Zogenix, Inc. v. Federal Insurance Company

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 EUREKA DIVISION [7] 8 ZOGENIX, INC., Case No. 20-cv-06578-YGR (RMI) 9 Plaintiff, ORDER RE: DISCOVERY DISPUTES 10 v. Re: Dkt. Nos. 54, 64-3 11 FEDERAL INSURANCE COMPANY, 12 Defendant. [13] 14 Now pending before the court are a pair of jointly filed letter briefs setting forth each 15 Party’s request to compel certain discovery. On August 4, 2021, the Parties initially filed a 7-page 16 letter brief coupled with 23 pages of exhibits. See Ltr. Br. (dkt. 54). Thereafter, on August 11, 17 2021, the Honorable Yvonne Gonzalez Rogers referred the resolution of discovery disputes in this 18 case to the undersigned. See Order (dkt. 55). A discovery hearing was held on August 18, 2021 19 (dkt. 57); in the course of which, the undersigned rendered a series of preliminary rulings granting 20 Defendant’s motion to compel and denying Plaintiff’s motion to compel (Plaintiff’s request for 21 reinsurance information was denied as irrelevant, its request for drafting histories was granted only 22 to the extent that Defendant would produce a specific verified response, and its request regarding 23 Defendant’s position with respect to other insured entities was denied on both relevance and undue 24 burden and proportionality grounds). See Tr. (dkt. 60) at 48-49. Plaintiff’s counsel then expressed 25 dissatisfaction with his opportunity to make an adequate record as such: “I mean, we had two 26 pages to address a whole swath of requests.” Id. at 50. Consequently, the undersigned permitted 27 the Parties to file a supplemental letter brief without any page limitations whatsoever, setting forth 1 the production of that item should be compelled. See Order (dkt. 59). Shortly thereafter, the Parties 2 filed a 30-page letter brief (single spaced, and attended with approximately 60 pages of exhibits) 3 setting forth their positions regarding 16 disputed items. See Supp. Ltr. Br. (dkt. 64-3) at 1-99. For 4 the reasons stated below, the court will now convert each of its preliminary rulings in to final 5 rulings as memorialized herein. 6 BACKGROUND 7 Plaintiff has manufactured, marketed, and sold hydrocodone bititrate, an opioid 8 medication; as a result of this, Plaintiff has been sued by various entities, in various courts, 9 seeking to hold Plaintiff liable for actions and omissions that allegedly contributed to the national 10 opioid crisis (to wit, the fact that a large number of consumers became addicted to these 11 medications). See generally Compl. (dkt. 1) at 5-7. Plaintiff had purchased a series of insurance 12 policies, under which it expected to be defended in such underlying actions, and when Defendant 13 refused, Plaintiff initiated the instant lawsuit. Id. at 5-9. Through this lawsuit, Plaintiff contends: 14 (A) that Defendant “has breached its obligations under the Policies by refusing to timely and fully 15 defendant Plaintiff against the claims asserted” in the underlying lawsuits – that is, a breach of the 16 contractual duty to defend; (B) that it is entitled to declaratory relief based on Defendant’s alleged 17 breach of its duties to defend Plaintiff in the underlying lawsuits pursuant to two of the insurance 18 policies in question; and, (C) that Defendant has breached the contractual covenant of good faith 19 and fair dealing “by engaging in unreasonable conduct, including . . . improperly giv[ing] greater 20 weight to its own interest in avoiding its defense obligation than it accorded to Plaintiff’s interest 21 in a prompt and complete defense” regarding the underlying actions. Id. at 9-12. Accordingly, this 22 lawsuit boils down to two declaratory causes of action, and two causes of action for breach of 23 contractual duties and covenants. 24 Through its portion of the Joint Case Management Statement filed on January 15, 2021, 25 Plaintiff suggested that the discovery process in this case should be either bifurcated or phased in 26 such a manner as to allow “[a] motion for summary judgment by Zogenix or coordinated party 27 cross-motions on this [single] legal issue [to wit, the issue of Federal’s alleged duty to defend 1 benefit of narrowing the issues for all remaining discovery, streamline the presentation of evidence 2 in subsequent motions and at trial, and provide early guidance to the Parties on the contractual 3 obligations under the Policies that may facilitate informal resolution.” See Joint Case Mgmt. 4 Statement (dkt. 36) at 4. Plaintiff’s suggestion was rejected by Judge Gonzalez Rogers in that the 5 court’s ensuing Case Management