Opinion
NO. EDCV 04-00759-VAP (SSx) [consolidated with Case No. EDCV 04-00079-VAP (SSx)].
October 6, 2005
I. INTRODUCTION
This is an action arising out of certain operations on a 160-acre parcel of land in Rialto, California by a corporation known as the West Coast Loading Corporation (a predecessor of the named defendant, Emhart Industries, Inc. ("Emhart")). On August 15, 2005, Plaintiff Goodrich Corporation ("Goodrich") filed a motion entitled "Motion to Compel Production of Documents and Answer to Interrogatory No. 25" (the "Motion"). In support of the Motion, the parties submitted a Joint Stipulation, pursuant to Central District of California Local Rule 37. The parties also filed declarations and exhibits in support of their positions as stated in the Joint Stipulation. On September 6, 2005, Goodrich filed a Supplemental Memorandum in support of the Motion. The Court held a hearing on September 26, 2005. For the reasons stated below, the Motion is GRANTED IN PART and DENIED IN PART.
II. DISCOVERY REQUESTS IN DISPUTE
A. Goodrich's Contentions
On April 20, 2005, Goodrich served its Fourth Demand for Production of Documents upon Emhart. (Declaration of Kimberly Gilchrist ("Gilchrist Dec."), Exh. A). These requests pertained to a November 1998 "buyout" Agreement that was executed in settlement of litigation between Black and Decker, Inc. and certain London insurers. The discovery requests sought drafts of the Agreement, diligence performed by the parties prior to the execution of the Agreement, communications reflecting negotiations leading up to the agreement, and related documents. (Jt. Stip. at 1). Goodrich contends that the requested documents are relevant to the "successor liability" issue presented by this litigation. (Jt. Stip. at 2). Specifically, Goodrich contends that Emhart, by acquiring Kwikset Locks, Inc. ("KLI") and West Coast Loading Corporation ("WCLC"), became liable for any contamination caused by these entities under the successor liability doctrine. Emhart disputes this contention.
Goodrich asserts that documents pertaining to the 1998 Agreement are relevant to establishing the value of KLI and WCLC insurance policies, which the 1998 Agreement allegedly discharged and extinguished. (Jt. Stip. at 2). Goodrich brings this Motion because Emhart has objected to the discovery requests and refused to produce any documents in response.
Goodrich has divided its discovery requests into several categories. The first group, request for production nos. 215, 217, 218, 219, 220, 243, 244, seeks documents "relating to any insurance policies naming KLI or WCLC as an insured and any documents relating to the transfer, discharge or release of any such policies." (Jt. Stip. at 20). Goodrich notes that Emhart has acknowledged that the excess insurance policies of KLI were discharged and released to Emhart in a "confidential" buyout agreement in November 1998. (Jt. Stip. at 26). Goodrich points out that Judges Phillips and Walters have issued orders or made statements requiring that Defendants disclose to Plaintiff "evidence of insurance coverage, including identities of insurance carriers, policy instruments, reservation of rights or denial letters and any other non-privileged communications." (Jt. Stip. at 26; Gilchrist Dec., Exh. I). Goodrich argues that any insurance policies or documents relating to the transfer, discharge or release of such policies are "clearly relevant." (Jt. Stip. at 27).
The second group of requests, request nos. 216, 227, 231, 232, and 236, seeks documents "relating to the decision to enter into the November 1998 Agreement; drafts of the agreement, [and] communications regarding the agreement." (Jt. Stip. at 29). According to Goodrich, Emhart's counsel has represented that, by virtue of the 1998 Agreement, Black and Decker extinguished insurance policies naming KLI and WCLC. (Jt. Stip. at 33; Gilchrist Dec., Exh. L). Goodrich argues that, in order for Black and Decker to extinguish the policies of KLI and WCLC, Black and Decker had to have been "in privity" with Emhart. (Jt. Stip. at 33). Furthermore, if Emhart were paid to extinguish the policies of KLI and WCLC, Goodrich contends this would provide evidence in support of its claim that Emhart is a successor to the liabilities of KLI and WCLC. (Jt. Stip. at 34).
