The Charter Oak Fire Insurance Company et al v. American Capital, Ltd. et al
Filing
92
MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 11/29/11. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
THE 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 review in this insurance
case is the motion filed by Defendants for phased discovery
and/or for protective order staying discovery.
(ECF No. 84).
The issues have been fully briefed, and the court now rules, no
hearing deemed necessary.
Local Rule 105.6.
For the following
reasons, the motion will be denied.
I.
Background
This case concerns an insurance coverage dispute between
two insurance companies, Plaintiffs Charter Oak Fire Insurance
Company and Travelers Property Casualty Company of America, and
an investment fund, Defendant American Capital, Ltd. (“American
Capital”).
investments,
(“SPL”),
Beginning in 2008, American Capital and one of its
Defendant
became
involved
Scientific
in
allegedly defective heparin.
over
Protein
100
Laboratories
lawsuits
pertaining
LLC
to
Many of the lawsuits have been
transferred to a multi-district litigation in the United States
District Court for the Northern District of Ohio for pre-trial
proceedings.
According
to
American
Capital,
these
lawsuits
implicated certain primary and umbrella insurance policies (“the
Policies”) that it had purchased from Plaintiffs for the years
2006 through 2009.
When American Capital sought coverage under
the Policies for itself and SPL, Plaintiffs filed this suit for
rescission
and
declaratory
indemnify
reformation.
judgments
In
addition,
that
they
Capital
American
owe
no
Plaintiffs
duty
to
with
respect
to
the
years
elapsing
in
this
seek
defend
or
underlying
heparin lawsuits.
Despite
nearly
three
discovery has yet occurred.
motions
practice,1
discovery.
They
the
no
Having almost completed preliminary
parties
disagree,
case,
appear
however,
which discovery should proceed.
ready
regarding
to
the
commence
manner
in
On September 14, 2011, the
court granted the parties’ joint request to brief the issues
pertaining
September
to
30,
this
discovery
dispute.
2011,
Defendants
filed
(ECF
the
No.
pending
83).
On
motion,
in
which they propose that discovery take place in two phases.2
(ECF No. 84).
Plaintiffs opposed this motion, arguing that
1
On October 27, 2011, Defendants filed a motion for leave
to file second amended counterclaims. (ECF No. 87).
2
Alternatively, Defendants request that all discovery be
stayed pending the resolution of the underlying heparin
lawsuits.
2
discovery should proceed in full with no bifurcation of the
issues.3
(ECF No. 86).
Defendants replied on November 9, 2011.
(ECF No. 90).
II.
Standard of Review
“[A]lthough [Federal Rule of Civil Procedure] 42 does not
expressly
address
the
bifurcation
of
discovery,
courts
have
looked to similar factors as those relevant to the bifurcation
of
trial
when
determining
whether
discovery
deferred claims should be stayed.”
related
to
the
Cann v. Balt. Cnty., Md.,
No. WMN-10-2213, 2011 WL 588343, at *1 (D.Md. Feb. 9, 2011).
Rule 42 reads, in relevant part:
“For convenience, to avoid
prejudice, or to expedite and economize, the court may order a
separate
trial
crossclaims,
Fed.R.Civ.P.
of
one
or
more
counterclaims,
42(b).
Whether
separate
or
to
issues,
claims,
third-party
bifurcate
claims.”
discovery
“rests
squarely within the broad discretion of the District Court.”
Cent. Transp. Int’l, Inc. v. Gen. Electric Co., No. 3:08CV136-C,
2008 WL 4457707, at *2 (W.D.N.C. Sept. 30, 2008).
“Morever,
bifurcation of discovery is the exception, rather than rule, and
3
Plaintiffs agree that an alternative solution would be to
stay discovery until the resolution of the underlying heparin
lawsuits.
Given the age of the case and the nature of the
issues in question, there is no need to wait for the completion
of the underlying suits.
3
it
is
clear
that
in
most
instances,
regular
unbifurcated - discovery is more efficient.”
-
that
is,
Id. at *3.
III. Analysis
As an initial matter, Defendants argue that Plaintiffs are
judicially estopped from pursuing any discovery that would be
duplicative of discovery in the underlying lawsuits.
