The Charter Oak Fire Insurance Company et al v. American Capital, Ltd. et al

Filing 507

REDACTED MEMORANDUM OPINION of ECF No. 490. Signed by Judge Deborah K. Chasanow on 3/17/2015 (cags, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
CHARTER OAK FIRE INSURANCE
COMPANY, et al.

:

v.

:

Civil Action No. DKC 09-0100

:
AMERICAN CAPITAL, LTD., et al.
:
MEMORANDUM OPINION
Presently

pending

and

ready

for

resolution

in

this

insurance case is a motion for sanctions (ECF No. 330) filed by
Defendants

and

Scientific

Counterclaimants

Protein

Laboratories

Management Group (“SMG”).

American
LLC

(“SPL”),

Capital,
and

For

the

Spectator

The issues have been briefed, and the

court now rules, no hearing being deemed necessary.
105.6.

Ltd.,

following

reasons,

Defendants’

Local Rule
motion

for

sanctions will be denied.
I.

Background
Some familiarity with the underlying facts of this case is

presumed.

(See ECF Nos. 42, 64, 77, 92, 170, 184, 267).

In

brief, this case concerns an insurance coverage dispute between
two insurance companies, Plaintiffs Charter Oak Fire Insurance
Company

and

Travelers

Property

Casualty

Company

of

America

(together, “Travelers” or “Plaintiffs”), and an investment fund,
Defendant

American

Capital,

Ltd.

(“American

Capital”).

Beginning in 2008, Defendants American Capital and SPL became
involved in more than 100 lawsuits pertaining to the allegedly
defective

drug

heparin.

Many

of

the

complaints

in

these

lawsuits allege that SPL is a subsidiary of American Capital.

A

dispute subsequently arose about whether the underlying heparin
lawsuits
policies

implicate
that

certain

Plaintiffs

primary

issued

to

and

American

years 2006 through 2009 (“the Policies”).
instant

declaratory

judgment

umbrella

action

Capital

insurance
for

the

Travelers filed the

seeking

rescission

or

reformation of the Policies, or, alternatively, a declaration
that Travelers does not owe defense or indemnity coverage to
either American Capital or any of its alleged subsidiaries for
the underlying heparin lawsuits.
The parties commenced discovery on January 20, 2012 and the
case was referred to Magistrate Judge Schulze for resolution of
all discovery disputes on November 27, 2012.

(ECF No. 145).

Soon thereafter, discovery problems began to arise, primarily
surrounding Plaintiffs’ rescission claim.

The rescission claim

is grounded on alleged misrepresentations and omissions made by
American Capital that it did not have subsidiaries and that it
was not seeking coverage for other entities.
Under Maryland law, Travelers ultimately bears the burden
of

establishing

rescission claim.

promptness

as

an

essential

element

of

its

Finch v. Hughes Aircraft Co., 57 Md.App. 190,
2

244

(1984)

that

he

(“A

plaintiff

acted

seeking

promptly

rescission.”).

after

Plaintiffs

rescission

discovery

filed

this

must

on

demonstrate

the

ground

for

on

January

16,

action

2009, and initially took the position that documents created on
or

after

September

litigation

and

Defendants

thus

moved

materials.

On

Defendants’

2,

2008

were

to

compel

and

created

protected.

December

motion

were

On

production

21,

2012,

ordered

in

anticipation

November
of

claims

Judge

production

20,

2012,

handling

Schulze
of

of

all

granted
withheld

documents created after September 18, 2008, with redactions only
for attorney impressions and opinions.

Numerous objections to

Judge Schulze’s ruling followed from Plaintiffs.
Central to Defendants’ motion for sanctions is Plaintiffs’
compliance

with

the

memorandum

opinion

and

order

issued

on

February 11, 2013, overruling Plaintiffs’ objections in part and
sustaining them in part.

(ECF Nos. 170 & 171).

Specifically,

Judge Schulze’s ruling was limited to the waiver of privilege
for the documents related to Plaintiffs’ rescission claim that
were created after September 18, 2008: “what is relevant to the
issue of promptness is limited to the timing of Plaintiffs’
investigation
American

Capital

applications.”
were

into,

ordered

and

conclusions

allegedly

misrepresented

(ECF No. 170, at 25).
to

produce

all

about,
in

facts

its

that

insurance

Consequently, Plaintiffs

documents,
3

the

or

portions

thereof,

indicating

-

as

a

factual

matter

-

when

Travelers

began

to

investigate whether, or reached a conclusion that, inter alia,
American Capital had subsidiaries.

(ECF No. 170).

The order

outlined eight areas of factual information to which it applied,
but

allowed

redacted

attorney

from

such

impressions
documents:

and
(1)

legal

opinions

American

to

Capital

be
had

subsidiaries; (2) American Capital acquired SPL in 2006; (3)
American Capital acquired SMG in June 2007; (4) American Capital
had been named as a defendant in a heparin lawsuit prior to
submitting its 2008 renewal application to Travelers; (5) the
suspected tainted heparin and heparin’s active pharmaceutical
ingredient had been recalled in early 2008; (6) the allegedly
tainted heparin ingredients had been processed in China; (7) SPL
participated in a joint venture that processed heparin sodium
API in China; and (8) the heparin lawsuits predating American
Capital’s 2008 renewal application sought damages in excess of
$10,000.

