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Applied Underwriters, Inc. v. Top's Personnel, Inc.

United States District Court, D. Nebraska

March 31, 2017

APPLIED UNDERWRITERS, INC., a Nebraska Corporation; Plaintiff,
v.
TOP'S PERSONNEL, INC., A New Jersey Corporation; Defendant.

          MEMORANDUM AND ORDER

          Cheryl R. Zwart, United States Magistrate Judge

         This matter is before the court on the motion to compel filed by Defendant Top's Personnel Inc. (“Top's Personnel”). (Filing No. 46). For the following reasons, the motion will be granted in part and denied in part.

         BACKGROUND

         In December of 2011, Applied Underwriters Captive Risk Assurance Company, Inc. (“AUCRA”) entered into a Reinsurance Participation Agreement (“Reinsurance Agreement”) with Top's Personnel. (Filing No. 17 at CM/ECF p. 3). Plaintiff Applied Underwriters Inc. (“Applied Underwriters”) was not a party to the Reinsurance Agreement. On May 15, 2014, Top's Personnel executed a promissory note (“the Note”) in favor of Applied Underwriters. In the Note, Top's Personnel “acknowledge[d] its indebtedness (including workers' compensation premiums) to [Applied Underwriters] and its affiliates and subsidiaries” and promised to pay the principal sum of $119, 645.13 together with interest. (Filing No. 1-1 at CM/ECF p. 7).[1] AUCRA was not a party on the Note.

         In February of 2015, Applied Underwriters and Applied Risk Services (“ARS”) filed a Complaint against Top's Personnel. (Filing No. 1-1). The initial Complaint alleged two claims. The first alleged Top's Personnel breached its obligations to Applied Underwriters under the Note. The second alleged Top's Personnel breached its obligations to ARS under the Reinsurance Agreement.

         The court determined ARS was not a party to the Reinsurance Agreement. (Filing No. 22). Thereafter, Plaintiff Applied Underwriters filed an amended complaint omitting ARS and the second cause of action from the original complaint. The amended complaint alleges that Top's Personnel and Applied Underwriters entered into the Note “for good and valuable consideration” and Top's Personnel failed to make the required payments under the Note. (Filing No. 23). Applied Underwriters alleges that Top's Personnel owes $126, 488.45 under the Note plus accruing interest. (Id.).

         In April of 2016, Top's Personnel moved to dismiss or otherwise stay Plaintiff's claim and compel arbitration, citing an arbitration clause within the Reinsurance Agreement. (Filing No. 27). The court determined Applied Underwriters was not a party to the Reinsurance Agreement nor did it appear to be legally bound to the Reinsurance Agreement or the specific arbitration provision within it. (Filing No. 34). Specifically, the court found there was

no evidence that AUCRA had actual, implied, or apparent authority to bind [Applied Underwriters] to the Reinsurance Agreement and its provisions, or that the corporate relationship between [Applied Underwriters] and AUCRA was sufficiently close or the formalities were disregarded such that the corporate veil can be pierced or that the two entities acted as each other's alter ego.

(Filing No. 34 at CM/ECF p. 6). The court denied Top's Personnel's motion.

         On August 8, 2016, this Court entered its order for the final progression of this case in accordance with the parties' Rule 26(f) report. (Filing Nos. 38 & 39). The Court ordered that the deadline for completing written discovery was November 30, 2016. (Filing No. 39 at CM/ECF p. 2). Top's Personnel served its First Set of Interrogatories and Document Requests upon Plaintiff on September 22, 2016. Among other requests, the defendant's Interrogatories and Document Requests sought specific information and documents concerning the Reinsurance Agreement, the relationship between the Note and the Reinsurance Agreement, and the corporate relationship between AUCRA and Applied Underwriters. Defendant received Plaintiff's responses on December 12, 2016.[2]

         Top's Personnel believed Applied Underwriters' responses to its discovery were incomplete, and in accordance with Fed. R. Civ. P. 37(a)(2)(A) and NECivR 7.0.1(i), the parties conferred in an effort to resolve their disputes. On December 29, 2016, the defendant sent a meet-and-confer letter to Plaintiff's counsel. (Filing No. 48-1 at CM/ECF p. 66). Plaintiff responded by letter on January 6, 2017, supplementing some of the discovery in dispute. (Id. at p. 72). Top's Personnel argues that Applied Underwriters' answers remain inadequate and filed the instant motion on January 17, 2017.

