Opinion
Amelia M. Chapple, Jared T. Heck, Ross O. Silverman, Eric T. Gortner, Katten Muching & Rosenman LLP, Chicago, IL, Jeffrey Alan Crapko, Matthew P. Allen, Thomas W. Cranmer, Miller, Canfield, Paddock and Stone, PLC, Troy, MI, for Plaintiff.
Ben M. Gonek, Law Offices of Ben M. Gonek, PLLC, Dennis K. Egan, Kotz, Sangster, Wysocki & Berg, P.C., Detroit, MI, Debra A. Geroux, Butzel Long, Lansing, MI, Robin Luce Herrmann, Butzel Long, Bloomfield, MI, Ziyad I. Hermiz, Butzel Long, Steven F. Fishman, Detroit, MI, Darryl Bressack, David H. Fink, Isaac S. Sternheim, Fink + Associates Law, Bloomfield Hills, MI, David W. Warren, Emily R. Warren, Peter W. Joelson, Peter W. Joelson, Joelson Rosenberg, PLC, Gary R. Blumberg, Farmington Hills, MI, John D. Dakmak, Stuart M. Schwartz, Clark Hill PLC, Detroit, MI, for Defendants.
ORDER GRANTING DEFENDANT DESANTO’S MOTION TO COMPEL PRODUCTION OF SETTLEMENT AGREEMENTS EXECUTED BETWEEN PLAINTIFF AND CLEAR IMAGING, LLC AND HORIZON IMAGING, LLC [141]
DAVID R. GRAND, United States Magistrate Judge.
Before the Court is a Motion to Compel the Production of Settlement Agreements Executed Between Plaintiff State Farm Mutual Automobile Insurance Company ("State Farm") and Clear Imaging, LLC ("Clear") and Horizon Imaging, LLC ("Horizon"), filed by Defendant Joseph F. DeSanto ("DeSanto") on September 16, 2016. (Doc. # 141). State Farm filed a response (Doc. # 145), and DeSanto filed a reply. (Doc. # 151). On September 21, 2016, Judge Levy referred this matter to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(A). (Doc. # 143). The Court held a telephonic conference with counsel on September 28, 2016, to discuss the motion. (Doc. # 144). Having reviewed the parties’ briefs and other papers on file, the Court dispenses with oral argument pursuant to E.D. Mich. L.R. 7.1(f).
Clear and Horizon were Defendants until April 1, 2016, when District Judge Judith E. Levy entered a Stipulation Order dismissing them from the case. (Doc. # 134).
Former Defendants Clear and Horizon filed a concurrence and joinder in State Farm’s response (Doc. # 146) and also filed responses to DeSanto’s motion to compel. (Docs. # 147, 148).
I. Background
On January 21, 2014, State Farm filed a complaint against twelve defendants involved in an alleged "widespread fraud scheme" and "conspiracy" that resulted in State Farm paying over $4.7 million for treatments and tests it contends were "medically unnecessary." (Doc. # 1 at 2, 99). State Farm brings this action for declaratory relief under 22 U.S.C. § 2201 and for damages it allegedly suffered as a result of the Defendants’ common law fraud, unjust enrichment, and violation of 18 U.S.C. § 1962(c), (d) ("RICO"). (Id. at 90-99).
On May 13, 2016, DeSanto served State Farm with Requests for Production of Documents seeking "all settlement agreements, and related documents, entered into between State Farm and any Defendant(s) in this matter." (Id. ). On June 13, 2016, State Farm objected to this request and did not produce these documents. (Id. ). DeSanto then filed the instant motion to compel, requesting that the Court order State Farm to produce, within seven days, the settlement agreements between State Farm, Clear, and Horizon that led to Clear and Horizon’s dismissal from the case. (Doc. # 141 at 9).