(ECF No. 170, at 25).

that

“it

is

irrelevant

contained

in

documents

whether
that

were

The memorandum opinion noted
such

factual

created

by

information
Travelers’

is

non-

attorney claims employees, in-house counsel, or outside coverage
attorneys.”
Plaintiffs
their

(Id.
contend

entirety

at

26).

that

because

It

was

further

any

documents

they

contain

should
no

held
be

factual

that

“[i]f

withheld

in

information

relevant to the issue of promptness, such documents must be
4

submitted

to

Judge

Schulze

for

in

camera

review.”

(Id.).

Plaintiffs were instructed to comply with the February 11, 2013
production order by March 1, 2013.

(ECF Nos. 170 & 171).

Plaintiffs subsequently produced 4,900 pages of previously
withheld documents and submitted to Judge Schulze for in camera
review

documents

that

they

believed

were

privileged.

Plaintiffs’ in camera submission amounted to a “document dump”
on the court, lacking an index or any meaningful organization.
Judge

Schulze

Plaintiffs

ordered

resubmitted

resubmission,

and

the

documents

withheld

on

April
for

12,

2013,

in

camera

review, along with a certification from James E. Rocap III, one
of Plaintiffs’ attorneys from Steptoe & Johnson,

REDACTED

REDACTED
(ECF No. 193-9 ¶ 8).

REDACTED
REDACTED

granted

(ECF No. 193, at 6).
Defendants’

motion

to

On July 24, 2013, Judge Schulze
compel,

ordering

Plaintiffs

to

produce all claims handling documents created before December 8,

5

(ECF Nos. 213 & 214).1

2008.
Schulze

deferred

documents,

and

in
gave

camera

In ordering this production, Judge
review

Defendants

of

leave

post-December
to

7,

“supplement

2008
their

previously submitted objections to Plaintiffs’ privilege logs”
after reviewing the pre-December 8, 2008 documents.

(ECF No.

213, at 11).
On December 2, 2013, Defendants once again moved to compel,
this time seeking claims-handling documents post-dating December
8, 2008 on the basis that Plaintiffs did not anticipate denying
coverage as of that date.

(ECF No. 264).

During the pendency

of this motion, Plaintiffs produced a group of post-December 7,
2008 documents (which Plaintiffs believe were privileged), or
portions thereof, on January 21 and 24, 2014.
22).
of

(ECF No. 332, at

Plaintiffs state that the documents were produced as part
a

compromise

production

under

a

non-waiver

agreement.

Plaintiffs seem to be referring to an email exchange in which
defense counsel represented: “[y]our goal, which I appreciate
and would intend to honor, is that the supplemental production
will not be deemed a voluntary act that would, without more,
implicate possible subject matter waivers.”
3).

(ECF No. 343-39, at

Plaintiffs represent that Defendants agreed not to seek

1

Plaintiffs objected to Judge Schulze’s
ruling, which was overruled. (See ECF No. 267).
6

July

24,

2013

sanctions when Travelers conceded to this non-waiver production.
(ECF No. 343, at 22).
The January 2014 compromise production, however, actually
prompted

Defendants

February 10, 2014.

to

file

an

amended

motion

(ECF Nos. 280 & 281).2

to

compel

on

The amended motion to

compel was fully briefed and Judge Schulze issued a letter order
setting

a

hearing

on

April

newest motion to compel.

10,

2014

to

(ECF No. 306).

resolve

Defendants’

Judge Schulze issued

another letter order on March 28, 2014, clarifying that the
issue for resolution at the hearing was whether any documents
which Plaintiffs withheld – but which Defendants now have –
“was, when submitted for in camera review on April 12, 2013,
properly

identified

and

described

on

the

[April

12,

2013]

privilege logs and properly certified to contain no information
that was subject to Chief Judge Chasanow’s disclosure order.”
(ECF No. 315, at 2).

Plaintiffs subsequently agreed to produce

all pre-suit documents in dispute to Defendants by April 15,
2014, and Judge Schulze approved the stipulated order.

(ECF

Nos. 323 & 325).

2

Defendants also argued in their motion to compel that the
crime-fraud exception required production of all pre-suit
documents in this case. Defendants’ two motions to compel filed
in December 2013 and February 2014 were withdrawn with prejudice
after Plaintiffs produced remaining documents, thus the merits
of Defendants’ argument regarding the crime-fraud exception was
never reached.
7

REDACTED

Plaintiffs agreed “that there were 302

REDACTED

documents that were left off the CD – 245 of which Travelers had
never logged.”
produced

(Id. at 25) (emphasis in original).

these

additional

documents

on

April

Plaintiffs
18,

2014.

Defendants then “pressed further,” and Plaintiffs produced an
additional

fifty

documents

on

April

24,

2014.

Defendants

maintain that “Travelers’ 2014 production of logged and unlogged
pre-suit documents included dozens of documents that fell within
the ‘subsidiaries’ investigation category of Judge Chasanow’s
order.”