and Pretrial Order (dkt. 41) set forth a single cutoff date for fact 6 discovery (October 22, 2021), and a single due date for summary judgment motions (December 7 14, 2021). Id. at 1. Knowing this, and without having ever having moved Judge Gonzalez Rogers 8 for a stay of the entire case, or a stay of some fraction of the discovery, or an extension of the 9 rapidly approaching discovery cutoff date, Plaintiff’s opposition to Defendant’s motion to compel 10 discovery now asks a referral judge to essentially upend a case schedule established by the 11 presiding judge by imposing an indefinite discovery stay when doing so would clearly trespass 12 into the presiding judge’s prerogative. Indeed, Plaintiff’s request is even further undermined by 13 the fact Plaintiff’s previously-proposed approach to bifurcating or phasing the discovery process 14 in this case has already been rejected by the presiding judge. 15 DISCUSSION 16 To borrow Defendant’s phrasing, the essence of Plaintiff’s resistance to providing 17 discovery in this case is embodied in Plaintiff’s assertion that it gets “to pick and choose what it 18 must produce in discovery while pressing forward with its claims” against Defendant. See Supp. 19 Ltr. Br. (dkt. 64-3) at 5. In support of this approach, Plaintiff principally relies on two state court 20 cases – whose holdings are more procedural than substantive – which the undersigned finds to be 21 inapplicable in the present context for a number of reasons. In this regard, Plaintiff relies in part on 22 Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287 (1993). However, the undersigned 23 finds that reliance on that citation does not compel the results urged by Plaintiff. The Montrose 24 Chemical litigation focused on procedural, rather than substantive, matters. From the late 1940s to 25 the early 1980s, Montrose Chemical Corporation of California manufactured the insecticide 26 dichlorodiphenyltrichloroethane (commonly referred to as “DDT”), as a result of which, it was 27 named as a defendant in several private and governmental environmental contamination actions; 1 Montrose Chem. Corp. v. Superior Court (Canadian Universal Ins. Co.), 25 Cal. App. 4th 902 , 2 905 (1994). In 1986, Montrose became concerned about its insurers’ reservation of rights and 3 decided to sue its carriers for a declaration of its rights to (1) a defense and (2) indemnity in the 4 contamination actions. Id. The appellate issues in that litigation eventually morphed into the 5 question of whether the declaratory action against the insurers could be set for trial before the third 6 party suits were resolved; in which regard the Montrose-II court held that, “on the record before 7 us, we cannot say one way or the other, and we therefore return the ball to the trial court, with 8 directions to determine the status of the underlying lawsuits and the scope of the carriers’ 9 defenses, and then decide whether it is appropriate to set this case for trial.” Id. In a previous 10 round of appeals in the same case (relied upon here by Plaintiff), the Montrose-I court noted what 11 is clearly a procedural ruling by stating that: “[t]o eliminate the risk of inconsistent factual 12 determinations that could prejudice the insured, a stay of the declaratory relief action pending 13 resolution of the third party suit is appropriate when the coverage question turns on facts to be 14 litigated in the underlying action.” See Montrose Chem. Corp., 6 Cal. 4th 287, 301 (1993). 15 Plaintiff’s reliance on the Montrose Chemical line of cases and their progeny (including Riddell, 16 Inc. v. Superior Court, 14 Cal. App. 5th 755, 767 (2017) (“The upshot of these legal principles [in 17 ruling on certain discovery disputes] is that an insurer cannot, over the insured’s objection, use a 18 declaratory relief action as a forum to litigate factual issues affecting the insured’s liability in the 19 underlying action.”), and Haskel, Inc. v. Superior Court, 33 Cal. App. 4th 963, 976 (1995)) are 20 misplaced for a number of reasons. First, those holdings are procedural rather than substantive in 21 nature, and it is well established that under the doctrine of Erie R.R. v. Tompkins, 304 U.S. 64 22 (1938), “federal courts sitting in diversity apply state substantive law and federal procedural law.” 23 Gasperini v. Ctr. for Humanities, 518 U.S. 415, 427 (1996). And, while it can sometimes be said 24 that “[t]he line between procedural and substantive law is hazy[,] no one doubts federal power 25 over procedure.” Erie R.R., 304 U.S. at 92 (citing Wayman v. Southard, 23 U.S. (10 Wheat.) 