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Dietz & Watson, Inc. v. Liberty Mutual Insurance Co.

United States District Court, Eastern District of Pennsylvania

May 5, 2015

DIETZ & WATSON, INC.
v.
LIBERTY MUTUAL INSURANCE COMPANY and LIBERTY MUTUAL FIRE INSURANCE COMPANY

MEMORANDUM OF DECISION

THOMAS J. RUETER United States Magistrate Judge

I. Background

Presently before the court is Liberty Mutual Insurance Company’s and Liberty Mutual Fire Insurance Company’s (“defendants”) renewed request: (1) to compel plaintiff Dietz & Watson, Inc. (“D&W”) to respond completely to their First Set of Requests for Production Directed to Plaintiff Dietz & Watson, Inc. (Defs.’ Motion to Compel, Ex. P (Doc. No. 41)); (2) to compel D&W’s former counsel, Alan Milstein, Esquire of Sherman, Silverstein, Kohl, Rose & Podolsky, P.A. (“Sherman Silverstein”) to respond completely to the discovery request directed to him, id., Ex. L; and (3) for sanctions.

This is an action for bad faith under Pennsylvania law, 42 Pa. Cons. Stat. Ann. § 8371 (West 2014), filed by D&W against defendants. The case stems from an underlying state court action (the “Underlying Litigation”) wherein an individual named Javier Fernandez sued D&W and another defendant for damages relating to a work place injury. Defendants provided insurance coverage to D&W for the claim and provided a defense in the Underlying Litigation under a reservation of rights letter. Defendants reserved their right to disclaim coverage on a claim for punitive damages. At the start of the trial in state court in September 2013, Mr. Fernandez settled his claims against D&W for $2.5 million, which consisted of a payment of $1, 750, 000 from defendants and $750, 000 from D&W. At the time of the settlement, Mr. Fernandez was represented by the law firm of Villari Lentz & Lynam, LLC, counsel to D&W in the present litigation. Mr. Milstein also entered an appearance on behalf of D&W in the Underlying Litigation. At the time of the settlement, then counsel for D&W, Mr. Milstein, reached an agreement with Mr. Fernandez’s counsel, Messrs. Lynam and Villari, whereby they would represent D&W in a bad faith action against defendants and Mr. Fernandez would receive the first $250, 000 from any monies obtained from defendants in the bad faith action. Furthermore, at the time of the settlement, Mr. Fernandez withdrew his claim for punitive damages against D&W.

In this bad faith action, D&W’s primary claim is that defendants failed to engage in good faith settlement negotiations in the Underlying Litigation. In particular, D&W alleges that defendants unreasonably refused to pay more than $1, 750, 000 to settle the Underlying Litigation and thereby forced D&W to use its own monies to complete the settlement. In defense, defendants assert, inter alia, that D&W’s settlement payment was a voluntary payment not covered by the applicable insurance policies and D&W acted in bad faith by colluding with Mr. Fernandez and his counsel, D&W’s present counsel, to settle the Underlying Litigation in order to pursue the instant bad faith litigation.

II. Discovery Dispute

This continuing dispute concerns D&W’s response to defendants’ request for production of documents and the responses of D&W’s former counsel, Mr. Milstein, to the discovery requests directed to it (collectively, the “Requests for Production”). The Requests for Production were served upon D&W and Mr. Milstein, respectively, on December 1, 2014 and October 10, 2014 (Motion to Compel Exs. L and P). The parties have been unable to resolve their disputes as to whether D&W and its former counsel have responded properly to the Requests for Production.[1] Defendants filed a Motion to Compel (Doc. No. 41). By Order dated April 6, 2015 (“April 6, 2015 Order, ” Doc. No. 49), this court denied as moot defendants’ Motion to Compel. The court based this decision on, inter alia, the representations of D&W’s current counsel in this litigation, Thomas A. Lynam, III, Esquire, and D&W’s former counsel, Mr. Milstein (hereinafter, Messrs. Lynam and Milstein shall be collectively referred to as “D&W’s Counsel”), that “they produced all documents, including emails and attachments, responsive to defendants’ document requests directed to their respective law firms.” (April 6, 2015 Order at 1 (emphasis in original).) Because of uncertainties regarding the completeness of D&W’s production, the court ordered “Messrs. Milstein and Lynam to review their productions and send a letter to defendants and the court confirming their complete compliance with the discovery requests.”[2] Id. at 2.

By letter dated April 16, 2015, Mr. Lynam confirmed that “all documents responsive to the Defendants’ requests have been produced.” (“D&W’s April 16, 2015 Letter, ” Doc. No. 55.) Mr. Milstein did not furnish a separate confirmation letter to the court, but Mr. Lynam, in D&W’s April 16, 2015 Letter, also confirmed the compliance of Sherman Silverstein with the discovery request directed to it. See id. at 1. Unfortunately, rather than settle the matter, D&W’s April 16, 2015 Letter highlighted an issue that defendants have pursued repeatedly. D&W’s Counsel were careful to report that “to the best of our knowledge, all documents responsive to Defendants’ requests have been produced.” Id. However, in footnote 2 of that Letter, D&W’s Counsel stated as follows:

Not all documents in this time period [after September 19, 2013] are subject to discovery, nor were they all requested. The underlying Fernandez case settled at trial on September 25, 2013. Immediately thereafter, on the record before Judge DiVito, Villari, Lentz & Lynam, LLC was retained by Dietz & Watson, Inc. That date, September 25, 2013, marked the conclusion of the underlying lawsuit and the beginning of a new representation regarding this current action. Communications between Dietz & Watson, Inc. and counsel regarding the prosecution of this bad faith action are both privileged and beyond the scope of the Liberty document requests regarding the underlying litigation.

Id. at 2 n. 2. From this footnote, it has become clear that there are documents that D&W and/or D&W’s Counsel have not produced based on their claim that the documents are beyond the scope of the Requests for Production. Also, within this group of withheld documents is a subset of documents which D&W’s Counsel contends are subject to the attorney-client privilege. In letters dated April 20 and 21, 2015 (“Defs.’ April 20, 2015 Letter” (Doc. No. 59) and “Defs.’ April 21, 2015 Letter, ” Doc. No. 62), defendants again moved to compel production of the withheld documents and requested that sanctions be imposed.

III. Discussion

A. Scope of Defendants’ Requests for Production

D&W and D&W’s Counsel contend that the Requests for Production are limited to the Underlying Litigation. See D&W’s April 16, 2015 Letter at 2 n. 2. D&W’s Counsel reaffirmed this position in D&W’s April 20, 2015 letter, in which Mr. Lynam stated that “[t]hat period of time, [from the date we were retained on the record to the date of the executed Contingency Agreement], is clearly beyond the scope of Liberty’s document request.” (“D&W’s April 20, 2015 Letter, ” Doc. No. 60.)

This court has reviewed the Requests for Production, and finds the scope of these requests is much broader than the interpretation espoused by D&W’s Counsel. As identified by defendants in their letter dated April 20, 2015, paragraphs 1 through 5, 18 through 20, and 25 of the discovery request directed to D&W, clearly seek documents relating to the instant bad faith litigation, not just the Underlying Litigation.[3] In particular, ...


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