(Id. at 25-26).

8

Defendants
dismissal

of

moved

for

sanctions

on

May

claims,

a

default

Plaintiffs’

5,

Defendants’ counterclaims, and attorneys’ fees.
332).

2014,

seeking

judgment

on

(ECF Nos. 331 &

Plaintiffs opposed this motion on June 10, 2014 (ECF No.

343), and Defendants replied on August 12, 2014 (ECF No. 372).
II.

Analysis
A.

Defendants’ Motion for Sanctions

Defendants
37(b)(2)(A).

move
That

for
rule

sanctions
permits

a

pursuant
district

to

Fed.R.Civ.P.

court

to

impose

certain punitive measures, up to and including dismissal, on any
party who disobeys a discovery order.
“Rule

37(b)(2)

gives

the

court

[]

Fed.R.Civ.P. 37(b)(2)(A).
broad

discretion

to

make

whatever disposition is just in [] light of the facts of the
particular case.”

8B Charles Alan Wright, et al., Federal Prac.

& Proc. § 2289 (3d ed. 2010); see also Camper v. Home Quality
Mgmt. Inc., 200 F.R.D. 516, 518 (D.Md. 2000) (“Federal district
courts possess great discretion to sanction parties for failure
to obey discovery orders.”).
Defendants

ask

that

“the

Emphasizing this broad discretion,
most

severe

in

the

spectrum

of

sanctions” be imposed: dismissal of Plaintiffs’ complaint and
default

judgment

on

Defendants’

counterclaims.

Nat’l

Hockey

League v. Metro. Hockey Club, Inc., 427 U.S. 639, 643 (1976).
But “[w]hile the imposition of sanctions under Rule 37(b) lies
within the trial court’s discretion, it is not a discretion
9

without bounds or limits.”
Corp.,

53

brackets

F.3d

36,

40

omitted).

Hathcock v. Navistar Int’l Transp.

(4th

This

Cir.

is

1995)

(quotation

particularly

so

marks

when

a

and

party

requests the rather draconian penalty of dismissal or default
judgment.

Id.

Thus, in determining what sanction to impose

under Rule 37(b)(2), the court is guided by consideration of
four factors: “(1) whether the non-complying party acted in bad
faith, (2) the amount of prejudice that noncompliance caused the
adversary, (3) the need for deterrence of the particular sort of
non-compliance,

and

(4)

have been effective.”

whether

less

drastic

sanctions

would

S. States Rack and Fixture, Inc., v.

Sherwin-Williams Co., 318 F.3d 592, 597 (4th Cir. 2003).
Although

much

of

Defendants’

briefing

is

devoted

to

purported inconsistencies in Plaintiffs’ litigation strategies
concerning whether or when Travelers knew that American Capital
had

subsidiaries

–

and

whether

SPL

and

SMG

were

in

fact

subsidiaries – the threshold question for the sanctions motion
pursuant to Rule 37 is whether Plaintiffs in fact violated a
discovery order.3

Defendants argue that Plaintiffs violated the

3

Plaintiffs indicate that their decision to withhold
documents that they submitted for in camera review to Judge
Schulze in April 2013 was based on their understanding of the
parameters of the February 11, 2013 order and not on whether a
statement would be consistent or inconsistent with Travelers’
litigation strategy. (ECF No. 343-3 ¶ 19).
10

February 11, 2013 order.4

As stated earlier, the February 11,

2013 order specified that “what is relevant to the issue of
promptness [regarding Plaintiffs’ rescission claim] is limited
to the timing of Plaintiffs’ investigation into, and conclusions
about, the facts that American Capital allegedly misrepresented
in its insurance applications.”

(ECF No. 170, at 25).

Thus,

Plaintiffs were ordered to produce, inter alia, all documents
(or portions thereof) indicating – as a factual matter – when
Travelers began to investigate whether, or reached a conclusion
that American Capital had subsidiaries.
Defendants argue that many of the documents that Plaintiffs
produced

in

January

and

April

2014

“fell

within

the

‘subsidiaries’-investigation category of [the February 11, 2013]
order.”

(ECF No. 332, at 23).5

Defendants identify redacted

4

As Plaintiffs point out, any attempt by Defendants to rely
on arguments and documents included in their February 10, 2014
amended motion to compel (ECF Nos. 280 & 281) is improper and
documents
associated
with
that
submission
will
not
be
considered.
(See ECF Nos. 264, 265, 303, 304, 310, and 311).
Judge Schulze approved a stipulated order by which Plaintiffs
agreed to produce post-December 8, 2008 claims handling
documents and Defendants withdrew with prejudice their motion to
compel and all supporting materials.
(ECF No. 325, at 1).
Plaintiffs similarly agreed to withdraw their opposition and
motion to strike the declaration of defense counsel, John W.
Schryber.
(ECF Nos. 296, 297, 298, 299, 301, 317, 318).
Accordingly, none of the documents which both parties agreed to
withdraw are proper sources of references in the motion for
sanctions and opposition.
5

Defendants also assert that Plaintiffs generally have
exemplified bad faith by engaging in a long pattern of discovery
11

content in twenty-two (22) documents as information that should
have been produced by March 1, 2013 per the February 11, 2013
order.