1 , 2226 23 (1825) (Marshall, C.J.)) (“The 17th section [of the Judiciary Act 1789] authorizes the Courts 27 ‘to make all necessary rules for the orderly conducting business in the said Courts . . .”). Thus, the 1 mentioned below, would have no application in the distinguishable context of this breach of 2 contract case even if they were applied. Second, even in a hypothetical context where federal 3 courts would be willing to abandon federal procedural rules in favor of state procedural rulings, 4 the Montrose line of cases contemplate staying an entire declaratory action against the insurer 5 while awaiting the outcome of the underlying cases; however, nowhere in those cases does any 6 holding countenance hamstringing an insurer’s ability to defend itself in an active breach of 7 contract lawsuit (as opposed to a mere declaratory action) while giving the insured free reign to 8 run roughshod over a now-defenseless insurer as Plaintiff seems to suggest. Third, as stated above, 9 the undersigned is neither empowered, nor otherwise willing, to enter orders that would effectively 10 modify or nullify prior orders entered by the presiding judge in this case. Therefore, Plaintiff’s 11 request that the undersigned “stay” the discovery that Defendant seeks while compelling the 12 production of discovery sought by Plaintiff – aside from it being manifestly unfair – essentially 13 seeks an order from the undersigned that would cancel or nullify the discovery cutoff date already 14 established by Judge Gonzalez Rogers, not to mention that it would constitute an effective reversal 15 of a decision by the presiding judge to rejected Plaintiff’s request to bifurcate or phase the 16 discovery process in this case. 17 Plaintiff asserts “four types of prejudice that the [supposed] bar on liability-related 18 discovery is designed to avoid,” however, the undersigned finds that each of those assertions is 19 unpersuasive. First, Plaintiff suggests that permitting discovery about Plaintiff’s prior knowledge 20 about the harms associated with its product (which is relevant to a particular contract provision 21 involved between these Parties and which is determinative of Defendant’s obligation to defend 22 Plaintiff in the underlying actions) would have the effect of causing Defendant to “align[] itself 23 with the underlying plaintiffs . . . [and] might lead the underlying plaintiffs down paths that they 24 never even considered.” See Spp. Ltr. Br. (dkt. 64.3) at 8. Plaintiff also suggests that “[w]hen an 25 insured is forced to respond to liability-related discovery in a duty-to-defend action, it is thrust 26 into a two-front war with the underlying plaintiffs and its own liability insurer.” Id. These 27 complaints ring hollow. First, Plaintiff “opened” the second front itself when it decided to sue its 1 opened the second front itself by suing Defendant in this court, it seems disingenuous to complain 2 about having to fight on two fronts simultaneously. Second, if Defendant’s interest appears to 3 come into alignment with those of the plaintiffs in the underlying lawsuits due to the fact that there 4 is a disagreement between Plaintiff and its insurer about whether or not the contract provisions 5 that bind them implicate a duty to defend Plaintiff in the underlying actions, then so be it. As the 6 saying goes, it is what it is. Such an appearance, or even an actual alignment of these interests, if 7 such is even the case, is at least in equal measures a product of Plaintiff’s own choice to bring this 8 breach of contract suit and declaratory action at this time and in this manner against its insurer, 9 while failing to seek a stay of this action pending the resolution of the underlying cases. At 10 bottom, the undersigned finds that if Plaintiff is in fact faced with any such prejudice, it is due to 11 its own choices, and that precluding Defendant from a fair shot at defending this action is no 12 solution at all. Similarly, Plaintiff complains about one-way collateral estoppel stemming from the 13 notion that “[i]f Federal is permitted to litigate Zogenix’s alleged knowledge and conduct in this 14 coverage action, any finding adverse to Zogenix will be asserted as collateral estoppel by plaintiffs 15 in the underlying [] lawsuits.” Id. Plaintiff also contends that its “costs of responding to discovery 16 in a duty-to-defend action are recoverable only if there is a finding of bad faith.” Id. at 9 . 