Brandon Steven Motors, LLC v. Landmark Am. Ins. Co.

BRANDON STEVEN MOTORS, LLC, Plaintiff, v. LANDMARK AMERICAN INSURANCE COMPANY, Defendant.

Case No. 2:19-CV-02659-JAR-GEB

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

October 5, 2020

MEMORANDUM AND ORDER

Before the Court is Defendant Landmark American Insurance Company's Objection Appealing August 12, 2020 Discovery Order (Doc. 68). Defendant objects to United States Magistrate Judge Gwynne E. Birzer's order (1) prohibiting it from deposing Plaintiff's customers who purchased vehicles subject to the insurance claim at issue in this case; and (2) requiring it to produce certain communications with its counsel and third parties. The objection is fully briefed, and the Court is prepared to rule. As described more fully below, Landmark's objection is overruled.

I. Background

Plaintiff Brandon Steven Motors, LLC ("BSM") purchased a commercial property insurance policy from Defendant Landmark American Insurance Company ("Landmark") for Dealers Open Lot Coverage, with a policy period of August 31, 2018 to August 31, 2019. Under that policy, Landmark agreed to pay for damage to covered automobiles caused by wind and/or hail. BSM alleges that on May 5, 2019, one of its car dealerships was hit by a storm, causing damage to hundreds of vehicles on the premises. BSM promptly notified Landmark of its claim under the policy.

Landmark retained Expert Auto Claims as its independent adjuster to assist in the investigation of BSM's claim, including through inspection of the vehicles at issue. Landmark contends that questions then arose regarding the existence, nature, and amount of damages claimed by BSM—Landmark states that Expert Auto Claims found the damage observed to be inconsistent with typical wind and hail damage. In early June 2019, Landmark retained counsel and engaged the special investigative unit at G4S Compliance and Investigations ("G4S") to conduct a fraud investigation under counsel's direction. Before Landmark completed its investigation, BSM filed this lawsuit in October 2019 alleging breach of contract and breach of the duty of good faith and fair dealing.

In the ten months that it has been on file, this case been plagued by discovery disputes requiring the frequent intervention of Judge Birzer. In addition, this Court issued an Order on June 22, 2020 granting Landmark additional time under Fed. R. Civ. P. 56(d) to conduct discovery before responding to BSM's motion for summary judgment, which BSM filed before serving its initial discovery responses in this action.¹ The Court will not detail the parties' many discovery disagreements here except as necessary to frame their present dispute.

On August 12, 2020, the parties participated in a discovery hearing before Judge Birzer,² after which Judge Birzer issued an Order stating, in part:

(1) Regarding the various issues discussed during the conference, the parties should conduct discovery in accordance with the Court's rulings as pronounced at the conference, with all documents ordered produced to be exchanged by 8/28/2020; (2) Regarding Bates L001636-1637 and 1640 of Defendant's Amended Privilege Log, the Court, after a re-examination of the privilege log entries, orders those documents be produced by 8/28/2020 as well.³

One of the rulings Judge Birzer pronounced during the discovery conference was that Landmark would not be permitted to depose any of BSM's customers who purchased vehicles that BSM claimed were damaged in the May 2019 storm. Additionally, the documents that Judge Birzer ordered to be produced include certain Landmark communications that she found were not protected by the attorney-client privilege, the work-product doctrine, or the common-interest doctrine.

Landmark timely filed a written objection to Judge Birzer's Order on August 26, 2020. Landmark also filed a motion, pursuant to D. Kan. Rule 72.1.4(d), requesting that Judge Birzer stay its production deadline pending this Court's ruling on the objection, which Judge Birzer granted on September 24, 2020.⁴ Judge Birzer directed that in the event production is ordered, Landmark must produce the documents in question within fourteen days of this Court's decision.

