Sell v. Country Life Ins. Co., CV-15-00353-PHX-DJH

189 F.Supp.3d 925

Brian Keith Sell, Plaintiff,

v.Country Life Insurance Company, Defendant.

No. CV-15-00353-PHX-DJH

United States District Court, D. Arizona.

Signed June 1, 2016

Anita Rosenthal, Sander Ruggill Dawson, Steven C. Dawson, Dawson & Rosenthal PC, Sedona, AZ, for Plaintiff.

Bret Steven Shaw, Thomas P. Burke, II, Burke Panzarella Rich, Phoenix, AZ, for Defendant.

ORDER

Honorable Diane J. Humetewa, United States District Judge

This matter is before the Court on Plaintiff's Motion for Sanctions (Doc. 150), which included over 100 pages of attachments and a supporting Declaration (Doc. 151). Defendant has filed a Response (Doc. 163) with over 200 pages of attachments, and Plaintiff has filed a Reply (Doc. 165), also with attachments.

The Court held an evidentiary hearing on the motion on April 14 and 15, 2016. At the hearing, Plaintiff presented portions of videotaped deposition testimony from claims analyst Colleen Payne ("Ms. Payne") and her supervisor Liz Shepard ("Ms. Shepard"). One of Plaintiff's attorneys, Sander Dawson, also testified. He described his involvement in the discovery process and the issues that arose in this case. Defendant called three witnesses at the hearing: Ms. Payne; J. Matthew Anderson ("Mr. Anderson"), claims attorney for Defendant; and Gregory Bee, chief information security officer for Defendant. The parties also submitted numerous exhibits for the hearing. As stated on the record, the Court admitted some of the exhibits into evidence and declined to consider others for purposes of deciding the instant motion.

Plaintiff argues in the motion that Defendant "engaged in a scheme designed to mislead the Court, the jury, and Plaintiff by concealing documents, fabricating evidence, and suborning perjury." (Doc. 150 at 1).¹ Plaintiff claims that Defendant's serious misconduct has harmed the integrity of the judicial process, and warrants the severe sanction of striking Defendant's Answer, entering a default judgment, and holding a trial on the issue of damages.

In response, Defendant claims it "has not violated any court order or rule, nor the spirit of discovery or disclosure." (Doc. 163 at 1). Defendant contends that Plaintiff's motion is based on misleading assertions of fact and law and should be denied.

I. Background

Plaintiff initiated this action by filing a Complaint in Maricopa County Superior Court on October 24, 2014. (Doc. 1-1). He alleges in the Complaint that Defendant wrongfully denied his claim for benefits under a disability insurance policy Defendant issued to him in September 2000. (Id. ). Plaintiff alleges that he suffers from severe chronic back pain, gastro-intestinal problems, depression and anxiety, among other conditions. (Id. ). Between January 2010 and January 2012, he underwent three spinal surgeries, including two cervical disc fusions and a thoracic laminectomy. (Doc. 1-1 at 5).

Initially, Defendant approved Plaintiff's medical disability claim and paid him benefits from January 2012 to March 2012. (Doc. 1-1 at 6). In April 2012, Plaintiff was notified that as of March 8, 2012, his claim would be considered under the mental disorder provision of his policy and that his benefits were on hold until he could show he was under the care of a licensed psychiatrist or psychologist. (Doc. 150-2 at 2).²

On October 26, 2012, Defendant terminated his claim altogether. (Doc. 150-11 at 2-4). Based on these and other allegations, Plaintiff raised two claims for relief in the Complaint: breach of contract, and insurance bad faith (breach of the covenant of good faith and fair dealing). (Doc. 1-1).

On February 26, 2015, Defendant removed the state court action to this Court. (Doc. 1). Defendant filed an Answer (Doc. 7) on March 4, 2015, in which it denied the allegations underlying Plaintiff's claims for relief. The Court thereafter issued a Rule 16 Scheduling Order (Doc. 13) on April 10, 2015 and granted the parties' requests for modifications to the scheduling order on November 24, 2015. (Doc. 66).

II. Legal Standards for Imposition of Sanctions

A district court has inherent power "to levy sanctions in response to abusive litigation practices." Leon v. IDX Systems , 464 F.3d 951, 958 (9th Cir.2006). "This inherent power is not limited by overlapping statutes or rules" and "can be invoked even if procedural rules exist which sanction the same conduct." Haeger v. Goodyear Tire & Rubber Co. , 813 F.3d 1233, 1243 (9th Cir.2016) (citations and internal quotations omitted). Although Rule 37 of the Federal Rules of Civil Procedure"also provides a method to sanction a party for failing to comply with discovery rules, it is not the exclusive means for addressing the adequacy of a discovery response." Id. at 1243–1244.