DeSanto argues that the settlement agreements he is requesting are non-privileged and discoverable under Sixth Circuit case law and Federal Rule of Civil Procedure 26. (Id. at 10, 12-13). He argues that they are relevant for two reasons. (Id. ) First, their provisions may bias the testimony of "multiple key witnesses," including Defendant Scott P. Zack, Defendant David M. Katz, and non-party Cory J. Mann, who are the direct or indirect owners of Clear and Horizon. (Id. at 10, 13-16). DeSanto argues that "[t]hese three witnesses will be deposed very soon ... and will— without any doubt— be called to testify at trial" because "if they do not testify on their own behalf or are not subpoenaed by State Farm, Defendant DeSanto will call them to testify." (Id. ). As to the provisions in the settlement agreements that may bias these witnesses, DeSanto raises two possibilities: (1) Clear and Horizon may have settled for smaller amounts in exchange for their testimony and cooperation during the litigation; or (2) the agreements could contain a "Mary Carter" provision limiting Clear and Horizon’s liability based on the amounts recovered from the remaining Defendants. (Id. at 10, 14-15). DeSanto alleges that even if these types of provisions do not appear in the agreement, a low settlement amount may also be relevant to show bias. (Id. at 15).
"A ‘Mary Carter agreement’ is an agreement between a plaintiff and some, but fewer than all, defendants, under which settling parties limit financial responsibility of settling defendants, usually in inverse ratio to any recovery that the plaintiff is able to make against the nonsettling defendants." Nieman v. Interstate Distrib. Co., No. 09-3102, 2010 WL 2539719, at *1 (D. Or. June 22, 2010) (citations omitted).
Second, DeSanto alleges that the settlement agreements are relevant because they will help him calculate his potential liability. (Id. at 10, 16-17). DeSanto argues that his potential liability is directly impacted by any payments Clear and Horizon make to State Farm because the Defendants are being jointly sued and the claims against them completely overlap. (Id ). DeSanto asserts that information regarding his potential liability "is relevant now — and not only at trial— because it is relevant to the amount of damages that State Farm may claim and thus is relevant to decisions regarding the benefits or downsides of continued litigation." (Id. at 10) (emphasis in original). Moreover, DeSanto argues that the settlement agreements "should be produced without delay" because they are relevant under Rule 26 and because bias and credibility issues arise before trial (for instance, during depositions). (Id. at 16).
DeSanto also argues that Federal Rule of Evidence 408 does not preclude discovery of settlement agreements. (Doc. # 141 at 18). Rule 408 "governs admissibility rather than discoverability," and therefore, it "cannot be relied upon to prevent the production of ... settlement agreement[s] at the discovery stage." Wagner v. Circle W Mastiffs, No. 08-431, 2013 WL 2096655, at *4 (S.D. Ohio May 14, 2013) (internal citation omitted); Scheurer Hosp. v. Lancaster Pollard & Co., No. 12-11536, 2012 WL 5471135, at *3 (E.D. Mich. Nov. 9, 2012) ("[N]either Rule 408 nor Goodyear preclude discovery or admissibility of the settlement agreement itself or the basic components of the agreement, such as statements explaining what claims were settled and for what amount.") (citing Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 981 (6th Cir. 2003)). Accordingly, like in Wagner, the Court’s determination on this motion to compel will not be based on an admissibility analysis under Rule 408. Wagner, 2013 WL 2096655, at *4.
II. Analysis
While communications surrounding settlement negotiations receive a unique privilege in this Circuit, the same cannot be said for the settlement agreements themselves. In Goodyear Tire & Rubber Co. v. Chiles Power Supply, Inc., 332 F.3d 976, 981 (6th Cir. 2003), the Sixth Circuit recognized a settlement privilege that protects settlement negotiations from discovery. However, this privilege does not extend to the terms of the final agreement. Id. "In line with this decision, courts within this Circuit have compelled the disclosure of settlement agreements, including a breakdown of the claims actually settled and the settlement amounts." Wagner v. Circle W Mastiffs, No. 08-431, 2013 WL 2096655, at *4 (S.D. Ohio May 14, 2013) (collecting cases). This is true even where the agreement is designated "confidential." Potluri v. Yalamanchili, No. 06-13517, 2008 WL 2566367, at *2 (E.D. Mich. June 24, 2008) ("[A] confidential settlement agreement is discoverable, subject to relevancy considerations and the strictures of Fed.R.Civ.P. 26.") (citing Am. Guarantee & Liab. Ins. Co. v. CTA Acoustics, Inc., No. 05-80, 2007 WL 1099620 (E.D. Ky. Apr. 10, 2007) (collecting cases from district court decisions from Kentucky, Ohio, and Kansas)). As explained in Oberthaler v. Ameristep Corp., No. 08-1613, 2010 WL 1506908, at *1 (N.D. Ohio Apr. 13, 2010):
[A]greements are not protected from discovery simply because they have been denominated "confidential" by the parties. "[A] general concern for protecting confidential information does not equate to privilege [...]. [I]n the context of settlement agreements the mere fact that settling parties agree to maintain the confidentiality of their agreement does not serve to shield the information from discovery. Simply put, litigants may not shield otherwise discoverable information from disclosure to others by agreeing to maintain its confidentiality.
