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LLC v. American Physicians Assurance Corporation, Inc.

United States District Court, N.D. Illinois, Eastern Division

November 29, 2016


          Sharon Johnson Coleman Judge.


          Jeffrey Cole Magistrate Judge.

         The plaintiff, The Surgery Center at 900 North Michigan Avenue (“The Surgery Center”) has filed a motion to compel the defendants, American Physicians Assurance Corporation (“APAC”) and American Physicians Capital (“APC”) to produce documents in response to plaintiff's Document Requests No. 12, and to respond to plaintiff's Interrogatories Nos. 6, 7, 9, and 12. This is the second go-round for the parties in this discovery dispute.

         This case began in the Illinois state court as a medical malpractice case. The plaintiff, Gwendolyn Tate, sued The Surgery Center after she suffered a perforated bowel during surgery and developed sepsis-related complications. The sepsis led to necrotizing fasciitis, which left Ms. Tate a quadriplegic. (Dkt. # 54-2, at 1-5). American Physicians Assurance Corporation (“APAC”) was The Surgery Center's malpractice carrier on a policy with a $1 million limit and retained the law firm of Lowis & Gellen as defense counsel in Ms. Tate's suit against The Surgery Center. (Dkt. #22, ¶ 20; #67, at 1). As the case progressed, the state trial court granted a portion of The Surgery Center's motion for summary judgment, but the appellate court overturned that ruling and remanded the case for a trial on December 4, 2009. (Dkt. # 54-2).

         According to The Surgery Center's Complaint, in the ensuing weeks, defense counsel told APAC that Ms. Tate's case was weak and that The Surgery Center had a 90% chance of winning. (Dkt. #52, ¶ 39). Shortly thereafter, on May 11, 2010, Ms. Tate made a settlement demand for the $1 million policy limits. (Dkt. #52, ¶ 40). APAC rejected the offer and said it would not be negotiating. (Dkt. #52, ¶¶ 42-43). About a week before trial, APAC wrote to The Surgery Center to express its confidence in defending the claim, but also reminding The Surgery Center that the policy limit was $1 million, that a verdict could be in excess of that, and The Surgery Center might want to retain independent counsel in view of those circumstances. (Dkt. # 52-8). Once trial began and a day-in-the-life video was presented, The Surgery Center asked APAC and defense counsel if anything could be done to avoid going through with the trial. (Dkt. # 52, ¶¶ 47-50). The Surgery Center alleges that neither counsel nor APAC informed it of any options at that point, and, following trial, the jury returned a verdict against The Surgery Center for $5.2 million. (Dkt. #52, ¶¶50, 51).

         The facts as alleged are an example of the classic heads-I-win-tails-you-lose scenario the Seventh Circuit described in Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175 (7th Cir. 1994):

Suppose the claim was for $2 million, the policy limit was $1 million, the plaintiff was willing to settle for this amount, but the defendant's insurer believed that if the case was tried the plaintiff would have a 50 percent chance of winning $2 million and a 50 percent chance of losing. The insurer's incentive would be to refuse to settle, since if it lost the trial it would be no worse off than if it settled-in either case it would have to pay $1 million-but if it won it would have saved itself $1 million. It is in order to quench this kind of temptation that the liability insurer's duty to settle in good faith was read into liability insurance contracts.

23 F.3d at 1179. Here, the policy limit was $1 million, and the potential exposure from a jury verdict was unknown. But the fact that Ms. Tate lost the use of her arms and legs might make some think that, in the event of a verdict for her, $1 million would be a bargain. In any case, The Surgery Center sued its law firm for legal malpractice and, here, APAC and APC for breach of fiduciary duty and duty to act in good faith.

         Originally, the plaintiff filed a motion to compel compliance with ten document requests and six interrogatories. At that time, the plaintiff claimed that the parties had complied with Local Rule 37.2, which requires parties to meet and confer in an attempt to resolve discovery disputes. See generally, Chamberlain Group v. Lear Corp., 2010 WL 2836975, 1 -2 (N.D.Ill. 2010)(St. Eve, J.)(citing and quoting Paulcheck v. Union Pac. R. Co., 2010 WL 1727856 *1 (N.D.Ill. 2010)). But, according to the plaintiff's motion, the bulk of the discovery disputes arose in the course of the two months after the parties negotiated, and thereafter, the parties claimed they were unable to arrange a time to address the new disputes [Dkt. #48, at 2-4] - although the Federal and Local Rules require such a conference. Plaintiff gave the defendant 4 days in which to meet, and defendant said that wouldn't work. And, so, plaintiff filed its first motion to compel. The next day, in a minute order dated July 28, 2016, I pointed out that this fell far short of the good faith attempt to negotiate envisioned by the Local Rule and denied the plaintiff's motion without prejudice. The parties were ordered to comply with the Rule. [Dkt. # 50, citing a number of relevant authorities].