The third group of requests, nos. 221, 222, 223, 224, 225, 226, 229, 230, 233, 234, 235, 237, and 238, seeks documents "relating to diligence undertaken by or on behalf of the Emhart entities prior to entering into the November 1998 Agreement." (Jt. Stip. at 34). Goodrich argues that Emhart, in declarations to the Court, asserted that the 1998 Agreement "discharged and released" insurance policies naming KLI as an insured. (Jt. Stip. at 44). The Agreement, however, does not indicate such a release. (Id.). Goodrich seeks the documentation relating to the diligence performed by the parties prior to the execution of the Agreement to further explain the implications of the Agreement. (Jt. Stip. at 45-6).
The fourth group of requests, nos. 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 255, and 256, seeks documents "relating to litigation between [the] Emhart entities and insurance carriers." (Jt. Stip. at 47). Goodrich argues that evidence of litigation between an Emhart entity and any insurance company that resulted in the extinction of the policies of KLI or WCLC would also be "prime evidence" of Emhart's successor liability to KLI's and WCLC's liabilities. (Jt. Stip. at 58).
The fifth group of requests, nos. 239 and 240, seeks "documents relating to payments received by [the] Emhart entities pursuant to the November 1998 Agreement." (Jt. Stip. at 59). These requests, according to Goodrich, would require the production of evidence showing that Emhart "cashed out" the liabilities of KLI, including KLI's liabilities resulting from its operations at the 160-acre parcel. (Jt. Stip. at 60). If Emhart cashed out KLI's excess insurance policies, then Emhart may have extinguished the rights of third party beneficiaries such as Goodrich and the City of Rialto to make claims against those policies. (Jt. Stip. at 60). Goodrich further contends that the purported cashout of Emhart is evidence of successorship or evidence of a fraudulent conveyance, either of which would make Emhart liable for KLI's actions under a de facto merger theory. (Jt. Stip. at 61).
Finally, Goodrich seeks to compel a further response to Interrogatory No. 25. This interrogatory seeks the identities of all individuals involved "in any way" in the 1998 Agreement. According to Goodrich, at the July 20, 2005 meet and confer, Goodrich offered to narrow this interrogatory to seek only the identity of those persons known to Emhart who worked at the Black and Decker Corporation, Black Decker (U.S.), Inc., or Emhart, who were involved in any way in the November 1998 Agreement. Goodrich seeks this information in order to determine if those individuals should be deposed. (Jt. Stip. at 63).
B. Emhart's Contentions
Emhart raises several objections in response to the discovery requests, but its primary contention is that the requested documents, if they exist, are irrelevant to the subject matter of the present lawsuit. Emhart further contends that there are no documents that "refer or relate to [WCLC's or KLI's] operations at the 160-acre property" within the universe of documents that "relate to" the 1998 Agreement. (Jt. Stip. at 7; Meeder Dec., Exh. C at 13-14).
Emhart submitted the declaration of Gary Duvall, an attorney for Black and Decker, in support of its Opposition. Mr. Duvall declares that, at the time the November 1998 agreement was negotiated, neither the lawyers nor the principals of Black and Decker (1) were aware of the 160-acre Rialto site; (2) were aware that an entity named West Cost Loading Corporation (which was merged out of existence in 1957) ever operated at that site; (3) were aware that Kwikset Locks, Inc. (which was dissolved in 1958) ever had title to the 160-acre Rialto site or that between 1952 and 1957 WCLC was KLI's subsidiary; (4) were aware of the existence of any insurance policies covering WCLC's operations at the 160-acre Rialto site; or (5) are aware of any document that relates to the 1998 Agreement that refers to or names (a) WCLC, (b) KLI, (c) the 160-acre Rialto site; or (d) any WCLC or KLI insurance policy that might provide coverage for liabilities allegedly created by WCLC during its operations at the 160-acre Rialto site. (Duvall Dec. at 13-14; Meeder Dec., Exh. C at 14).
