REGIS INSURANCE COMPANY v. A.M. BEST COMPANY, INC.

Filing 42

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE PETRESE B. TUCKER ON 2/2/12. 2/6/12 ENTERED AND COPIES EMAILED.(rf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

REGIS INSURANCE COMPANY,
CIVIL ACTION

Plaintiff,
v.

NO. 10-3171

A.M. BEST COMPANY, INC.,
Defendant.

MEMORANDUM
Tucker, J.

February ___, 2012

Presently before the Court is the three-part Motion of Defendant (“the Motion”), filed on
June 13, 2011 requesting that this Court: (1) preclude Plaintiff from introducing testimony
related to a May 3, 2011 ex parte meeting; (2) preclude Plaintiff from producing expert
testimony; and (3) direct that certain facts be taken as established in this action. (Doc. 30.) For
the reasons stated below, this Court GRANTS the Motion with respect to part 1, but DENIES
parts 2 and 3.
I. BACKGROUND
This case arises over what Plaintiff Regis Insurance Company (“Plaintiff” or “Regis”)
alleges was an unfounded rating downgrade by Defendant A.M. Best, Inc. (“Defendant” or “A.M.
Best.”). Defendant has been in the business of rating insurance companies for over 100 years and
is described by Plaintiff as the “bellwether of insurance company analysis.” (Compl.) Thus, “an
insurer will rise or fall on its Best rating.” (Compl.)