(ECF No. 332, at 26).

Defendants take the position that

“[a] document in which a Travelers employee or agent refers to
SPL or any other entity as a ‘subsidiary’ of American Capital is
plainly a document” that falls within the parameters of the
February 2013 order and should have been produced by March 1,
2013.

(ECF No. 332, at 34).

Plaintiffs essentially make two

arguments in response.

First, they assert that they did not

violate

order

documents

any

discovery

from

the

because

post-December

8,

their

2008

time

production
frame

was

of
a

abuse.
Defendants contend that Travelers regularly withheld
claims handling documents under the guise of privilege and
misled
the
court
regarding
when
Plaintiffs
anticipated
litigation.
For instance, Plaintiffs initially took the
position that documents created on or after September 2, 2008
were created in anticipation of litigation and thus were
protected; subsequent depositions of Travelers personnel (i.e.,
Edward Zawitowski and Tracy Seitz), however, indicated that
Travelers did not anticipate litigation until December 8, 2008.
This lack of forthrightness prompted motions to compel from
Defendants and resulted in Judge Schulze determining that
documents created prior to December 8, 2008 were not protected
and had to be produced.
Consequently, Defendants point to
language in a prior order issued by Judge Schulze indicating
that “Plaintiffs have unduly, and egregiously, delayed discovery
with misleading evidence and arguments and a document dump, such
that a production order was already justified.”
(ECF No. 315,
at 2).
Defendants’ motion for sanctions, however, is largely
premised on Plaintiffs’ purported violation of the February 2013
order by failing to produce documents – by March 1, 2013 –
responsive to the eight categories identified in that order, as
opposed to Plaintiffs’ discovery practices generally throughout
the course of this case.
12

“compromise production,” designed to “move past the discovery
phase in this case.”

(ECF No. 343, at 25).

Thus, Plaintiffs

seem to be arguing that because there was no order compelling
production of documents created after December 8, 2008, there
was no discovery violation.
that

substantial

Alternatively, Plaintiffs believe

justification

existed

documents because they were privileged.
“[i]n

each

instance

cited

by

for

withholding

the

Plaintiffs assert that

Defendants

as

noncompliant,

we

concluded in good faith and using our best judgment that the
redacted statements fell within the February 11, 2013 Order’s
exception for attorney impressions or opinions or was otherwise
nonresponsive to the Order.”

(ECF No. 343-3 ¶ 19).

First, the fact that Plaintiffs’ January and April 2014
document production was pursuant to a compromise does not – in
and of itself - absolve them from sanctions if the documents
produced should have been disclosed earlier in accordance with
the February 11, 2013 order (which is what Defendants contend).
After reviewing the redacted portions of the twenty-two (22)
documents that Plaintiffs produced in January and April 2014, it
appears

that

Travelers

court’s order.

has

not

completely

complied

with

the

Although Plaintiffs are correct to point out

that the February 11, 2013 order allowed redactions of portions
of documents containing attorney impressions and legal opinions,
the

opinion

also

notified

Plaintiffs
13

that

“it

is

irrelevant

whether [] factual information is contained in documents that
were created by Travelers’ non-attorney claims employees, inhouse counsel, or outside coverage attorneys.”
26).

(ECF No. 170, at

For instance, Defendants point to the following redacted

portion of a

REDACTED
REDACTED

REDACTED

(ECF No.
332, at 26) (emphasis added).

Similarly, the following bolded

section of a

REDACTED

REDACTED
REDACTED

(Id.).

These

redacted portions from the December 9 and 12, 2009 memoranda are
responsive

to

the

documents

that

Plaintiffs

were

ordered

to

produce in the February 11, 2013 order indicating when Travelers
began

to

investigate

or

concluded

that

American

Capital

had

subsidiaries.
Similarly,
production

some

Plaintiffs
of

the

also

redacted

handwritten
14

in

notes

their
of

Ms.

original
Seitz,

Travelers’

in-house

teleconference

with

counsel,
other

from

Travelers

Johnson.

a

January

personnel

14,

and

2009

Steptoe

&

REDACTED

(Id. at 30).

Plaintiffs maintain that “[t]he

entire document reflects attorney impressions and thus is exempt
from disclosure.

Even the text bolded by Defendants as subject

to production is a question, not a statement of fact.”
343, at 43) (emphasis in original).

(ECF No.

They also redacted

REDACTED

REDACTED

(ECF No. 332, at 30).
Plaintiffs similarly argue that these are questions being posed
“by Steptoe’s outside counsel to his co-counsel on January 15,
2009, the day before the filing of the original complaint, when
Mr. Warin was undertaking one of his final analyses of the draft
complaint.

As such, they are clearly attorney impressions and

thus exempt from disclosure.”
are mistaken.

(ECF No. 343, at 43).

Plaintiffs

The redacted portions of these documents are

responsive to the February 11, 2013 order as they relate to
Travelers’ investigation regarding whether American Capital had
subsidiaries; the fact that they are framed as questions further
reflects

that

Travelers

was

investigating

this

very

issue.