According to Emhart, because the lawyers and principals were "unaware" of the 160-acre site and insurance policies covering WCLC operations and KLI, it is impossible that there are relevant documents in existence that are responsive to the requests at issue. Emhart asserts that any agreement (or documents relating to an agreement) between Black and Decker and Emhart, which permits Black and Decker to release Emhart's insurance carries, would not bear any relevance to the issue of whether Emhart is the corporate successor of KLI. (Jt. Stip. at 18).
Emhart also asserted in its objections that any responsive documents, if they are relevant, are privileged. (Jt. Stip. at 20-64). However, Goodrich has unequivocally stated that it is not interested in privileged documents and seeks only non-privileged, responsive documents.
Regarding the first group of requests, Emhart contends that Rule 26(a) (1) (D) only provides for the disclosure of "any insurance agreement under which any person carrying on an insurance business may be liable to satisfy part or all of a judgment which may be entered in the action or to indemnify or reimburse for payment made to satisfy the judgment." (Jt. Stip. at 28). As Emhart has provided all known insurance policies in its possession, custody and control that "might" relate to the claims brought against it, Emhart contends that it has fulfilled all of its discovery obligations in this regard. (Jt. Stip. at 29).
For the remainder of the requests and in response to the specific arguments set forth by Goodrich, Emhart referred the Court back to the original arguments by Emhart contained in Section 1.B(1)-(3) and Section II. B of the Joint Stipulation.
III. GOODRICH HAS DEMONSTRATED THE RELEVANCE OF SOME, NOT ALL, OF THE REQUESTED DOCUMENTS AND THEREFORE THE MOTION TO COMPEL IS GRANTED IN PART AND DENIED IN PART
Under Federal Rule of Civil Procedure 26(b) (1), each party has the right to discover nonprivileged information "relevant to the claim or defense of any party." Rule 26(b) (1) also permits the court, for "good cause," to order discovery of information relevant to the subject matter involved in the action. Relevance is broadly construed, and a request for discovery should be considered relevant if there is any possibility that the information sought may be relevant to the claim or defense of any party. Waddell Reed Fin., Inc. v. Torchmark Corp., 222 F.R.D. 450, 452 (D. Kan. 2004). A request for discovery should be allowed unless it is clear that the information sought can have no possible bearing on the claim or defense of any party. Id.
The commentary to the changes in Rule 26, enacted in December 2000, clarifies that the amendment to the scope of discovery provisions of Rule 26(b) (1) "is designed to involve the court more actively in regulating the breadth of sweeping or contentious discovery," so that if there is "an objection that discovery goes beyond material relevant to the parties' claims or defenses, the court would become involved to determine whether the discovery is relevant to the claims or defenses and, if not, whether good cause exists for authorizing it so long as it is relevant to the subject matter of the action." Thompson v. Department of Housing and Urban Dev., 199 F.R.D. 168, 171 (D. Md. 2001) (quoting Commentary to Rule Changes, Court Rules, 192 F.R.D. 340, 389 (2000)). In determining whether information sought is relevant, the commentators observed:
[A] variety of types of information not directly pertinent to the incident in suit could be relevant to the claims or defenses raised in a given action. For example, other incidents of the same type, or involving the same product could be properly discoverable under the revised standard. Information about organizational arrangements or filing systems of a party could be discoverable if likely to yield or lead to the discovery of admissible information. Similarly, information that could be used to impeach a likely witness, although not otherwise relevant to the claims or defenses, might be properly discoverable. In each instance, the determination whether such information is discoverable because it is relevant to the claims or defenses depends on the circumstances of the pending action.Id. at 172 (quoting Court Rules, 192 F.R.D. at 389).
Goodrich alleges that Emhart may be liable for some or all of the claims arising out of the operations on the 160-acre land as a "successor" of KLI and WCLC. Emhart denies that successor liability exists. Goodrich argues that its discovery requests are relevant to its claims that Emhart may be liable as a successor to KLI and WCLC. This Court agrees that some, if not all, of the discovery requests seek relevant information.