(quoting Adams v. Cooper Indus., No. 03-476, 2007 WL 805459, at *2, 2007 U.S. Dist. LEXIS 22199, at *2 (E.D. Ky. Mar. 13, 2007)); see also Am. Guarantee & Liab. Ins. Co., 2007 WL 1099620, at *4 ("[T]he confidential settlement agreement is not privileged ... [and] is not protected from discovery simply because it has been denominated ‘confidential’ by the parties"). Therefore, the principal question here is whether the settlement agreements are relevant under Rule 26 for purposes of discovery. Federal Rule of Civil Procedure 26(b)(1) provides:
While State Farm argues that the "true" relevance of the settlement agreements are for a different lawsuit currently pending in state court, the Court’s analysis will focus on whether the settlement agreements are relevant in this lawsuit. (Doc. # 145 at 13-15).
Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable.
Although "Rule 26 was amended in 2015 to include the ‘proportionality’ requirement [ ] the 2015 amendments do not alter the basic tenet that Rule 26 is to be liberally construed to permit broad discovery." State Farm Mut. Auto. Ins. Co. v. Warren Chiropractic & Rehab Clinic, P.C., 315 F.R.D. 220, 222 (E.D. Mich. 2016) (quoting Rui He v. Rom, No. 15-CV-1869, 2016 WL 909405, at *2 (N.D. Ohio Mar. 10, 2016)). A. The Settlement Agreements are Relevant to Witness Bias, and the Court Declines to Review them In Camera
State Farm argues that DeSanto has not demonstrated that the settlement agreements are relevant to witness bias because Defendants Zack and Katz did not write nor sign the agreements, and because neither party has called non-party Mann as a witness. (Doc. # 145 at 10-12). Settlement agreements "frequently are found to be discoverable in order to allow the requesting party to explore ... issues with respect to witnesses." Wagner, 2013 WL 2096655, at *6 (collecting cases). Further, "[s]ettlement agreements have been found subject to discovery when there is the potential for a witness to testify in person at trial," but have been found "not to be relevant to the issue of bias or credibility where there is a stated intention not to call a particular witness at trial or no indication that particular witness will testify." Id. (internal citations omitted).
Here, there appears to be a reasonable likelihood that Zack, Katz, and Mann will testify at trial. DeSanto has asserted that Defendants Zack and Katz will "certainly" be called to testify. (Doc. # 141 at 15; Doc. # 151 at 3). In light of this assertion, the fact that the individuals in question did not draft or sign the settlement agreement plays no part in this analysis, particularly because they were principal actors in the alleged RICO scheme, and alleged co-conspirators of the other Defendants. DeSanto has also asserted that Mann is "likely" to be called to testify because he is a "key witness," whose testimony is "crucial to DeSanto’s defense." (Id. ). In his motion to compel, DeSanto stated an intention to depose Mann in October or November 2016. (Id. ). Although DeSanto filed his motion at a time when apparently no steps had been taken to arrange this deposition (Doc. # 145 at 11), at that point, the parties were still engaged in discovery and were still free to depose Mann. Whether or not this deposition happens, Mann could nevertheless be called as a trial witness. Given DeSanto’s stated intentions, it therefore remains possible that DeSanto could attempt to use the settlement agreements as evidence of bias as to these three witnesses. See State Farm Mut. Auto. Ins. Co. v. Physiomatrix, Inc., et al., No. 12-11500, 2014 WL 10294813, at *1-2 (E.D. Mich. Apr. 24, 2014). Accordingly, the Court rejects State Farm’s argument that the settlement agreements are not relevant.