II. Standard

Fed. R. Civ. P. 72(a) allows a party to provide specific, written objections to a magistrate judge's non-dispositive order. The court does not conduct a de novo review, but applies a more deferential standard under which the moving party must show that the magistrate judge's order is "clearly erroneous or contrary to law."⁵ The court must affirm the magistrate judge's order unless the entire evidence leaves it "'with the definite and firm conviction that a mistake hasbeen committed.'"⁶ A magistrate judge's order is contrary to law if it "fails to apply or misapplies relevant statutes, case law or rules of procedure."⁷

III. Discussion

A. Depositions of BSM's Customers

Judge Birzer ruled that Landmark cannot depose BSM's customers regarding their observations of vehicle damage, or discounts they received at the time of sale to account for any damage, because the risk of harm to BSM's business reputation outweighs any potential relevance. Landmark contends that this ruling is clearly erroneous because the information sought from customers is highly relevant and unavailable from other sources, and because Landmark is willing to limit depositions to "a small sample of customers on a limited number of topics, avoiding any avenues that would result in disparaging plaintiff's business."⁸ Landmark further contends that Judge Birzer's ruling is contrary to law because it does not follow United States Magistrate Judge Angel D. Mitchell's ruling on this issue in the case of Steven Volkswagen, Inc. v. Zurich American Insurance Co.⁹ BSM counters that Judge Mitchell's decision in Steven Volkswagen is non-binding, that Steven Volkswagen is distinguishable, and that based on the facts of this case, Judge Birzer appropriately exercised her discretion in finding that the risk of harm to BSM outweighed any potential relevance of the evidence sought.

The Court cannot find that Judge Birzer's ruling disallowing depositions of BSM customers was clearly erroneous or contrary to law. BSM is correct that Judge Mitchell's decision in Steven Volkswagen is not binding on Judge Birzer or this Court. District court decisions are not binding precedent,¹⁰ and "it is clear that there is no such thing as 'the law of the district.'"¹¹ Thus, Judge Birzer's ruling regarding the risk of prejudice outweighing relevancy with regard to the depositions of BSM customers is not "contrary to law" because another magistrate judge within this District decided to allow such discovery in a different case.

BSM also argues that this matter is different from Steven Volkswagen in crucial respects, namely that in Steven Volkswagen, the policy holder claimed that it had been undercompensated after the insurer had already paid on the claim, whereas in this case, no money has been paid at all. BSM states that the damaged vehicles were repaired after Landmark's adjuster personally inspected the damage, that customers would not have observed any damage, and that any discounts at the time of sale are irrelevant for purposes of calculating the amount due under the policy.

Landmark's contention that this is a distinction without a difference is beside the point. Although the scope of discovery permissible under the Federal Rules of Civil Procedure is broad, it is not unlimited. Under Fed. R. Civ. P. 26(b)(1),

[p]arties 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, theimportance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.¹²

In accordance with these principles, Judge Birzer did not find that the discovery sought was irrelevant, but that its value was significantly outweighed by the risk of prejudice to BSM. This Court agrees.

Regardless of whether Landmark could limit customer depositions to topics that would not disparage BSM's business, as it claims, permitting such depositions at all would be highly prejudicial to BSM. Any customer being asked about whether he or she observed damage to a vehicle at the time of purchase, or was informed of prior damage, would feel that BSM had been less than honest, either in that customer's purchase transaction or others. As Judge Mitchell remarked in Steven Volkswagen, the value of allowing an insurer to contact an insured car dealer's customers is "relatively marginal," whereas "[t]he potential harm is obvious on its face. . . . It is not difficult to imagine that these clients may be left with the impression that the dealership profited from insurance proceeds at their expense, thus damaging [the dealer's] reputation."¹³

Judge Birzer found that the information Landmark seeks is available from other sources—specifically BSM and USA Dent, the company that BSM hired to repair the damaged vehicles—without the risk of harm to BSM's business reputation that would likely result from the depositions of customers. Further, Judge Birzer noted that customer perception of vehicle damage may or may not be accurate, and that allowing customer depositions could result in disputes about the accuracy of customer recall and the parties trying many cases within a case.The Court agrees that the burden, expense, and potential prejudice from allowing customer depositions should be avoided in this case, which already presents a new discovery dispute at every turn. Finally, the Court notes that the burden of being deposed would be significant for innocent, third-party customers. Although Judge Mitchell ultimately allowed the insurer to contact a handful of customers in Steven Volkswagen with certain...