San Joaquin Valley Insurance Authority v. Gallagher Benefit Services, Inc. ( 2020 )

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 EASTERN DISTRICT OF CALIFORNIA 7 8 SAN JOAQUIN VALLEY INSURANCE Case No. 1:17-cv-00861-EPG 9 AUTHORITY, ORDER: 10 Plaintiff, 11 v. 1. G GR BSA ’N ST MIN OG T II ON N P A INR LT I MDE INFE EN ND OA . N 2 T 12 GALLAGHER BENEFIT SERVICES, REGARDING THE DELIBERATIVE INC. PROCESS PRIVILEGE; 13 Defendants. 2. GRANTING GBS’S MOTION IN 14 LIMINE NO. 3 SEEKING EXCLUSION 15 OF EVIDENCE OF RESTITUTION OR DISGORGEMENT DAMAGES NOT 16 DISCLOSED IN SJVIA’S RULE 26(A)(1) DISCLOSURES; 17 3. GRANTING IN PART AND DENYING 18 IN PART GBS’S MOTION IN LIMINE 19 N TEO S. T4 I S ME OE NK YIN RG E E GX AC RL DU INSI GO N OF 20 UNDISCLOSED EXPERT DAMAGES OPINIONS 21 4. GRANTING GBS’S MOTION IN 22 LIMINE NO. 5 SEEKING EXCLUSION OF ADVERSE TESTIMONY FROM 23 DEFENDANT’S WITNESSES BEYOND 24 RULE 45 GEOGRAPHICAL LIMITS 25 (ECF Nos. 84) 26 27 28 1 This order addresses Motions in limine two through five filed by Defendant Gallagher 2 Benefit Services, Inc. (GBS) on January 17, 2020. (ECF Nos. 84) The Court held a hearing on 3 the motions on February 3, 2020. (ECF No. 121.) The Court rules as follows. 4 I. GBS’ MOTION IN LIMINE NO. 2, SEEKING EXCLUSION OF TESTIMONY 5 WITHIN THE SCOPE OF SJVIA’S PRIOR ASSERTION OF DELIBERATIVE 6 PROCESS PRIVILEGE 7 GBS’s motion in limine No. 2 asks the Court to prelude SJVIA from eliciting any 8 testimony within the scope of SJVIA’s assertions of deliberative process privilege. (ECF No. 84, 9 at p. 17). GBS claims that SJVIA made a strategic decision during discovery to assert the 10 deliberative process privilege to shield and withhold all information about any aspect of the 11 SJVIA Board’s decision-making process that was not actually discussed during Board meetings. 12 SJVIA responds by arguing that “(1) the privilege was only asserted to questions 13 regarding Mr. Wander Poel’s personal, subjective thoughts, motives or understanding not, as 14 GBS asserts, questions related to SJVIA; and (2) the privilege was only asserted in the form of an 15 admonition.” (ECF No. 94, at p. 9). 16 The parties agree with the legal proposition that a party may not introduce evidence at trial 17 that they withheld as privileged during discovery, i.e. that a privilege cannot be used as both a 18 sword and a shield. See Columbia Pictures Television, Inc. v. Krypton Broadcasting of 19 Birmingham, Inc., 259 F.3d 1186, 1196 (9th Cir. 2001) (“Although courts have recognized that 20 reliance on advice of counsel may be probative of non-willfulness, the district court was within its 21 discretion in precluding Feltner from relying on advice of counsel in this case. The privilege 22 which protects attorney-client communications may not be used both as a sword and a shield.”) 23 (internal citations and quotations omitted). 24 During the deposition of SJVIA Board Member and County of Tulare Supervisor Peter 25 Vander Poel, counsel SJVIA blocked questions based on the deliberative process privilege, for 26 example during the following questioning: 27 //// 28 //// 1 SJVIA when you were on the board? 2 [Counsel for SJVIA]: Well, I’m going to object as to the extent, again, that the 3 question calls for you to disclose undisclosed subjective considerations as part of any kind of legislative process. I’m going to caution you that that is—it falls 4 within the deliberative process privilege, is inadmissible, and should not be disclosed. To the extent that there’s been any kind of subjective intent while you 5 were on the board that has been made public, you can disclose that or testify to that. But to the extent that it is subjective and not disclosed, it falls within the 6 privilege and should not be disclosed. Okay? 7 A: Thank you. 8 (ECF No. 87-18, at p. 5). 9 Q: Did staff explain to you that this was a concern because it created a cash 10 flow problem: 11 [counsel for SJVIA]: Again, I want to—I want to counsel you that the deliberative 12 process privilege also applies to staff. So to the extent these were undisclosed discussions that took place, which then were relied upon by you in making 13 decisions as a board member, that is inadmissible and nondiscoverable and should not be disclosed. Okay? 14 15 A: Okay. 16 (ECF No. 87-18, at p. 15) 17 Q: At some point in time, did you make a decision that you would try to use 18 the premium charges to other counties to offset losses associated with the County of Fresno and the County of Tulare? 