Discovery is scheduled to end on October 28, 2016. (Doc. # 88).
DeSanto has indicated that he is waiting for a ruling on this motion before deposing Mann. (Doc. # 151 at 3 n.1).
State Farm tries to distinguish this case from State Farm Mut. Auto. Ins. Co. v. Physiomatrix, Inc., et al., No. 12-11500, 2014 WL 10294813 (E.D. Mich. Apr. 24, 2014), where this Court addressed this same issue and ordered State Farm to produce the settlement agreement in question. (Doc. # 145 at 11-12). In particular, State Farm points out that in Physiomatrix, the former defendant (and settling party) had already given deposition testimony prior to settling, and State Farm had not said whether it intended to call him as a trial witness. (Doc. # 145 at 11). In contrast, "no party has taken any steps to call Mann as a witness in this lawsuit." (Id. ). But the analysis in Physiomatrix applies to the facts in this case because, as set forth above, DeSanto has now expressed a clear intention to depose Mann, who may also be called as a trial witness.
DeSanto has stated that if State Farm does not call Zack, Katz, and Mann to testify, "without any doubt," he will. (Doc. # 141 at 10).
State Farm also argues that the agreements are irrelevant because they do not contain a cooperation clause or a "Mary Carter" provision. (Doc. # 145 at 12). Provisions within the settlement agreement calling for (explicitly or otherwise) Clear and Horizon’s cooperation during trial— if they exist— would also be relevant to the issue of bias. Oberthaler, 2010 WL 1506908, at *2 (finding that the defendants’ speculation or theory that the parties to the settlement agreement could have settled for smaller amounts in exchange for the other defendants’ cooperation at trial, "if true, is clearly relevant to the veracity of potential witnesses"). Of course, without reviewing the settlement agreements, there is no way for the Court to know whether or not they contain these types of provisions. Recognizing this, State Farm has proposed, as an interim step to resolving the instant motion, that the Court conduct an in camera review of the settlement agreements. (Doc. # 145 at 16-17). The Court declines this request.
The case of Thomas & Marker Const. Co. v. Wal-Mart Stores, Inc., No. 06-406, 2008 WL 3200642 (S.D. Ohio Aug. 6, 2008), is instructive on this point. In that case, Wal-Mart had engaged a construction firm to build a store. A dispute arose regarding the completion of the project, and the construction firm sued Wal-Mart and a subcontractor. During the litigation, the construction firm entered into a settlement agreement with the subcontractor, and Wal-Mart moved to compel production of the agreement, arguing that its terms were relevant to the damages at issue and to the credibility of witnesses at trial. Wal-Mart also argued that the settlement agreement might contain a "Mary Carter" provision. The construction firm argued that the agreement was not relevant, but invited the court to review the document in camera to determine its relevance and/or whether it contained a Mary Carter provision. The court rejected the construction firm’s argument and invitation for an in camera inspection:
[T]he Agreement may be relevant to Wal-Mart’s claims and defenses. It may be relevant to the credibility of witnesses who may be called at trial, it may be relevant to any damages that may ultimately be awarded, it may be relevant to the claim regarding the waterline and it may be relevant if it has the effect of a Mary Carter agreement .... Finally, regarding an in camera inspection, absent assertion of some legal privilege, which is not the case here, this Court declines to become involved at this stage of the proceedings.
Id. at *3. See also Gardiner v. Kelowna Flightcraft, Ltd., 10-947, 2011 WL 1990564, at *2 (S.D. Ohio May 23, 2011) (declining to conduct an in camera review of a settlement agreement where the requesting party contended it might contain a Mary Carter agreement because the requesting party had a right to make its own "determination as to the practical and legal effect of the agreement," which could then be argued to the court for a final determination, if necessary).
