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

United States District Court, D. Nebraska

August 7, 2017

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


          Cheryl R. Zwart, United States Magistrate Judge

         This matter is before the court on the Motion to Compel and Motion for Sanctions filed by Defendant Top's Personnel Inc. (“Top's Personnel”). (Filing No. 89). For the following reasons, the motion will be granted as set forth below.


         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). 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 removing 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 with accrued interest added, Top's Personnel owes $126, 488.45 under the Note. (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 by the Reinsurance Agreement or the specific arbitration provision within it. (Filing No. 34). The court explained that if the corporate relationship between Applied Underwriters and AUCRA was sufficiently close or the formalities between the two corporations were disregarded, there may be a valid argument that Applied Underwriters could be bound by the Repurchase Agreement and its arbitration clause. (See Filing No. 34 at CM/ECF p. 6). But based on the evidence before the court at that time, 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.

         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), but ultimately the parties were unable to fully resolve their dispute. Defendant filed a motion to compel on January 17, 2017. (Filing No. 46).

         In the motion, Top's Personnel sought to compel Applied Underwriters to fully answer Interrogatory Nos. 2, 3, 4, 5, 6, 7, 11, & 15 and sought supplements to its document production. Regarding document production, Top's Personnel claimed Applied Underwriters 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 sought 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.

         The court entered its order on Defendant's Motion to Compel on March 31, 2017 (the “March 31 Order”). (Filing No. 77). The court granted the motion in part and denied the motion in part. Specifically, the court granted Defendant's motion as to each interrogatory and on Defendant's request for production. However the court denied the defendant's request to depose Plaintiff's counsel. (Filing No. 77 at CM/ECF pp. 15-16). The discovery compelled under the March 31, 2017 order was not produced until after a telephone conference and order entered on April 25, 2017 which required Plaintiff to produce its discovery in accordance with the March 31 Order by April 28, 2017. (See Filing No. 84). On April 28, 2017 Plaintiff produced its supplemental responses pursuant to the March 31 Order. (See Filing No. 91-1).

         Once again, Top's Personnel believed many of Applied Underwriters' responses to the discovery were insufficient and incomplete. Top's Personnel raised the issue on a telephonic conference with the undersigned on May 12, 2017 and on May 19, 2017 sent a meet-and-confer letter to Plaintiff's counsel. (Filing No. 91-1 at CM/ECF pp. 70-73). In addition to discussing Applied Underwriters' discovery responses, Top's Personnel again discussed the potential of deposing Plaintiff's counsel based upon certain new answers provided in Plaintiff's discovery responses. Plaintiff responded to Defendant's meet-and-confer letter on May 30, 2017 and Plaintiff provided approximately 240 pages of additional discovery. (Id. at CM/ECF pp. 74-78). Top's Personal argues that Applied Underwriters' answers remain incomplete and requested, and was granted, leave to file the instant motion.

         In the motion, Top's Personnel again seeks to compel Applied Underwriters to completely answer, with clarity, Interrogatories 3, 5, 6, and 7 and to fully supplement its document production concerning these interrogatories. Top's Personnel also seeks to compel the deposition of Mr. Silver arguing that new information provided by Plaintiff shows he is an essential fact witness in this case. Additionally, Top's Personnel seeks sanctions against Applied Underwriters in accordance with Rule 37(b) for Applied Underwriters' alleged failure to comply with the court's March 31 Order.


         The scope of permissible discovery 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.

         A majority, if not all, of the discovery which Top's Personnel seeks was the subject of its prior motion to compel and the court's March 31, 2017 order. (See Filing No. 46; Filing No. 77). Top's Personnel argues that Applied Underwriters continues to evade the Defendant's discovery requests and did not comply with the March 31 Order. Applied Underwriters argues that it has fully answered the interrogatories and complied with the court's order. Plaintiff further argues this case is a straightforward breach of contract case concerning only the Promissory Note. That is, Plaintiff contends that Defendant's discovery requests complicate this matter and are in essence a “fishing expedition.” For the reasons, discussed in the March 31, 2017 order, each of the interrogatories and requests (which are part of this and the previous motion) are permissible discovery under Federal Rule 26(b)(1) and are relevant. The requests pertain to the creation of the Note and its connection to the Reinsurance Agreements as well as the relationship between AUCRA and Applied Underwriters. That is, the information affects whether Applied Underwriters may be bound to the Reinsurance Agreement, which may determine whether this case is subject to mandatory arbitration. (See Filing No. 77 at CM/ECF pp. 5-6, 11; Filing No. 34 at CM/ECF pp. 5-7).[1]

         Applied Underwriters argues that Top's Personnel and AUCRA are already involved in the arbitration of AUCRA's claims arising from the Repurchase Agreement and thus implies that Top's Personnel's discovery in this case is untimely and should be abandoned. The arbitration of AUCRA's claims under the Repurchase Agreement does not affect whether the parties to the Note are bound to the Repurchase Agreement's arbitration clause; whether this court must compel arbitration of Applied Underwriters' claims. See Ferry-Morse Seed Co. v. Food Corn, Inc., 729 F.2d 589, 592 n.6 (8th Cir. 1984)(holding the court must compel arbitration where certain elements are met); see also Herd Co. v. Ernest-Spencer Inc., Case No. 8:09cv397, 2010 WL 76371 **8-10 (D. Neb. January 5, 2010)(recognizing the split in authority regarding whether an action should be stayed or dismissed when claims are subject to arbitration).

         The court will review each disputed discovery item in turn.

         Defendant's Interrogatories to Plaintiff.

         INTERROGATORY NO. 3. Describe in detail the negotiations that led to the execution of the Promissory Note. 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.

         Plaintiff's previous answer:

a. Plaintiff incorporates herein its General Objections identified above. Without waiving that objection, the individuals involved in the negotiation that led to the execution of the Promissory Note were members of Plaintiff's customer service department and including Emily Conners.
b. The substance of the negotiation was that Defendant owed $119, 645.13 and requested a payment plan to pay the amount owed.
c. The negotiation occurred prior to the execution of the Promissory Note.
d. See documents attached as Exhibit 1.

         In response to Defendant's first motion to compel, the court granted defendant's request to compel a complete answer to Interrogatory No. 3 and required Applied Underwriters to answer Interrogatory No. 3 with “the specificity requested by the defendant[.]” (Filing No. 77 at CM/ECF p. 8). The court found that Plaintiff's previous responses had failed to provide a fully-responsive answer, noting Plaintiff named only one employee involved in the negotiations. (Id.) On April 28, 2017 Plaintiff supplemented its answer as follows:

         Plaintiff's Supplemented Response After March 31 Order:

a. The individuals involved in the negotiation that led to the execution of the Promissory Note [assuming the interrogatory was directed to the Promissory Note in questions and not the Reinsurance Participation Agreement] was Defendant's broker, ...

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