17 Likewise, these two assertions are also unpersuasive because they are problems of Plaintiff’s own 18 making, in that they are the vicissitudes of choosing to maintain an active lawsuit against an 19 insurer for breach of a contract obligation to defend underlying actions during the pendency of 20 those underlying actions; and, the undersigned rejects the notion that the solution to these 21 problems is to deny Defendant the discovery it needs to defend itself in this action. 22 In short, Plaintiff cannot be permitted to use its lawsuit against Defendant as both a sword 23 and a shield. If Plaintiff’s concerns were genuine, Plaintiff would have sought a stay of the entire 24 lawsuit from the presiding judge, and having failed to do so, Plaintiff cannot convincingly suggest 25 that this court should strip Defendant of any ability to fairly and fully defend itself. To the extent 26 that some or all of Plaintiffs concerns can be addressed with a stipulated protective order 27 (including provisions for AEO designations) the undersigned encourages the Parties to propose 1 that only the discovery sought by Defendant that is related to liability in the underlying litigation 2 be “stayed”), the undersigned holds that Plaintiff’s objections to producing discovery under the 3 Montrose line of cases are OVERRULED; and Plaintiff’s request for a “stay” of the discovery 4 sought by Defendants based on that line of cases is DENIED. 5 Accordingly, for the reasons stated above, in addition to those articulated at the hearing 6 (see TR. (dkt. 60)), as well as for the reasons enumerated in Defendant’s arguments (see Supp. Ltr. 7 Br. (dkt. 64-3) at 12-25), Plaintiff’s objections to producing the discovery outlined in Dispute #2 8 through Dispute #12 (which are generally repetitive assertions of prejudice under the Montrose 9 line of cases) are OVERRULED, and Defendant’s requests to compel the materials described in 10 Dispute #2 through Dispute #13 are GRANTED. Plaintiff is ORDERED to tender this discovery 11 forthwith. 12 Dispute #13 does not appear to constitute a currently justiciable dispute in light of the 13 above-recited holdings and orders. See id. at 25-26 . In this regard, the Parties have agreed to add 14 an AEO provision and certain other modifications to a stipulated protective order which they 15 intend to submit within a week. Id. at 25 . The only “dispute” here is the reiteration of Plaintiff’s 16 objection to the effect that Plaintiff does not believe that such a protective order will address its 17 objections “on Montrose grounds.” Id. Plaintiff, therefore, reiterates that “a stay / bar of all 18 liability-related discovery is still proper, and all of Federal’s pending discovery that seeks 19 documents and information related to Zogenix’s alleged liability should be denied.” Id. at 26 . 20 Given the fact that Plaintiff’s objections have been overruled, Dispute #13 (which the undersigned 21 construes as a nothing more than a reiteration of those objections) is DENIED as moot. 22 As to the discovery that Plaintiff seeks to compel, Dispute #1 seeks documents and 23 communications between Defendants any its reinsurers and or retrocessionaries relating to 24 Plaintiff, the insurance policies involved in this case, and / or the underlying actions. Id. at 26-28 . 25 For the reasons stated at the hearing (see Tr. (dtk. 60) at 49), as well as for the reasons stated by 26 Defendant (see Supp. Ltr. Br. (dkt. 64-3) at 27), Plaintiff’s request to compel the material 27 described in Dispute #1 is DENIED as irrelevant, overly broad, and disproportional to the needs 1 The material Plaintiff seeks to compel in Dispute #2 consists of three separate requests for 2 production (RFP Nos. 11 to 13). RFP No. 11 seeks documents and communications relating to the 3 drafting history, meaning, construction, interpretation, and / or application of the insuring clause 4 contained in the policies involved in this case, including Defendant’s view of the scope and or 5 intent of the coverage for amounts paid as damages for bodily injury and property damaged caused 6 by an “occurrence.” Id. at 28 . RFP No. 12 seeks documents and communications relating to the 7 drafting history, meaning, construction, interpretation, and / or application of the products8 completed operations exclusion contained in any of the policies involved in this case, including 9 Defendant’s view of the scope and / or intent of the products-completed operations exclusion. Id. 10 RFP No. 13 seeks documents and communications relating to the drafting history, meaning, 11 construction, interpretation, and / or application of any other exclusion(s) or provision(s) on which 12 Defendant is relying in denying coverage. Id. 13 Plaintiff’s