Moreover, although the redacted portions of the January 14 and
15

15, 2009 documents are statements by attorneys, they relate to
investigation

of

facts,

not

attorney

impressions

or

legal

opinions.
Still,
flagrant

Defendants
violations

go
of

too

far

the

in

accusing

February

11,

Travelers
2013

of

order.

Importantly, this is not an instance where the responding party
has entirely refused to respond to discovery.

Cf. Chu v. Great

Northern Ins. Co., No. 10-cv-1422-RWT, 2013 WL 4541606, at *4
(D.Md. Aug. 26, 2013) (“[e]ven with the threat of sanctions for
noncompliance
discovery

clearly

Order,

the

spelled

out

Plaintiffs

by

still

Judge

Schulze

refused

to

in

engage

her
in

discovery.”); Woodard-Charity v. Kaiser Found. Health Plan of
the Mid-Atl. States, Inc., No. PWG-11-3555, 2013 WL 3863935, at
*3 (D.Md. July 23, 2013) (“[p]laintiff failed to respond to
[d]efendant’s discovery requests or to justify her failure to
respond, even after the Court ordered her to respond by a set
date.”).
Indeed, not every discovery dispute evidences misconduct.
Big Dipper Entm’t, LLC v. City of Warren, 641 F.3d 715, 719 (6th
Cir. 2011) (“[t]hat two persons disagree does not mean that one
of them has bad motives.”).
that

“the

most

glaring

For instance, Defendants complain

example

of

Travelers’

withholding

of

portions of documents which Judge Chasanow required Travelers to
produce – the portion of the

REDACTED
16

REDACTED

. . . also violated this Court’s April 11 order.”

No. 332, at 35).

(ECF

Defendants refer to two drafts of the coverage

letter, dated January 11 and 12, 2009, that Travelers sent to
Defendants on the same day that it filed the initial complaint.

REDACTED

(ECF No. 332, at 35) (emphasis in original).

REDACTED

REDACTED
17

REDACTED
(ECF No. 343-3 ¶ 23).
It is not clear that the January 11 and 12, 2009 draft
coverage letters effectively identified SPL as a subsidiary and
that the redacted portion of these drafts would be responsive to
the February 11, 2013 order.

Moreover, Plaintiffs’ argument

that these drafts consisted of attorney impressions and legal
opinions

in

persuasive.

preparation

for

the

final

coverage

letter

is

See, e.g., McKinley v. FDIC, 744 F.Supp.2d 128,

141-42 (D.D.C. 2010) (finding that a draft affidavit was subject
to work product protection).

The same logic counsels against

production of draft complaints.6

6

Moreover, as

See, e.g., Gucci America, Inc.

REDACTED

The asse
lure to produce the draft complaints was made in
bad faith lacks merit, considering that Plaintiffs disclosed
their position on the subject to Defendants and in the
certification accompanying the in camera review submission to
Judge Schulze.
Similarly, Plaintiffs’ counsel represented in the March 1,
2013 letter to Judge Schulze (on which Defendants’ counsel was
copied) that “Plaintiffs have not included in this in camera
submission any documents created on or after January 16, 2009 –
the date on which Plaintiffs filed their Complaint in this
action” because these documents were created on or after the
date Plaintiffs asserted the rescission claim. (ECF No. 343-3).
Plaintiffs indicated that “[s]hould the Court nevertheless
18

v. Guess?, Inc., 271 F.R.D. 58, 78 (S.D.N.Y. 2010) (“[t]he draft
complaints,

presumably

drafted

by

GG

and

Gucci’s

outside

attorneys, are privileged from disclosure.”).
Although
redacted

it

appears

portions

of

that

some

of

Plaintiffs
the

should

twenty-two

(22)

not

have

documents

Defendants identify, it is unclear whether Plaintiffs withheld
the redacted portions in bad faith.

See Harden v. Siegelbaum,

Civil Action No. AW-09-3166, 2011 WL 1322521, at *2 (D.Md. Apr.
1, 2011) (“the record does not plainly reveal that counsel for
the

[p]laintiff

intentionally

avoided

answering

discovery requests or withheld evidence.”).

[d]efendants’

Plaintiffs maintain

that they have endeavored to comply with their understanding of
the February 11, 2013 order and redacted what they believed to
be attorney impressions or legal opinions.

Mutual Fed. Sav. and

Loan Ass’n v. Richards & Assocs., Inc., 872 F.2d 88, 92 (4th Cir.
1989)

(“only

the

most

flagrant

case,

where

the

party’s

require the submission of such documents, Plaintiffs are
prepared to submit them promptly for the Court’s in camera
review.” The record does not suggest that Plaintiffs were ever
ordered to produce documents from January 16, 2009.
Indeed,
Judge Schulze rejected Defendants’ argument that Plaintiffs
wrongfully withheld documents from January 16, 2009, the date
the complaint was filed. (ECF No. 374, at 18, Tr. of telephonic
hearing with Judge Schulze (“Mr. Rocap’s March correspondence to
you made it very clear that they weren’t including anything that
was created after the 15th.”)).
Accordingly, any assertion that Plaintiffs improperly – and
in bad faith - withheld documents from January 16, 2009 in
violation of the February 11, 2013 order is unavailing.
19

noncompliance represents bad faith and callous disregard for the
authority of the district court and the Rules, will result in
the extreme sanction of dismissal or judgment by default.”).
This factor counsels against imposing a sanction as harsh as
dismissal.7
Bad

faith

is

only

one

factor

to

consider

sanctions for failure to comply with a court order.

regarding
The second

factor is the prejudice caused to Defendants, which requires
consideration

of

whether

the

evidence

withheld

Mutual Fed. Sav. and Loan, 872 F.2d at 93.

is

material.