"Because of their very potency, inherent powers must be exercised with restraint and discretion." Chambers v. NASCO, Inc. , 501 U.S. 32, 44, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). The imposition of sanctions pursuant to the district court's inherent power "is warranted where a party has acted in bad faith, that is, ‘vexatiously, wantonly, or for oppressive reasons.’ " Surowiec v. Capital Title Agency , 790 F.Supp.2d 997, 1010 (D.Ariz.2011) (quoting Chambers , 501 U.S. at 45–46, 111 S.Ct. 2123 ); see also Haeger , 813 F.3d at 1244 (holding that "[b]efore awarding sanctions pursuant to its inherent power, the court must make an express finding that the sanctioned party's behavior constituted or was tantamount to bad faith.") (internal quotations and citations omitted); Anheuser – Busch, Inc. v. Natural Beverage Distributors , 69 F.3d 337, 348 (9th Cir.1995) ("For dismissal to be proper, the conduct to be sanctioned must be due to willfulness, fault, or bad faith.") (internal quotations and citations omitted). In addition, "[d]ue process concerns further require that there exist a relationship between the sanctioned party's misconduct and the matters in controversy such that the transgression ‘threaten[s] to interfere with the rightful decision of the case.’ " Anheuser – Busch , 69 F.3d at 348 (quoting Wyle v. R.J. Reynolds Indus., Inc. , 709 F.2d 585, 591 (9th Cir.1983) ).

"Courts have the inherent power to impose various non-monetary sanctions" including default or dismissal. Haeger , 813 F.3d at 1251 (citing Thompson v. Hous. Auth. of Los Angeles , 782 F.2d 829, 831 (9th Cir.1986) ). "It is well-settled that dismissal is warranted where ... a party has engaged deliberately in deceptive practices that undermine the integrity of judicial proceedings: ‘courts have inherent power to dismiss an action when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.’ "

Anheuser – Busch , 69 F.3d at 348 (quoting Wyle , 709 F.2d at 589 ).

Further, before dismissing a case or declaring a default as a sanction, a district court must consider five factors: "(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the other party; (4) the public policy favoring the disposition of cases on the merits; and (5) the availability of less drastic sanctions." Adriana International Corp. v. Thoeren , 913 F.2d 1406, 1412 (9th Cir.1990) (citations omitted); see also Anheuser – Busch , 69 F.3d at 348 (same); Leon , 464 F.3d at 958 (same). The district court, however, "need not make explicit findings regarding each of these factors" but must make a finding of "willfulness fault or bad faith" for dismissal or default to be proper. Leon , 464 F.3d at 958.

III. Findings and Analysis

A. Conduct Regarding Discovery Requests

1. Facts

Pursuant to the initial disclosure deadline in the Scheduling Order (Doc. 13), Defendant produced the claim file to Plaintiff on April 30, 2015. (Doc. 150 at 4). Among the many documents in the claim file was a "DI Claims Review Form" dated September 30, 21012, with notes from Ms. Payne that she asked Ms. Shepard to review. (Doc. 150-2 at 4). In the notes, Ms. Payne wrote that Plaintiff had not been paid under his disability policy since March 2012, and that in addition to needing to be paid, Plaintiff needed a decision on whether the claim is psychological or medical. (Id. ). Ms. Payne expressed her opinion that this was a medical claim and that there was not enough information to say the claim is psychological. (Id. ).

Despite Ms. Payne's opinion in the notes, Plaintiff's disability benefits were, as noted above, terminated altogether in a letter dated October 26, 2012 and signed by Ms. Shepard. (Doc. 150-2 at 6-8). The letter stated that the medical records showed no continuing disability. (Id. ). As referenced, Defendant had initially paid Plaintiff benefits under his disability policy for two months from January through March 2012 due to back and neck pain. (Doc. 150-2 at 2-3). However, in a letter to Plaintiff on April 25, 2012, signed by the previous claim analyst, Linda Pate, he was told that as of March 8, 2012, his claim would be considered under the mental disorder provision of his policy for addiction to pain medication, provided he could demonstrate he was under the care of a psychiatrist or psychologist. (Id. ). As reflected in the letter, benefits for mental disorders were limited to a lifetime maximum of two years, unlike benefits for medical conditions which are payable until the claimant reaches age 65. (Id. ).

Based on a gap in the claim file documents, Plaintiff propounded Requests for Production on June 3, 2015, including RFP No. 28 which asked Defendant to "produce all documents that are within the possession, custody or control of Country Life that refer to Plaintiff, Brian Keith Sell, the Disability Insurance Policy, or his claims on the Disability Insurance Policy, including all underwriting documents, and Policy service files and communications." (Docs. 151 at 1 and 150-5 at 3). In its response on July 2, 2015, Defendant asserted "its general objections to this request" and further objected that the ...