Emhart argues that, because Black and Decker's principals and lawyers were "unaware" of the Rialto site at the time of the November 1998 Agreement, none of the documents pertaining to that Agreement can possibly contain relevant information. This argument construes relevancy, for purposes of discovery, too narrowly. The fact that Black and Decker's principals and lawyers were "unaware" of the Rialto site at the time that the 1998 Agreement was entered into does not result in the conclusion that the referenced documents are irrelevant. Goodrich has alleged claims against Emhart, KLI, and WCLC. These requests seek documents to further explain the relationships that existed between these entities. Those relationships are relevant to the "claims and defenses" of the parties to this action.
Other courts, in examining similar relevance questions, have permitted discovery into underlying insurance policies (and related documents), even when the policies and documents were not directly related to the specific claims at issue. For example, inSR International Business Insurance Co., LTD. v. World Trade Center Properties, 2003 WL 145419 (N.D. Ill. 2003), an insurance company sought a declaratory judgment to determine the extent of its liability after September 11, 2001. The defendants (leaseholders at the World Trade Center) served a subpoena on an insurance industry trade association, a non-party, seeking documents regarding the meaning of certain terms used in the insurance policies contested in the primary action. The subpoenaed documents were not directly relevant to the claims and defenses of the parties, but were found relevant as "extrinsic evidence" to determine ambiguities in the policy terms. (Id. at *3). Here, the requested documents, if they exist, may serve as either extrinsic or direct evidence to explain the connections between WCLC, KLI and Emhart.
Emhart's suggestion, that the language of Rule 26(a) (1) (D) limits discovery to only those insurance policies in Emhart's possession, custody and control that "might" be related to the claims brought against it, does not find support in the commentaries to that rule. As noted in Simon v. G.D. Searle, 816 F.2d 387 (8th Cir. 1987), the enactment of Rule 26(b) (2) was not intended to change existing law governing discovery of insurance-related information. Simon, 816 F.2d at 404. Rather, the general relevancy standard embodied in Rule 26(b) (1) "remains applicable to insurance documents other than [policies]." Id. Thus, insurance documents that are not discoverable under Rule 26(a) (1) (D) remain discoverable under the relevancy standard of Rule 26(b) (1).
Former Rule 26(b) (2) contained the same language regarding insurance agreements that is now contained in Rule 26(a) (1) (D).
Although the Simon decision was discussing the relevancy standard as it existed in the former version of Rule 26(b) (1), the same conclusion, i.e., that Rule 26(a) (1) (D) does not bar discovery of other insurance documents under Rule 26(b) (1), is equally applicable under the new version of the rule.
Thus, as to the first, second, third and fifth categories of requests, described above, the Motion to Compel is GRANTED. Emhart shall provide supplemental responses and documents to Goodrich within thirty days of the date of this Order. If, after a reasonable search, Emhart concludes that no responsive documents exist, Emhart must so declare in a supplemental response. If documents exist but are privileged, Emhart must identify those documents in a supplemental privilege log.
The Court DENIES the Motion as it concerns the fourth category of requests seeking all documents "relating to litigation between [the] Emhart entities and insurance carriers." The Court agrees that these requests are overbroad. These requests could arguably encompass documents that have no bearing whatsoever on the claims in the current litigation. Moreover, to the extent that Emhart or the related entities engaged in litigation with their carriers, many of the sought after documents would be matters of public record. There is no showing by Goodrich that the burden for Goodrich to obtain these documents would be any greater than the burden imposed on Emhart to produce them. "It is well established that discovery need not be required of documents of public record which are equally accessible to all parties." Securities and Exchange Commission v. Samuel H. Sloan Co., 369 F. Supp. 994, 995 (S.D.N.Y. 1973). As such, the Motion as to the fourth category of requests is DENIED.
The Court GRANTS the Motion as to Interrogatory No. 25, as limited by Goodrich in the Joint Stipulation. (See Jt. Stip. at 63). The identity of the individuals who were involved in the November 1998 Agreement is clearly discoverable information. Emhart shall provide a verified, supplemental interrogatory response within thirty days of the date of this Order.
IV. CONCLUSION
For the reasons stated above, Goodrich's Motion to Compel Production of Documents and Answer to Interrogatory No. 25 is GRANTED IN PART and DENIED IN PART. Emhart shall serve supplemental responses and produce documents within thirty days of the date of this Order, as described above.
IT IS SO ORDERED.