Defendants assert

that they suffered prejudice in the form of added expenses and
delay.

7

Defendants contend that “if Travelers had made its 2014

REDACTED

’Connor, submitted a
declaration indicating that the April 2014 production “omitted a
small number of additional documents that were missed during
Travelers’ collection of documents in response to the Parties’
agreement.
These documents all were produced to Defendants by
April 24, 2014.”
(ECF No. 343-1 ¶ 12).
He characterized the
omissions as “entirely inadvertent” and having been “rectified
within days of being identified.” (Id.).
There is clearly a difference of opinion between the
parties regarding whether the omissions were inadvertent, but
there is no indication that Plaintiffs’ failure to submit these
documents by April 15, 2014 - instead, submitting them later
that month – was done in bad faith or prejudiced Defendants.
20

productions
disputes

upfront,

would

countless

have

been

depositions

avoided”

and

and

the

discovery

futility

Plaintiffs’ rescission claim would have become apparent.
No. 332, at 38).

of
(ECF

Furthermore, according to Defendants, “[e]very

day that Travelers has delayed the resolution of this case is
another day of non-vindicated reputational injury to American
Capital”

considering

intentional
(Id.

at

that

Plaintiffs

misrepresentation

40).

Plaintiffs

claim

respond

have

against
that

a

asserted

American
delay

in

an

Capital.
producing

material discovery does not by itself constitute prejudice and
that,

in

any

event,

Travelers’ documents.
Indefinite

Defendants

have

by

now

obtained

all

of

(ECF No. 343, at 33).

delay,

disruption

of

deadlines,

continuation of discovery can amount to prejudice.

and

the

See Goodman

v. Praxair Servs., Inc., 632 F.Supp.2d 494, 508 n.6 (D.Md. 2009)
(listing

cases).

There

has

been

some

delay

in

this

case,

considering that Plaintiffs initially maintained that they did
not

anticipate

litigation

until

September

2008,

and

Judge

Schulze later determined in July 2013 – after Defendants moved
to compel – that the appropriate date was actually December 8,
2008.

This led to additional discovery, which in turn prompted

more motion practice from Defendants in an effort to obtain
responsive documents.

The lack of complete disclosure did not,

however, prevent Defendants from preparing a defense altogether.
21

Cf.

Woodard-Charity,

2013

WL

3863935,

at

*4

(“The

evidence

sought by [d]efendant’s initial discovery request goes to the
heart of [p]laintiff’s claim and it cannot be disputed that
[p]laintiff’s

failure

to

answer

even

a

single

interrogatory

precludes [d]efendant from preparing a defense.”).

Moreover,

Plaintiffs are not the only party to blame for the delay in
summary judgment briefings and a “tremendous tax on Defendants’
resources,” (ECF No. 372, at 18), considering that Defendants
have

continued

Plaintiffs

to

(with

this
each

day

to

dispute

demand

documentation

requiring

the

from

court’s

involvement), some of which demands Judge Schulze characterized
as “overkill.”

(ECF No. 374, at 20, Tr. of telephone conference

with Judge Schulze (“Mr. Schryber, you have gotten privileged
documents that you would have not been otherwise entitled to in
this

case

as

part

of

these

compromises.

And

this

is

just

overkill. [] I have looked at this complaint, it’s got five
counts in it.

Only one of them relates to rescission.”)).

Defendants also believe that the need to deter discovery
abuses of this kind militates in favor of dismissing the action.
Defendants

assert

that

Plaintiffs’

counsel

made

false

certifications regarding whether all documents in dispute were
either produced or included in the privilege log, “even though
at least 245 documents in dispute had never been logged and
Defendants’

discovery

of

their
22

existence

was

only

via

Defendants’ counsel’s vetting of the April 15 production.”
No.

332,

at

intentionally

37).

Defendants

waited

to

also

produce

argue

documents

that

until

(ECF

Plaintiffs
January

and

April 2014 to preclude Defendants from adding counterclaims for
bad faith and fraud.

Plaintiffs counter that the certifications

were accurate at the time made and they “have fully complied
with

all

discovery

compromise.”

orders

and

resolved

(ECF No. 343, at 35).

ongoing

disputes

by

Plaintiffs may be giving

themselves more credit than they deserve considering the fact
that,

from

the

inception

of

this

case,

Plaintiffs

made

a

strategic decision to take – and continued to take throughout
discovery

-

an

“all-in”

approach

with

privilege and work product protection.

respect

to

asserting

There is a need to deter

the type of gamesmanship that seems to be happening in this
case.