         The rationale of the Local Rule was, not surprisingly, vindicated, as the parties pared the requests and interrogatories at issue by more than half. The remaining disputes are discussed below.

         Document Request No. 12

         After some negotiating, The Surgery Center has narrowed this request to personnel files of those involved in the Gwendolyn Tate claim, and information regarding: (i) claims representative performance planning and evaluations; (ii) annual performance evaluations; (iii) internal communications or memoranda concerning promotions, performance evaluations, and annual goals/incentives; (iv) history of salary and promotions/demotions; and (v) indemnity and expense goals. The idea, apparently, is that insurance companies might have bonus and incentive programs that can arguably lead to bad faith handling of claims. See, e.g., Saldi v. Paul Revere Life Ins. Co., 224 F.R.D. 169, 183-84 (E.D. Pa. 2004); Ghorbanian v. Guardian Life Ins. Co. of Am., 2016 WL 4467942, at *2 (W.D. Wash. Mar. 31, 2016); Dziadek v. Charter Oak Fire Ins. Co., 2014 WL 820049, at *7 (D.S.D. Mar. 3, 2014).

         Defendants wisely don't dispute the relevance of much of this evidence. Personnel files are not sacrosanct and are often required to be produced in discovery. See, e.g., Lee v. Chicago Youth Centers, 304 F.R.D. 242, 251 (N.D.Ill.2014); Hodgdon v. Northwestern University, 245 F.R.D. 337, 341 (N.D.Ill.2007); Vukadinovich v. Griffith Public Schools, 2008 WL 5141388, *9 (N.D.Ind.2008). Indeed, defendants' ultimate objection to this request is that The Surgery Center already has discovery that shows that APAC had no bonus programs. [Dkt. # 67, at 2]. Defendants point to the seven-year-old deposition of Cathy Shutack, APAC's vice president of claims, from a 2007 Kentucky case (Dkt. # 67-2) that APAC's only bonus program in 2004 [Dkt. # 67-3] was based on overall company performance, and no bonuses were awarded to adjusters based on claim outcomes. Thus, the defendants maintain that the issue is settled, and The Surgery Center has no right to even limited discovery of the personnel files of adjusters working on the Gwendolyn Tate claim. In other words, The Surgery Center - and ultimately the court - have to take APAC's vice president's word for it.

         But the American legal system works quite differently. If the defendant pleads not guilty at an arraignment, the charges are not dismissed; if a party claims something at a deposition, the opposing party need not take the deponents' word for it; a contention that something is true or untrue at a deposition, especially in an unrelated case, does not foreclose further inquiry when the issue some years later rears its head again. And while the defendants would undoubtedly disavow so extreme a position, acceptance of their present refusal to allow a particular kind of discovery that might reveal bias or testimonial motivation of the law firm that handled the State court personal injury action or the insurance company that paid its bills would lead to precisely such a result.

         But judges live in the real world, and lawyers must also. Under the procedures that govern proceedings in federal court, the rules have an expansive reach to prevent what Wigmore called trial by ambush and to assist in the settlement of litigated disputes. The law recognizes the sad truth that parties and witnesses can and do lie in judicial proceedings. Schmude v. Tricam Ind., Inc., 556 F.3d 624, 628 (7th Cir. 2009). Even lawyers can fabricate testimony when it is to their or their employer's advantage. See, e.g. FTC v. Advocate Health Care Network, 162 F.Supp.3d 666, 671 (N.D.Ill. 2016)(in-house counsel filed false declaration in support of position advocated by employer); Tellabs v. Fujitsu, 283 F.R.D. 374 (N.D. 2012)(same). Compare Schmidt v. Astrue, 496 F.2d 833, 842 (7thCir. 2007)(“a treating physician may also ‘bend over backwards' to assist a patient in obtaining benefits...”).