only explanation for why this material should be compelled is tenuous at best, if 14 not an outright fishing expedition. Plaintiff submits that “[u]nder California law, because extrinsic 15 evidence of ambiguities may be established through parol evidence, and all ambiguities are 16 resolved in favor of coverage, courts permit the discovery and use of policy drafting histories as 17 this may disclose ambiguities or otherwise shed light on interpretations that favor the insured.” Id. 18 at 29. However, Plaintiff has identified no such ambiguities; instead, Plaintiff simply wishes to put 19 Defendant through the burden to pouring through the entirety of its files and records pertaining to 20 all of its documents and communications in the mere hope that this fishing expedition “may 21 disclose ambiguities.” 22 Meanwhile, Defendant submits, as to RFP Nos. 11 and 12, that “it does not have any sort 23 of repository for ‘drafting history,’ and that asking for any document ever generated involving any 24 policy in which the ‘meaning, construction, interpretation, and / or application’ of a policy term 25 was discussed would effectively require Defendant “to review most every document ever 26 generated involving any CGL policy – an impossible task and one that has no possible relation to 27 the narrow coverage question posed by this lawsuit.” Id. at 29 . Accordingly, Defendant proposes 1 to RFP#11 and #12.” Id. Further, as to RFP No. 13, Defendant submits that it is even more vague 2 and impermissibly broad in that it “does not even specify which policy terms Zogenix is asking 3 about, and would require Federal to explore potentially scores of other policy terms (e.g., 4 cooperation clause, retentions, etc.) due to the vagueness and breadth of the request.” Id. The 5 undersigned agrees with Defendant. Consequently, Defendant is DIRECTED to provide a 6 verified response that it is not aware of any drafting history documents that would be responsive to 7 RFP Nos. 11 and 12. Further, the undersigned finds that RFP No. 13 is both impermissibly vague 8 and broad. In short, because the undersigned finds that Plaintiff has failed to establish relevance 9 for the materials encompassed in Dispute #2, and because each of those requests are little more 10 than a fishing expedition which would require immense amounts of time, cost, and effort on 11 Defendant’s part, the undersigned finds that (aside from the failure to establish relevance) RFP 12 Nos. 11 through 13 seek information that is grossly disproportional to the needs of the case. 13 Accordingly, Plaintiff’s request to compel the production of this material is DENIED. 14 Lastly, in Dispute #3, Plaintiff seeks to compel Defendant to search for, arrange, and 15 produce “information regarding Federal’s handling of other insureds’ requests for a defense of 16 opioid-related claims.” Id. Defendant submits that “[t]he request calls for Federal and its counsel 17 to pull and review every single [of such] claim file[s], and to locate those [responsive] documents 18 in each file. This process would take tens of thousands of hours and cost hundreds of thousands of 19 dollars – and would achieve nothing.” Id. at 29-30 . Plaintiff ventures to establish the relevance of 20 this request by implicitly conceding that while it does not know what quantity and quality of 21 evidence this search will yield, Plaintiff hangs its hopes on the notion that if the evidence shows 22 that Defendant has denied all of the opioid coverage claims it received, this “would be suggestive 23 of bad faith, and therefore relevant to a claim for punitive damages.” Id. at 30 . Further, Plaintiff 24 also submits – in a similarly vague and indeterminate fashion – that “[o]ther evidence could 25 demonstrate a pattern of denials, or show that Zogenix is being treated differently than Federal’s 26 other insureds – also indicating bad faith.” Id. Plaintiff’s own phrasing clearly demonstrates that 27 the material it seeks here is another fishing expedition – demonstrating a tenuous, ill-defined, and 1 tremendous burden encompassed in this request. Accordingly, because the burden grossly 2 || outweighs the relevance of this information (if the search even yields any information that would 3 be actually relevant to any degree at all), the undersigned finds that this request is likewise not 4 || proportional to the needs of this case, and so Plaintiff's request to compel the material described in 5 || Dispute #3 is DENIED. 6 IT IS SO ORDERED. 7 Dated: September 3, 2021. [9] RQBERT M. ILLMAN 10 United States Magistrate Judge [11] a 12 [16] Z 18