Defendants
apparently contend that because Plaintiffs successfully opposed
transfer of this case to the MDL in part on the basis that this
case is factually distinct from the underlying lawsuits, any
discovery
pursued
in
the
underlying
lawsuits
by
any
party
necessarily precludes discovery regarding those subjects here.
This conclusion is far too broad.
Given the liberal scope of
discovery under the federal rules as well as the sheer number of
parties
discovery
involved
in
the
in
the
MDL,
underlying
it
is
lawsuits
highly
will
not
unlikely
that
encroach
upon
subjects relevant to this case.
Indeed,
convenience
the
and
purpose
of
efficiency.
an
MDL
See
28
is
simply
U.S.C.
§
to
promote
1407(a).
In
vacating its conditional order of transfer, the Judicial Panel
on Multidistrict Litigation concluded that the issues in this
case were distinct enough from the underlying heparin lawsuits
that such goals would not be achieved.
The JPML did not draw an
impenetrable line between which facts may be considered in one
proceeding versus the other.
Nor will this court so delineate
4
the potential subjects of discovery.
Plaintiffs are cautioned,
however, that this decision does not give them license to stray
too
far
into
requests.
tangential
subject
with
their
discovery
Discovery must be relevant to the specific claims and
defenses at issue in this case.
A.
areas
See Fed.R.Civ.P. 26(b)(1).
Discovery Related to the Rescission and Reformation
Claims
Regardless of whether discovery should be bifurcated, both
parties agree that discovery related to Plaintiffs’ rescission
and reformation claims should commence immediately.
odds,
however,
regarding
what
those
claims
They are at
actually
entail.
Specifically, they disagree whether discovery regarding American
Capital’s corporate relationships is relevant to these claims.
Plaintiffs contend that “American Capital’s relationships with
its portfolio companies are at the heart of [the] rescission and
reformation
claims,
including
the
falsity
and
materiality
of
Defendants’ representations and omissions about its portfolio
companies and Defendants’ knowledge and intent regarding those
representations and omissions.”
(ECF No. 86, at 9-10).
In
contrast, Defendants insist that “by judicially admitting both
that
[American
Capital]
has
subsidiaries,
and
that
[American
Capital] holds a majority interest in non-subsidiary portfolio
companies,” they have essentially mooted Plaintiffs’ need for
discovery regarding this issue.
(ECF No. 90, at 20 n.9).
5
Defendants are mistaken.
“[A] party is entitled to seek
discovery on its theory of the facts and the law, and is not
limited in discovery by the opponent’s theory.”
8 Charles A.
Wright et al., Federal Practice & Procedure § 2011 (3d ed. 2011);
cf. United States v. 216 Bottles, More or Less, Sudden Change by
Lanolin Plus Lab. Div. Hazel Bishop Inc., 36 F.R.D. 695, 700-01
(E.D.N.Y.
1965)
interrogatory
(“A
upon
the
party
ground
may
not
that
it
refuse
is
to
phrased
answer
in
such
an
a
manner that the answer given would be predicated upon a false
hypothesis according to the interrogated party’s theory of the
case.”).
their
Here, Plaintiffs have articulated a theory to support
claims
for
rescission
and
reformation
that
directly
implicates American Capital’s relationships with its portfolio
companies.
That Defendants disagree with Plaintiffs’ theory is
to be expected, but that disagreement does not absolve them of
their basic responsibilities under the federal discovery rules.
Accordingly, Plaintiffs may seek immediate discovery regarding
American Capital’s corporate relationships along with all other
issues related to their rescission and reformation claims.
B.
Discovery Related to the Declaratory Judgment Claims
Defendants’ more substantive argument for bifurcation of
discovery is that the parties are legally obligated to do so.
They point to Brohawn v. Transamerica Ins. Co., 276 Md. 396
(1975), and its progeny, for the proposition that “Insurers are
6
precluded from pursuing discovery of issues . . . that are not
‘independent
and
separable’
from
underlying . . . litigation.”
added).
issues
implicated
by
the
(ECF No. 84-1, at 12) (emphasis
In response, Plaintiffs attempt a sleight of hand by
advocating that a “good cause” standard under Rule 26(c) applies
to
any
discovery
procedure.
reserved
for
later
phases
of
a
bifurcated
(ECF no. 86, at 16-17).