Discovery is meant to take the game playing out of the

trial process, not simply add another opportunity to engage in
obfuscation and evasion.
Entertainment

Corp.,

Bethesda Softworks LLC v. Interplay

Civil

Action

No.

DKC

09-2537,

2011

WL

1559308, at *5 (D.Md. Apr. 25, 2011); Newsome v. Penske Truck
Leasing Corp., 437 F.Supp.2d 431, 437 (D.Md. 2006) (explaining
discovery was designed to make trial “less of a game of blind
man’s

bluff

and

more

of

a

fair

omitted).

23

contest”)

(quotation

marks

The

last

factor,

the

effectiveness

of

less

drastic

sanctions, counsels against the imposition of the heavy sanction
of dismissal of Plaintiffs’ complaint and default judgment on
the

counterclaims.

Defendants

believe

that

less

drastic

sanctions will not be effective because Plaintiffs anticipated
having to pay legal fees all along:
[T]he specter of a fee award has subsisted
in this case from the day it was filed
because Maryland common law holds that an
insurer who loses a lawsuit seeking an
adjudication that it did not owe a duty to
defend must pay the reasonable legal fees of
the policyholder incurred prior to the
adjudication that the underlying suit, did,
in fact, create the possibility of a covered
judgment.
Nolt v. U.S. Fidelity and
Guaranty Co., 329 Md. 52, 66-67 (1993).
Because Travelers privately admitted before
it filed this suit that the heparin and nonheparin suits created the possibility of a
covered judgment, Travelers came into this
litigation expecting to lose the “duty to
defend” issue and, ergo, expecting to pay
all
reasonable
legal
fees
incurred
by
Defendants.
(ECF No. 332, at 41) (emphasis added).

The fact that having to

pay fees to Defendants was a possibility for Plaintiffs from the
outset of this litigation does not necessarily justify imposing
the harshest sanctions in this case.

Defendants also contend

that Plaintiffs’ prior representations to the court that it did
not believe American Capital had subsidiaries are betrayed by
the documents withheld until January and April 2014 and that
Plaintiffs have continued to use their lawyers to “game the
24

system.”

Specifically,

Defendants

assert

that

Travelers

initially tried to “cloak[] a pure business function (claims
handling) in privilege by delegating it to attorneys” and now
seek

“to

avoid

the

consequences

of

statements

made

in

that

claims handling process by arguing they were made by outside
attorney

claims

handler.”

handlers

(Id. at 44).

rather

than

by

an

employee

claims

Defendants emphasize “the need for a

severe sanction that will actually deter Travelers from engaging
in this type of conduct in the future.”

(Id.).

Plaintiffs take

the position that there has been no improper conduct on their
part requiring deterrence, and that all along they were simply
protecting what they perceived to be attorney work product.
Although Plaintiffs’ “all-in” approach was a far cry from
efficient litigation and contributed to protracted discovery, it
does not rise to the level of egregiousness requiring outright
dismissal,

considering

ultimately

reached

that

a

they

produced

compromise

with

some

documents

Defendants

ironically, prompted this motion for sanctions).

and

(which,

Moreover, “the

Fourth Circuit has . . . emphasized the importance of warning a
party

prior

to

dismissing

discovery sanction.”
F.R.D.

516,

F.Supp.2d

518

445,

defaulting]

its

claim

as

a

Camper v. Home Quality Mgmt. Inc., 200

(D.Md.

449

[or

2000);

(D.Md.

2002)

Steigerwald
(“[T]he

v.

Fourth

Bradley,

229

Circuit

has

encouraged trial courts initially to consider imposing sanctions
25

less severe than default, such as awards of costs and attorneys’
fees.”); Lolatchy v. Arthur Murray, Inc., 816 F.2d 951, 954 n.2
(4th Cir. 1987) (noting that warning to parties was a “salient
fact” that distinguished cases in which default judgment was
appropriate

sanction

for

discovery

abuse

under

Rule

37).

Defendants have not pointed to any prior ruling in this case
explicitly invoking the possibility of default and dismissal as
a

sanction

memorandum,

for

continuing

Defendants

non-compliance.

state

that

they

In

“twice

their

reply

specifically

warned Travelers that sanctions could include a dismissal of
Travelers’ claim.”

(ECF No. 372, at 22).

But a warning from

Defendants that they may seek the severest form of sanctions is
not the same as a warning from the court that such a sanction
may be issued for continued noncompliance.8
Defendants remind the undersigned in their papers – over
and over again – that the record reflects prior admonishments of
Plaintiffs’ “all in” discovery tactic.

8

To the extent the record

Defendants cite Jenerette v. Montgomery Cnty. Gov’t, DKC
09-1777, 2010 WL 2817039, at *3 (D.Md. July 16, 2010), as
“suggest[ing] that a warning by the opposing party can be a
sufficient warning.” (ECF No. 372, at 24). Defendants misread
the case. Indeed, defendant’s attempt to seek dismissal of the
case as a sanction was denied precisely because “[p]laintiff
received no explicit warning that he faced dismissal if he did
not respond to [d]efendant’s discovery requests before the
deadline.” Jenerette, 2012 WL 2817039, at *3. The opinion also
noted that defendant did not previously mention sanctions and
“never
requested
a
court
order
to
compel
[p]laintiff’s
response.”
26

reflects criticism of some of Plaintiffs’ litigation practices,
including

Judge

Schulze’s

admonishment

of

Plaintiffs’

prior

“document dump,” such criticism does not constitute a “clear
warning”

that

the

court

may

impose

the

severest

form

of

sanctions – dismissal and default judgment - on Plaintiffs.

