United States District Court, M.D. Pennsylvania
Matthew W. Brann United States District Judge
instant motion to compel requires me to determine whether,
and to what extent, extrinsic evidence is discoverable in a
declaratory insurance coverage action where bad faith is no
longer at issue. At first blush, any learned practitioner
would expect the proper resolution to flow naturally from
rote application of settled contract principles. However,
intrepid research and argumentation by counsel have plainly
refuted that misconception.
underlying concepts that animate my decision are, of course,
decades-old. Yet, precisely how courts should apply them to
discovery disputes like this one are far from decided.
Moreover, because amended Federal Rule of Civil Procedure
26(b)(1) prioritizes proportionality, whatever guidance the
prevailing ad hoc approach once offered likely
commands diminished weight today.
seek to synthesize existing case law with this renewed focus
on proportionality in discovery: I hold that litigants who
wish to discover extrinsic evidence in a contract
interpretation case must (1) point to specific language in
the agreement itself that is genuinely ambiguous or that
extrinsic evidence is likely to render genuinely ambiguous;
and (2) show that the requested extrinsic evidence is also
likely to resolve the ambiguity without imposing unreasonable
expense. Because the insured here falls well short of meeting
either of these twin aims, the instant motion to compel is
denied, and the case must proceed to dispositive motions.
Westfield Insurance Company seeks a declaratory judgment that
it need not compensate Defendant Icon Legacy Custom Modular
Homes, a homebuilder from Selinsgrove, Snyder County,
Pennsylvania to whom it sold a commercial general liability
policy. Specifically, Plaintiff contends that it need not
compensate the insured for three claims by modular home
purchasers that allegedly arose from Defendant's faulty
workmanship, because it argues that such conduct does not
constitute an insurable “occurrence” under
Defendant was sued in two separate state court proceedings in
New York and Massachusetts, and Plaintiff agreed to defend it
as to those actions subject to a reservation of rights.
Plaintiff then initiated this action in federal court,
seeking a declaration that it owes Defendant no defense or
indemnity under the subject policy as to those actions.
Defendant was sued for a third time, then in Vermont state
court, Plaintiff amended its complaint and sought a similar
declaration as to the newly filed action. In response,
Defendant filed a counterclaim alleging that Plaintiff's
decision to deny coverage in that third case was made in bad
faith. Plaintiff thereafter filed a motion to dismiss,
arguing that Defendant had failed to plausibly plead
sufficient facts supporting its bad faith claim.
Court granted that motion on August 29, 2016, on the basis
that Defendant had proffered little in the way of a showing
of bad faith. The Court's key observation was as follows:
Most apparently, even taking for granted the similarity
between any set of claims, coverage of some claims and denial
of others is not per se evidence of bad
faith insurance practices. For example, consider a
hypothetical set of five claims, all of which are
“similar” but none of which the insurer believes
in good faith it is legally bound to offer coverage. The
insurer could, if it wanted, offer coverage in none or all or
two or three of those cases. Denial would not be made in
bad faith under the law. Rather, it would be made
based upon a calculated business judgment, risk avoidance,
litigation forecasts, etc. The point is that
“similarity” among claims is a poor predictor of
bad faith denials in cases where either the claims'
alleged similarity or the claims' coverage under the
policy is not clearly established. I perceive both of those
elements to be lacking here.
importantly, the Court expedited that motion based upon
representations by both counsel that its quick disposition
would help to resolve this action or at least move it
thereafter, however, the parties found themselves back on
this Court's doorsteps, detailing again that they had
reached several discovery impasses. As a result, the Court
held a telephonic status conference on November 1, 2016, just
two months after it issued its motion to dismiss Memorandum.
I issued the following Order after the call that same day:
1. The discovery deadline is extended for a final time to
December 30, 2016. No further extensions will be granted.
. . .
4. The Court strongly encourages the parties to independently
and efficiently resolve any additional discovery disputes,
keeping in mind the discussion that took place on the October
31, 2016 conference call, the Court's August 29, 2016
motion to dismiss memorandum, and Federal Rule of Civil
Procedure 26(b)'s proportionality mandate.
the Court's admonitions, counsel, led by a December 28,
2016 letter by defense counsel, returned to the Court yet
again, purportedly tangled in a discovery quagmire once more.
Following that exchange, this Court granted Defendant leave
to file any appropriate motions. I also held a comprehensive
oral argument on March 9, 2017, at which time the parties
addressed the two motions that Defendant filed: a motion to
compel of dubious timing that largely seeks extrinsic
evidence tangential to the declaratory claim; and a motion
for sanctions over what might best be described as trivial
(and perhaps justified) dust-ups by two otherwise sterling
sets of advocates.
delved deeply into the underbelly of the beast, I
nevertheless remain of the view that “[f]or all of its
procedural machinations, ” this case is “rather
straightforward.” Westfield Ins. Co. v. Icon Legacy
Custom Modular Homes, 2016 WL 4502456, at *1 (M.D. Pa.