         No doubt, the purpose of the plaintiff's' present inquiry is to test the possible bias of the law firm and the insurance company in the underlying state court personal injury action. We see no reason why that inquiry cannot be reasonably pursued. Bias in its myriad forms is always relevant and never collateral. United States v. Abel, 469 U.S. 45 (1994); United States v. Lindemann, 85 F.3d 1232, 1243 (7th Cir.1996). And, the range of external circumstances from which probable bias and testimonial motivation may be inferred is, as Wigmore has noted, virtually infinite. See, Outley v. City of New York, 837 F.2d 587, 594-595 (2nd Cir. 1988); United States v. Vasquez, 635 F.3d 889 (7th Cir. 2011); 3 A. Wigmore, Evidence §949 at 984; § 950 at 793 (Chadbourn Rev. 1970). Not surprisingly, therefore, the employment of an individual and/or the compensation he or she receives are always relevant to bias and credibility. See North v. Russell, 427 U.S. 328, 337 (1976); Abel, supra at 5; Tumey v. Ohio, 273 U.S. 510 (1927); Evans v. Kataline, 445 F.3d 953, 955 (7th Cir. 2006); Saperstein v. Hager, 188 F.3d 852, 857 (7th Cir. 1999)(“An employee of the defendants is not a disinterested witness. She is subject to their influence, in a sense in their power; and it is not easy to make a credibility determination from the face of an affidavit.”); Central Truck Lines v. Lott, 249 F.2d 722, 724 (5th Cir. 1957); In re Tylenol Marketing Sales Practices & Products Liability Litigation, ___ F.Supp.3d___, 2016 WL 1569719 (E.D.Penn. 2016).[1]

         Under Rule 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 . . . .” Surely, that allows for The Surgery Center to access documents touching on the subject of incentive plans and bonuses - or whether they existed at the relevant time. The plaintiff should not be forced to rely on the questioning by an unknown attorney in a different case at ¶ 2009 deposition in a case from 2007 in Kentucky. The Surgery Center ought be able to test Ms. Shutack's seven-year-old claim with their document request, which seeks to determine who has the better of an argument going to an important issue in the case.

         Defendants are unable to cite supporting authority, and all that exists is to the contrary. Indeed, apart from the general principles we have discussed above, cases which have dealt specifically with the kind of problem presented here do not support the defendants' position. See, e.g., Doe v. Mastoloni, 2016 WL 347292, at *3 (D. Conn. Jan. 28, 2016)(factual account given in deposition could be belied by documents); Floyd v. City of New York, 739 F.Supp.2d 376, 384 (S.D.N.Y. 2010)(allowing discovery of documents to the extent they might corroborate or contradict deposition testimony). See also Negrete v. Nat'l R.R. Passenger Corp., 547 F.3d 721, 724 (7th Cir. 2008)(discussing documents that directly contradicted deposition testimony); Pouncil v. Branch Law Firm, 277 F.R.D. 642, 654 (D. Kan. 2011)(document request not duplicative where documents could contradict deposition testimony);

         Beyond that, defendants state that they have offered for in camera review the personnel file of the adjuster who handled the Gwendolyn Tate claim, explaining that they are only concerned about confidentiality of employee files. But, as we have shown, employee files are not presumptively or automatically outside of otherwise proper discovery rules under the Federal Rules of Civil Procedure. Moreover, if the defendants' offer had to be accepted, discovery of a component of potentially valuable information would be replaced by obligatory in camera examination. Such an automatic rule of discovery is contrary to the Federal Rules of Civil Procedure and to the goal that discovery should be so far as possible conducted by counsel without judicial intervention except when necessary. And finally, while in camera discovery is permissible (and even desirable) in certain circumstances, judges should be chary about accepting the responsibility for reviewing documents in camera and thereby substituting their limited knowledge of the case for that of counsel who is infinitely more familiar than the judge with what may be impeaching.

         That there is a protective order, approved by Judge Coleman, that limits access to confidential materials in discovery does not necessarily change the outcome of this case. (Dkt. # 32, # 51). But its existence should have prevented at least a portion of what has divided the parties thus far. The parties seem to be in agreement that the personnel file in dispute qualifies as a confidential document under Judge Coleman's order. And that is the way that the disputed document will be treated. It will be turned over for an ...

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