         In the motion, Top's Personnel seeks to compel Applied Underwriters to fully answer Interrogatories 2, 3, 4, 5, 6, 7, 11, & 15 and to supplement its document production. Regarding document production, Top's Personnel claims Applied Underwriters has failed to produce any correspondence regarding the Promissory Note, Reinsurance Agreement, and any negotiations between the parties. (Filing No. 47 at CM/ECF pp. 11-12). Finally, the defendant seeks to take the deposition of Plaintiff's Counsel, Jeffrey Silver based upon his position as Vice President of Applied Underwriters and the answers he personally supplied for the interrogatories.

         ANALYSIS

         Rule 26(b)(1) of the Federal Rules of Civil Procedure was amended on December 1, 2015. The scope of permissible

discovery under Rule 26 is broad and 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.

Fed. R. Civ. P. 26(b)(1). Courts should examine each case individually to determine the weight and importance of the proportionality factors.

         The burden of demonstrating the proportionality of the requested information is a collective responsibility between the parties and the court. Elizabeth D. Laporte & Jonathan M. Redgrave, A Practical Guide to Achieving Proportionality Under New Federal Rule of Civil Procedure 26, 9 Fed. Ct. Rev. 20, 40 (2015). A party requesting discovery must show how the requested information is important to the issues and resolution of the case: The responding parting must show the expense and burden of responding. Id. The court can then balance the parties' interests and order discovery consistent with the proportionality mandated under the federal rules.

         Most of the discovery sought by Defendant through the instant motion concerns the Reinsurance Agreement, the relationship between the Note and the Reinsurance Agreement, and the relationship between AUCRA and Applied Underwriters. Top's Personnel claims this information is relevant because the parties still have a dispute regarding the applicability of the arbitration clause contained in the Reinsurance Agreement. It is Top's Personnel's position that the two agreements-the Reinsurance Agreement and the Note-are related and that either 1) Applied Underwriters intended to be bound by the Reinsurance Agreement, or 2) the parent company of Applied Underwriters and AUCRA directed that a different entity sign the Note in order to avoid obligations of the Reinsurance Agreement. Accordingly, Top's Personnel argues that the disputed discovery affects this court's jurisdiction over the claim.

         Applied Underwriters argues that this lawsuit solely concerns the Note and that Top's Personnel's efforts to interpose the Reinsurance Agreement into this litigation was closed by the court's order denying the Motion to Dismiss.[3]

         As outlined in the court's ruling on the motion to dismiss, as a non-signatory, Applied Underwriters may be bound to the Reinsurance Agreement and its provisions, including the arbitration provision, if it can be shown that Applied Underwriters and AUCRA were sufficiently close or formalities were disregarded such that the corporate veil was pierced or the entities acted as each other's alter ego. (See Filing No. 34). Accordingly, the court agrees that the relationship between AUCRA and Applied Underwriters, as well as the details surrounding the creation of the Note and its connection to the Reinsurance Agreement are relevant in this case.

         The court will review each of the disputed items in turn.

         Defendant's Interrogatories to Plaintiff.

         INTERROGATORY NO. 2.

         Describe in detail the negotiations that led to the execution of the Reinsurance Agreement. In doing so:

a. Identify the individuals and entities that participated in the negotiation of the Reinsurance Agreement;
b. Describe in detail the substance of those negotiations;
c. Set forth the time period of negotiation; and d. Attach all documents that relate, refer, or otherwise pertain to the negotiations.

         ANSWER:

         Plaintiff incorporates herein its General Objections identified above. Without waiving that objection, the RPA is offered to the client in its final form as part of the EquityComp® program.[4]

         Defendant claims that Plaintiff's answer to this question was evasive and nonresponsive. According to the defendant, Plaintiff should be required to identify individuals involved in the negotiation, state the substance of negotiations, and provide documents that ...


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