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In January 2010, Defendant downgraded Plaintiff’s rating from a B+ to a B-, and its
outlook from “stable” to “negative,” primarily due to an outstanding consent judgment entered
against Plaintiff’s parent company, Tiber holding Corporation (“Tiber”), in excess of $25
million. (Compl.) The 2010 rating was the first time Defendant considered the financial
condition of Tiber in connection with its rating of Regis. (Compl.) Plaintiff argues that the
consent judgment against Tiber should not have been considered in its rating as the judgment has
existed for over ten years and cannot be used to attach any of Regis’ assets and thus has no effect
on Regis’ financial condition. Plaintiff further submits that the rating downgrade has caused over
$400,000 in lost business in less than six months, which is approximately 20% of its gross
written premium for a similar period of time in 2009. (Compl.)
The instant action was initiated with the filing of the Complaint on June 30, 2010.
The Complaint alleges five counts: (1) tortious interference with contractual relations; (2)
tortious interference with prospective contractual relations; (3) commercial disparagement; (4)
libel; and (5) seeks a declaratory judgment. On January 18, 2011 this Court entered a Revised
Scheduling Order, setting a deadline of March 15, 2011 for Plaintiff’s expert report. On
February 24, 2011, at Plaintiff’s request and with Defendant’s consent, this Court again entered a
Revised Scheduling Order, setting a deadline of May 2, 2011 for Plaintiff’s expert report, which
has yet to be produced.
On May 16, 2011 this Court granted Defendant’s Motion to Compel the Production of
Documents. (Doc. 29.) Plaintiff was ordered to “provide to Defendant all available, requested
documents” within ten (10) days and to “provide a detailed account to Defendant concerning any
items that it is unable to produce.” (Doc. 29.) On June 27, 2011, Plaintiff filed its Amended
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Responses and Objections to Defendant’s Second Demand for Production of Documents. Also
relevant to this litigation is that on May 3, 2011 counsel for Plaintiff, Clifford Haines,
Esq.—after agreeing with counsel for Defendant, Michael K. Furey, Esq., that neither party
would be represented by counsel at any future rerating meetings of Regis—attended and
participated in such a meeting without notifying counsel for Defendant. (Doc. 30-1, ¶¶ 3, 4; Doc.
30-2, ¶¶ 6-7, 9.) Each of Defendant’s three motions presently before the Court is discussed in
turn.
II. DISCUSSION
Motion to Preclude Testimony from the May 3, 2011 Ex Parte Meeting
In January 2011, during the deposition of one of Defendant’s employees, counsel for
Plaintiff and counsel for Defendant agreed that they would take no part in any rating meeting or
other aspect of Regis’ rerating process. (Doc. 30-1, ¶ 3.) As part of the rerating process, on May
3, 2011 representatives of Plaintiff met with representatives of Defendant. (Doc. 30-1, ¶ 4.)
Plaintiff’s counsel—without informing Defendant’s counsel—attended and took notes at the twohour meeting. (Doc. 30-1, ¶ 4; Doc. 30-2, ¶¶ 6-7.) Defendant’s employees attended without the
benefit of counsel and were not informed that they were entitled to counsel. (Doc. 30-2, ¶¶ 6-7,
9.) Defendant has filed a Motion to Preclude Plaintiff from introducing testimony from the May
3, 2011 meeting.
Under the Pennsylvania Rules of Professional Conduct, a lawyer “shall not communicate
about the subject of the representation with a person the lawyer knows to be represented by
another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is
authorized by law or the court to do so.” 42 PA . RULES OF PROF’L CONDUCT R. 4.2 The purpose
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of this rule is to forbid ex parte communications with employees whose statements could be used
to “impute liability to the company.” See McCarthy v. Southeastern Pennsylvania Transp. Auth.,
772 A.2d 987, 993 (Pa. Super 2001). Under the Federal Rules of Evidence, such statements
could otherwise be introduced into the litigation as admissions. See FED . R. EVID . 801(d)(2)(D).
To give Rule 4.2 teeth, the proper remedy is to preclude such testimony. See University
Patents, Inc. v. Kligman, 737 F. Supp. 325, 329-30 (E.D. Pa. 1990). Otherwise, the rule is
without remedy. Accordingly, this Court will grant Defendant’s Motion to Preclude Plaintiff
from introducing any testimony relating to, and all information obtained from, the May 3, 2011
ex parte meeting where Defendant’s employees were without the benefit of counsel. Plaintiff’s
concern that such a ruling is essentially an order for sanctions is noted, but should be assuaged by
the non-precedential nature of this order; this court makes no comment as to the culpability vel
non of Plaintiff’s counsel and does not suggest that counsel acted with bad faith. Thus, this order
is without prejudice as to any ethical proceedings.
Plaintiff further argues that preclusion is unnecessary because Plaintiff does not intend to
introduce any information obtained from the May 3, 2011 meeting into evidence. But if Plaintiff
does not intend to introduce this into evidence, Plaintiff sustains no injury from this ruling while
both the purpose of Rule 4.2 and mutual understanding between the parties as this litigation
proceeds forward are furthered by preclusion. Accordingly, this Court grants Defendant’s
Motion to Preclude Plaintiff from introducing any testimony relating to, and all information
obtained from, the May 3, 2011 meeting.
Motion to Preclude Expert Testimony