For the reasons above, the Court finds that the settlement agreements are relevant to witness bias, and the Court declines to order an in camera inspection at this time.
B. The Settlement Agreements are Relevant to Potential Liability or Damages
State Farm also argues that DeSanto has not shown that the settlement agreements are relevant to potential liability or damages for two reasons: (1) DeSanto does not explain how the amount of his liability is uncertain; and (2) this issue is relevant later on, after a judgment is obtained. (Doc. # 145 at 12-13). The Court disagrees with both of these arguments.
DeSanto, a defendant being sued jointly with numerous other defendants, is requesting the settlement agreements to understand his potential liability (out of the $14.1 million State Farm is seeking). (Doc. # 151 at 4-5). Since Clear and Horizon have settled with State Farm, the extent of DeSanto’s potential liability is known to State Farm, but not DeSanto. As explained above, a confidentiality privilege does not exist with respect to the amount the parties settled for under the settlement agreement. Third Pentacle, LLC v. Interactive Life Forms, LLC, No. 10-00238, 2012 WL 27473 (S.D. Ohio Jan. 5, 2012) ("The [settlement] amount discloses nothing specific about what was said during the settlement negotiations," so it is not barred by a confidentiality privilege.). In Oberthaler, the defendant was sued jointly and severally and wanted to know the settlement amount recovered by the plaintiff to determine whether it was "financially justified" to continue the litigation. 2010 WL 1506908, at *2. There, the court granted the defendant’s motion to compel because it found that "not only are [the defendant’s] interests at stake in this regard, but so is the interest of this Court in not having to spend time on unnecessary litigation." Id. Here, the Court finds that the settlement agreements between State Farm, Clear, and Horizon are relevant to DeSanto’s current liability or damages. Accordingly, it is appropriate for DeSanto to be able to access this information. Lovelace v. Pediatric Anesthesiologists, P.A., No. 13-02289, 2013 WL 11776069, at *4 (W.D. Tenn. Oct. 21, 2013) (citing Oberthaler, 2010 WL 1506908, at *1) (relying on Oberthaler in finding that "the settlement between [the parties] is relevant to the issue of damages").
DeSanto has explained that, for example, if the settlement agreement between State Farm, Clear, and Horizon established that Clear and Horizon agreed to pay State Farm $1 million and to forfeit $500,000 of its outstanding receivables, then the joint liability would decrease by $1.5 million and would go down to $12.6 million. (Doc. # 151 at 4-5). Alternatively, if Clear and Horizon agreed to pay State Farm $12 million, that would drastically reduce the remaining joint liability to $2.1 million; this would arguably have a huge impact on DeSanto’s strategy and approach to the case moving forward.
The settlement agreements DeSanto is requesting are relevant now. As noted above, Rule 26 allows discovery "regarding any nonprivileged matter that is relevant to any party’s claim or defense," and this Rule is to be liberally construed to permit broad discovery. Fed.R.Civ.P. 26(b)(1). The Rule also provides that "[i]nformation within this scope of discovery need not be admissible in evidence to be discoverable." Id. The Sixth Circuit has interpreted this to mean that "the scope of examination permitted under Rule 26(b) is broader than that permitted at trial." In re Dow Corning Corp., No. 95-20512 , 2010 WL 3927728, at *6 (E.D. Mich. June 15, 2010) (citing Mellon v. Cooper-Jarrett, Inc., 424 F.2d 499, 501 (6th Cir. 1970)). For the reasons stated above, the Court finds that the settlement agreements are relevant to State Farm’s claims and DeSanto’s defenses and potential liability in this case, and are therefore discoverable at this time.
III. Conclusion
For the reasons stated above, IT IS ORDERED that DeSanto’s Motion to Compel the Production of Settlement Agreements Executed Between Plaintiff State Farm and Clear Imaging, LLC and Horizon Imaging, LLC (Doc. # 141) is GRANTED. State Farm shall produce the settlement agreements within fourteen (14) days from the date of this Order.