First,
as
to
Plaintiffs’
argument,
the
management
of
discovery falls well within the broad discretion of the court.
A formal protective order requiring a showing a good cause need
not
be
issued
to
bifurcate
discovery,
particularly
issue may be determinative of an entire case.
when
one
Vivid Techs.,
Inc. v. Am. Sci. & Eng’g, Inc., 200 F.3d 795, 803-04 (Fed. Cir.
1999) (“A district court has broad powers of case management,
including
the
power
to
limit
discovery
to
relevant
subject
matter and to adjust discovery as appropriate to each phase of
litigation.
court
may
When a particular issue may be dispositive, the
stay
discovery
concerning
other
issues
until
the
critical issue is resolved.” (internal citations omitted)).
Second, as to Defendants’ argument, Brohawn and its progeny
do not stand for the proposition that discovery of issues that
are not independent and separable from issues to be decided by
underlying litigation is prohibited until the completion of that
underlying litigation; rather, those cases hold that declaratory
7
judgments
regarding
issues
separable are proscribed.
that
are
not
independent
and
See, e.g., Brohawn, 276 Md. at 406
(“[W]here . . . the question to be resolved in the declaratory
judgment
action
inappropriate
added)).4
will
to
be
grant
decided
a
in
pending
declaratory
actions,
judgment.”
it
is
(emphasis
Rendering a judgment on a claim or issue is ultimately
distinct from pursuing discovery on that claim or issue.
See 9A
Charles A. Wright et al., Federal Practice & Procedure § 2387 (3d
ed. 2011) (“The separate trial rule has an obvious relation to
the discovery rules, since if a possibly dispositive issue is to
be tried separately, the district court, although it need not,
may limit discovery to that issue until after its resolution.”
(emphasis added)).
Thus, as a matter of law it is not mandatory that any
discovery
be
delayed
here
pending
the
underlying
litigation.
The question is therefore actually one of judicial economy.
As
a corollary to Brohawn, if the court cannot render a declaratory
judgment
because
the
underlying
litigation
would
resolve
the
issue to be addressed, it may be prudent to delay discovery
regarding those matters.
In this case, however, there appear to
be only two — fairly well-circumscribed — subjects at issue:
4
Furthermore, it is not clear that Brohawn and its progeny
— all state court cases — would be controlling in this court as
to discovery matters, which are procedural in nature.
8
the “Baxter Agreement” and the “Changzhou SPL joint venture.”5
Given the specificity and limited reach of these subjects, it is
difficult to conclude that much by way of resources would be
saved
by
bifurcating
discovery
with
respect
only
to
these
issues, regardless of whether a declaratory judgment implicating
these issues could be rendered prior to the completion of the
underlying litigation.
This specificity of discovery subjects
sought to be delayed also distinguishes this situation from the
cases cited by Defendants where courts have seen fit to separate
discovery regarding a rescission claim from discovery regarding
other
claims.
(See
ECF
No.
84-1,
at
11).6
In
sum,
full
discovery regarding the “Baxter Agreement” and the “Changzhou
SPL joint venture,” along with all matters potentially related
to resolution of Plaintiffs’ declaratory judgment claims, may
commence immediately.
5
Defendants’ request to delay discovery regarding “Alleged
injuries to underlying plaintiffs, and the dates and causes of
the injuries” (ECF No. 84-1, at 6) and the “expected and
intended” defense (id.) is moot.
Plaintiffs state they do not
intend to pursue discovery regarding these issues while the
underlying litigation is pending. (ECF No. 86, at 7 n.1).
6
Defendants hoist themselves with their own petard by
citing to Minnesota Lawyers Mutual Insurance Co. v. King, No.
10-cv-00916-WYD-MEH, 2010 WL 4449371 (D.Colo. Nov. 1, 2010). In
that case, Chief Judge Daniel did bifurcate discovery, but he
grouped discovery related to the rescission claim along with
discovery related to the declaratory judgment claim regarding a
duty to defend. Id. at *5.
9
IV.
Conclusion
For the foregoing reasons, the motion for phased discovery
and/or
for
protective
Defendants will be denied.
order
staying
discovery
filed
A separate order will follow.
/s/
DEBORAH K. CHASANOW
United States District Judge
10
by
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