension of the discovery deadlines and supplemental expert disclosures to be certainly
credible and vital, which is why the Court determined an amendment to case deadlines was
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warranted. Thereafter, the parties proceeded with conducting discovery; the Court had no
reason whatsoever to conceive that there remained any other, outstanding issues to resolve.
In fact, the parties’ counsel demonstrated an intention to work cooperatively with one
another.
Frankly, while the deposition of Ms. Stout did alert Defendants to the fact that the
Swiss Re chart was used in the investigation and decision to rescind Mr. Jude’s policy,
AGLIC had already indicated this fact in their Responses to Defendant’s Second Requests
for Admissions, as well as in their Revised Privilege Log. See DE #75-12 at 2-3; DE #41 at 3.
In any case, the Court already addressed the importance of this document— since all the way
back in May. While this factor certainly weighs in favor of Defendants, the Court finds that—
well before this Renewed Motion for Sanctions was filed— AGLIC has not only conceded
but also has plainly displayed their effort to comply with the Court’s orders.
5. AGLIC’s explanation for its failure
This Court takes serious consideration of this factor. This last factor “speaks directly
to whether [AGLIC’s] untimely disclosures were “substantially justified.” Bentley, 2016 WL
5867496, at *11; Fed. R. Civ. P. 37(c)(1). AGLIC has offered persuasive, substantial
justifications for its original nondisclosure. It was for this reason, after studying the purpose
and scope of Rule 26, that the Court denied the Judes’ first motion for sanctions. [DE #40].
Nevertheless, Defendants surely remained unsatisfied the Court’s decision and remained
adamant about pursuing sanctions. See #75-14 at 2 ¶2.
“Under Rule 37(c)(1), forgiveness must be earned. Unlike exclusion, it neither comes
automatically nor easily.” Bentley, 2016 WL 5867496, at *11. Here, contrary to Defendants’
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arguments, the record fully supports AGLIC’s compliance with Court orders and its
willingness to cooperate with Defendants’ counsel in working through discovery disputes. For
these reasons, the Court can hardly see how the evidence was tardily-produced, instead only
noticing AGLIC’s good faith effort to cooperate with Defendants’ counsel. While there exist
clear-cut cases exemplifying rancor and childlike discovery games between parties, which
certainly do warrant sanctions, this case is not one of them.
IV. Conclusion:
Ultimately, the Court understands the Judes’ concerns of AGLIC’s original
nondisclosure, but it does not change our initial analysis that sanctions were not warranted
then and are not warranted now. Conclusively, there is no reason to assess any sanctions as
the Court finds AGLIC has proven that its actions as to the release of the Swiss Re chart was
both substantially justified and harmless.
For the reasons stated herein, the Court DENIES the Judes’ Renewed Motion [DE
#73] for monetary or other specific sanctions.
This the 24th day of January, 2019.
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