Aug. 29, 2016). As detailed more fully below, Defendant's
motion to compel and motion for sanctions are both denied,
and the case will now proceed to dispositive motions.
is well established that the scope and conduct of discovery
are within the sound discretion of the trial court . . . and
that after final judgment of the district court . . . our
review is confined to determining if that discretion has been
abused.” Marroquin-Manriquez v. I.N.S., 699
F.2d 129, 134 (3d Cir. 1983) (Aldisert, J.). “To find
such abuse it is usually necessary to conclude that there has
been an interference with a substantial right . . . or that
the discovery ruling is seen to be a gross abuse of
discretion resulting in fundamental unfairness in the trial
of the case.” Id. Thus, the United States
Court of Appeals for the Third Circuit has forewarned
litigants that it “will not interfere with a trial
court's control of its docket except upon the clearest
showing that the procedures have resulted in actual and
substantial prejudice to the complaining litigant.”
In re Fine Paper Antitrust Litig., 685 F.2d
810, 817-18 (3d Cir. 1982) (Aldisert, J.).
need not be perfect, but discovery must be fair.”
Boeynaems v. LA Fitness Int'l, LLC, 285 F.R.D.
331, 333 (E.D. Pa. 2012) (Baylson, J.). “The responses
sought must comport with the traditional notions of relevancy
and must not impose an undue burden on the responding
party.” Hicks v. Arthur, 159 F.R.D. 468, 470
(E.D. Pa. 1995). “[T]he scope of [ ] discovery is not
without limits.” Kresefky v. Panasonic Commc'ns
& Sys. Co., 169 F.R.D. 54, 64 (D.N.J. 1996). As
such, “[d]iscovery should be tailored to the issues
involved in the particular case.” Id. As
amended Federal Rule of Civil Procedure 26(b)(1) states:
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.
determine the scope of discoverable information under Rule
26(b)(1), the Court looks initially to the pleadings.”
Trask v. Olin Corp., 298 F.R.D. 244, 263 (W.D. Pa.
2014) (Fischer, J.). In ascertaining which materials are
discoverable and which are not, a district court must further
distinguish between requests that “appear[ ] reasonably
calculated to lead to the discovery of admissible evidence,
” Bell v. Lockheed Martin Corp., 270 F.R.D.
186, 191 (D.N.J. 2010), and demands that are “overly
broad and unduly burdensome.” Miller v. Hygrade
Food Products Corp., 89 F.Supp.2d 643, 657 (E.D. Pa.
discovery rules are meant to be construed quite liberally so
as to permit the discovery of any information which is
relevant and is reasonably calculated to lead to the
discovery of admissible evidence.” Fid. Fed. Sav.
& Loan Ass'n v. Felicetti, 148 F.R.D. 532, 534
(E.D. Pa. 1993). “As an initial matter, therefore, all
relevant material is discoverable unless an applicable
evidentiary privilege is asserted. The presumption that such
matter is discoverable, however, is defeasible.”
Pearson v. Miller, 211 F.3d 57, 65 (3d Cir. 2000).
Rule of Civil Procedure 37(a)(3)(B) states that “[a]
party seeking discovery may move for an order compelling an
answer, designation, production, or inspection.”
“In order to succeed on a motion to compel discovery, a
party must first prove that it sought discovery from its
opponent.” Petrucelli v. Bohringer &
Ratzinger, 46 F.3d 1298, 1310 (3d Cir. 1995) (Cowen, J.)
(citing Fed.R.Civ.P. 37(a)(1)). In addition, “[t]he
party seeking the discovery has the burden of clearly showing
the relevancy of the information sought.” Caver v.
City of Trenton, 192 F.R.D. 154, 159 (D.N.J. 2000).
with the following analysis, both motions presently under
consideration will be denied.
Defendant's Motion to Compel is denied.
statements about ambiguity, extrinsic evidence, and four
corners litter the applicable case law. However, instructions
for mobilizing these concepts are unfortunately far less
prevalent. A leading decision by the United States Court of
Appeals for the Third Circuit that endeavored to harmonize
this area of Pennsylvania contract law is Bohler-Uddeholm
America, Inc. v. Ellwood Group, Inc., 247 F.3d 79 (3d
Cir. 2001). Chief Judge Edward R. Becker, writing for a
unanimous panel in Bohler-Uddeholm, graciously
described that body of law as “somewhat
complicated”: “while the broad principles are
clear, it is not a seamless web.” Id. at 92.