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On January 18, 2011 this Court entered a Revised Scheduling Order, setting a deadline of
March 15, 2011 for Plaintiff’s expert report. On February 24, 2011, at Plaintiff’s request and
with Defendant’s consent, this Court again entered a Revised Scheduling Order, setting a
deadline of May 2, 2011 for Plaintiff’s expert report. The Court has learned from Plaintiff in its
latest filing that Plaintiff’s expert report has been produced. (Doc. 41). Defendant moves to
preclude Plaintiff from introducing expert testimony. Defendant argues that in light of Plaintiff’s
failure meet the scheduling deadline and Defendant’s intention to file a motion for summary
judgment, this Court should preclude Plaintiff from producing an expert report. This Court does
not agree.
The Third Circuit has outlined four factors to consider in determining whether expert
testimony should be excluded: (1) the prejudice or surprise in fact of the party against whom the
excluded witnesses would have testified; (2) the ability of that party to cure the prejudice; (3) the
extent to which waiver of the rule against calling unlisted witnesses would disrupt the orderly
and efficient trial of the case or of other cases in the court; and (4) bad faith or willfulness in
failing to comply with the district court’s order. Meyers v. Pennypack Woods Home Ownership
Ass’n, 559 F.2d 894, 905 (3d Cir. 1977). A consideration of these factors leads this Court to
conclude that Plaintiff’s production of its expert report was appropriate, was not prejudicial to
Defendant, and should not be precluded. It came as no surprise to Defendant that Plaintiff
intended to produce an expert report, despite the fact that such report was produced after the
specified due dates. Further, there did not appear to be bad faith on the part of Plaintiff in its
delay; instead, Plaintiff submitted that its delay was due to its intention to allow its expert to
review a deposition—not yet taken—which the parties agreed would be taken outside of the
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discovery deadline. Any potential prejudice to Defendant was cured by Plaintiff’s submission of
the expert report. In addition, Defendant is not prejudiced as Defendant has an opportunity to
respond to the expert report submitted by Plaintiff. Thus, Defendant’s motion to preclude shall
be denied.
Motion to Take Certain Facts as Established
On May 16, 2011 this Court granted Defendant’s Motion to Compel the Production of
Documents. (Doc. 29.) Plaintiff was ordered to “provide to Defendant all available, requested
documents” within ten (10) days and to “provide a detailed account to Defendant concerning any
items that it is unable to produce.” (Doc. 29.) Now, Defendant moves for discovery sanctions
based on Plaintiff’s failure to produce certain documents, requesting that this Court take certain
facts as established. See FED . R. CIV . P. 37(b)(2)(A)(i). This request will not be granted because
on June 27, 2011—subsequent to the filing of Defendant’s Motion—Plaintiff filed its Amended
Responses and Objections to Defendant’s Second Demand for Production of Documents, which
(albeit tardy) sufficiently fulfilled the mandates of the Court’s May 16, 2011 Order. (Doc. 33.)
Thus, sanctions are inappropriate and unnecessary.
“The decision to impose sanctions for discovery violations, as well as any determination
as to what sanctions are appropriate, are matters generally entrusted to the discretion of the
district court.” Barbee v. SEPTA, 323 Fed. Appx. 159, 162 (3d Cir. 2009) (citing Bowers v.
NCAA, 475 F.3d 524, 538 (3d Cir. 2007)). The court “should avail itself of its inherent
sanctioning power only when absolutely necessary.” Klein v. Stahl GMBH & Co., 185 F.3d 98,
109 (3d Cir. 1999). The Court’s discretion should be guided by “the basic tenet that sanctions
should always be narrowly tailored to meet the misconduct, and should entail no greater
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punishment than is reasonably necessary to address the specific wrongdoing that confronts the
court.” Bartos v. Pennsylvania, 2010 U.S. Dist. LEXIS 43937 at *15 (M.D. Pa. 2010) (citing
Klein, 185 F.3d 98 (3d. Cir. 1999)).
This Court does not find that the sanctions Defendant requests—that is, having the Court
take certain facts as established—to be narrowly tailored to remedy the present dispute. While
sanctions of this sort might be appropriate where one party willfully and flagrantly refused to
respond to interrogatories or requests for admissions, they are not appropriate here; in seeking
these sanctions, Defendant essentially asks the Court to convert a request for the production of
documents into a request for an admission. Such a remedy is not narrowly tailored and is not
necessary because Plaintiff’s June 27, 2011 filing sufficiently fulfilled the mandate of this
Court’s May 16, 2011 Order. Moreover, if either party has any future document production
issues, the Court strongly urges the parties to contact the Court directly so that a conference
before the Court may be scheduled to move along discovery and allow this case to come a
resolution on the merits.
An appropriate order follows.
BY THE COURT:
/s/ Petrese B. Tucker
____________________________
Hon. Petrese B. Tucker, U.S.D.J.

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