In

the reply memorandum, Defendants also point to Judge Schulze’s
warning in her letter order, dated March 28, 2014, that if she
found that “any document was improperly submitted for in camera
review, [she] will order production of all remaining documents.”
(ECF

No.

315,

at

2).

Again,

requiring

production

of

all

remaining documents is not the same as clearly warning that the
court

may

dismiss

noncompliance.
commendable,
ruling

to

the

case

as

a

sanction

for

continued

Although Plaintiffs’ discovery tactics are not

given

the

Plaintiffs

lack

of

that

any

such

clear
severe

notice

in

sanctions

a

prior

were

a

possibility if their behavior continued, these powerful tools
are not appropriately invoked.
Defendants argue that, at a minimum, Plaintiffs should be
required

to

Defendants’

pay

reasonable

motions

to

compel

legal
the

fees

in

connection

claims-handling

which were not produced until April 2014.

with

documents,

Rule 37 permits a

court to award reasonable attorney’s fees and expenses when a
party has failed to comply with a court order.
37(b)(2)(C).

See Fed.R.Civ.P.

Rule 37 provides for two exceptions where an award
27

of fees is not mandatory: (1) if “the failure was substantially
justified”

or

(2)

if

expenses unjust.”

“other

circumstances

make

Fed.R.Civ.P. 37(b)(2)(C).

an

award

of

A party satisfies

the “substantially justified” standard “if there is a ‘genuine
dispute’ as to proper resolution or if ‘a reasonable person
could think [that the failure to produce discovery is] correct,
that

is,

if

it

has

a

reasonable

basis

in

law

and

fact.’”

Decision Insights, Inc. v. Sentia Grp., Inc., 311 F.App’x 586,
599 (4th Cir. 2009) (quoting Pierce v. Underwood, 487 U.S. 552,
565

(1988)).

“Courts

have

concluded

that

‘substantial

justification’ could include making meritorious objections to
requested discovery, or even engaging in a legitimate dispute
over the sequence of discovery.”

Kemp v. Harris, 263 F.R.D.

293, 296-97 (D.Md. 2009) (citations omitted).
Based on Defendants’ motion for sanctions, it appears that
Defendants

believe

they

should

recover

fees

incurred

in

connection with three motions to compel, all filed after the
February 2013 opinion was issued.

(See ECF Nos. 193, 265, 281).

The motion to compel filed in July 2013, (ECF No. 193), did not
relate to Plaintiffs’ failure to comply with the February 2013
order, but concerned the “anticipation of litigation” date.

As

for the two most recent motions to compel, Defendants agreed to
withdraw

them

production.”

in

exchange

for

Plaintiffs’

“compromise

Moreover, it appears that these two motions to
28

compel

also

concerned

the

date

when

Plaintiffs

anticipated

litigation as opposed to Plaintiffs’ violation of the February
11, 2013 order.

See 8B Charles Alan Wright, et al., Federal

Prac. & Proc. § 2289 (3d ed. 2010) (the expense that may be
recovered
failure’

under
to

[Rule

obey

an

37(b)(2)]

are

order.”).

those

Even

‘caused

after

Judge

by

the

Schulze

determined (in ruling on Defendants’ motion to compel filed in
July 2013) that Plaintiffs did not anticipate litigation until
December 8, 2008, Defendants took the position that Plaintiffs
actually did not anticipate litigation until sometime in January
2009.

The

merits

of

this

position

were

never

adjudicated

considering that the December 2, 2013 motion to compel and the
February 10, 2014 amended motion to compel were both withdrawn.
See, e.g., Wake v. Nat’l R.R. Passenger Corp., No. PWG-12-1510,
2013 WL 1316431, at *5 (D.Md. Mar. 27, 2013) (“As [it is] not at
issue

here,

expenses

Defendant

for

the

may

prior

not

recover

[m]otion

to

attorney’s

[c]ompel”).

fees

and

Moreover,

Defendants did not prevail on their motion for sanctions seeking
dismissal or default judgment, thus granting attorneys’ fees in
connection with that motion would be inappropriate.

Based on

the foregoing, the motion for sanctions will be denied.
The

court

will

not

undertake

to

determine

whether

any

portion of this Memorandum Opinion will be filed under seal.
Accordingly, the Memorandum Opinion will be filed under seal
29

temporarily,

and

the

parties

are

directed

to

review

it

and

suggest jointly within fourteen (14) days from this memorandum
opinion any necessary redactions that should be made before it
is released to the public docket.
III. Conclusion
For the foregoing reasons, the motion for sanctions filed
by Defendants will be denied.

A separate order will follow.

/s/
DEBORAH K. CHASANOW
United States District Judge

30