Court of Appeals in Bohler-Uddeholm traced the
following landscape of the law: the keystone principle of
interpretation is that “the intent of the parties to a
written contract is contained in the writing itself.”
Id. (quoting Krizovensky v. Krizovensky,
624 A.2d 638, 642 (Pa. Super. Ct. 1993)). Thus, “where
language is clear and unambiguous, the focus of
interpretation is upon the terms of the agreement as
manifestly expressed, rather than as, perhaps,
silently intended.” Bohler-Uddeholm, 247 F.3d
at 92-93 (quoting Steuart v. McChesney, 444 A.2d
659, 661 (Pa. 1982)).
“where the contract terms are ambiguous and susceptible
of more than one reasonable interpretation, however, the
court is free to receive extrinsic evidence, i.e.,
parol evidence, to resolve the ambiguity.”
Bohler-Uddeholm, 247 F.3d at 93 (quoting
Krizovensky, 624 A.2d at 642). That being said,
“because Pennsylvania presumes that the writing conveys
the parties' intent, ” Bohler-Uddeholm,
247 F.3d at 93, a contract is ambiguous “if, and only
if, it is reasonably or fairly susceptible of different
constructions and is capable of being understood in more
senses than one and is obscure in meaning through
indefiniteness of expression or has a double meaning.”
Id. (quoting Duquesne Light Co. v. Westinghouse
Elec. Corp., 66 F.3d 604, 614 (3d Cir.1995)). See
also Samuel Rappaport Family P'ship v. Meridian
Bank, 657 A.2d 17, 21 (Pa. Super. Ct. 1995).
law also recognizes two types of ambiguity:
“patent” and “latent.”
Bohler-Uddeholm, 247 F.3d at 93. “While a
patent ambiguity appears on the face of the instrument,
‘a latent ambiguity arises from extraneous or
collateral facts which make the meaning of a written
agreement uncertain although the language thereof, on its
face, appears clear and unambiguous.'” Id.
(quoting Duquesne Light, 66 F.3d at 614).
“[a] party may use extrinsic evidence to support its
claim of latent ambiguity, but this evidence must show that
some specific term or terms in the contract are ambiguous; it
cannot simply show that the parties intended something
different that was not incorporated into the contract.”
Bohler-Uddeholm, 247 F.3d at 93. “Lest the
ambiguity inquiry degenerate into an impermissible analysis
of the parties' subjective intent, such an inquiry
appropriately is confined to the parties linguistic
reference. . . . The parties' expectations, standing
alone, are irrelevant without any contractual hook
on which to pin them.” Bohler-Uddeholm, 247
F.3d at 93 (quoting Duquesne Light, 66 F.3d at 614
n.9) (internal quotation marks omitted).
course, any use of extrinsic evidence to support an
alternative interpretation of facially unambiguous language
must be careful not to cross the ‘point at which
interpretation becomes alteration of the written
contract.'” Bohler-Uddeholm, 247 F.3d at
94 (quoting at Mellon Bank, N.A. v. Aetna Business
Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 1980)). That
sentiment reiterated by Bohler-Uddeholm is nothing
new. In fact, I have previously noted, albeit in the
analogous context of natural gas leases, that
“[i]nterpretation is not concerned with the
parties' post hoc judgments . . . as to what should have
been.” Camp Ne'er Too Late, LP v. Swepi,
LP, 185 F.Supp.3d 517, 544 (M.D. Pa. 2016). Rather, the
interpreting court “seeks to be faithful to the meaning
that the parties-given their positions at the time of
contracting-would have given their words ex
Bohler-Uddeholm court thus noted that “a court
should determine whether the type of extrinsic evidence
offered could be used to support a reasonable alternative
interpretation under the precepts of Pennsylvania law on
contract interpretation.” 247 F.3d at 94. Accordingly,
“the key inquiry in this context will likely be whether
the proffered extrinsic evidence is about the parties'
objectively manifested ‘linguistic reference'
regarding the terms of the contract, or is instead merely
about their expectations.” Id. n.3. “The
former is the right type of extrinsic evidence for
establishing latent ambiguity under Pennsylvania law, while
the latter is not.” Id. Consequently,
“[e]vidence regarding a party's beliefs about the
general ramifications of the contract would not be the right
type to establish latent ambiguity.” Id. Thus,
to truly exist, contractual ambiguity must be capable of
being divined by a reasonable reader from the plain text of
the document itself- courts should prioritize syntax over
I also note that extrinsic evidence may “support an
alternative interpretation of a term that sharpens its
meaning” but not “an interpretation that
completely changes the meaning.” Mericle v. Jackson
National Life Insurance Co., 193 F.Supp.3d 435, 449
(M.D. Pa. 2016) (Caputo, J.). For instance, such evidence
“may be used to show that ‘Ten Dollars paid on
January 5, 1980, ...