19 A: All right. Again, I’m going to make the same objection/admonition. When 20 he says “decision,” I’m distinguishing between nondisclosed evidence and facts which you may have relied upon in making a decision versus something that has 21 been disclosed publicly with regards to your actions on the board. 22 (ECF No. 87-18, at p. 27) 23 SJVIA’s argument that these objections were only asserted in the form of an admonition is 24 not persuasive. The witness repeatedly followed his counsel’s advice. See, e.g., ECF No. 87-18, 25 at p. 22 (“I would say it’s because of that admonition. . . . I would lean on the admonition.”); ECF 26 No. 87-18, at p. 29 (“I’m going to rely on the admonition.”); ECF No. 87-18, at p. 32 (“And I’m 27 going to rely on the admonition.”). At no time did either the witness or his counsel waive the 28 1 objection. 2 SJVIA has argued that this scope is very limited because “the Ralph M. Brown Act [] 3 requires that, with exceptions that do not apply here, all of a public entity’s business be conducted 4 in open session.” (ECF No. 94, at p. 13, citing Cal. Govt. Code §§ 54950, et seq.). That Act 5 provides in part “In enacting this chapter, the Legislature finds and declares that the public 6 commissions, boards and councils and the other public agencies in this State exist to aid in the 7 conduct of the people's business. It is the intent of the law that their actions be taken openly and 8 that their deliberations be conducted openly.” CA Gov. Code, § 54950. While the Court 9 appreciates this legal requirement, it appears inconsistent with counsel’s repeated admonitions to 10 assert the privilege “to the extent these were undisclosed discussions that took place, which then 11 were relied upon by you in making decisions as a board member.” 12 Thus, the Court grants GBS’s motion insofar as it requests that SJVIA be precluded from 13 eliciting any testimony within the scope of its assertion of the privilege. Based on SJVIA’s 14 objections on the record, the scope includes “undisclosed discussions that took place, which then 15 were relied upon by [a decision-maker] in making decisions as a board member.” It does not 16 include anything that was “disclosed publicly with regards to your actions on the board.” 17 Additionally, the Court will grant GBS’s motion insofar as it requests that “the Court bar all 18 SJVIA staff and Board members from testifying to issues over which SJVIA previously claimed 19 deliberative process privilege,” with specific questions to be addressed at trial.1 20 GBS also asks that SJVIA be precluded from presenting any testimony “from any Board 21 members about whether the Board would have adopted higher rates or reserves had Gallagher 22 recommended them.” (ECF No. 84, at p. 17). GBS’s motion does not cite to any case law 23 supporting this request. Nor does it cite any specific assertion of the privilege at deposition 24 regarding such subject matter. Instead it argues as a matter of fairness that SJVIA should be 25 precluded from testifying over what it would have done because it has blocked some discovery 26 regarding its past decisions. 27 28 1 To the extent GBS believes that subject matter being elicited at trial was blocked during discovery, it may raise that 1 Without any specific legal precedent, the Court declines to make such a ruling. Again, 2 SJVIA did allow some testimony regarding its decision-making to the extent it was publicly 3 disclosed. It is highly relevant for the jury to hear from Board Members what they would have 4 done in certain hypothetical circumstances, subject to the jury evaluating their credibility with the 5 benefit of direct and cross-examination. Although, again, no SJVIA witness can support such an 6 answer by describing what was discussed in closed session or was a previously undisclosed 7 subjective opinion, consistent with the Court’s ruling above. 8 II. GBS’S MOTION IN LIMINE NO. 3, SEEKING EXCLUSION OF EVIDENCE 9 OF RESTITUTION OR DISGORGEMENT DAMAGES NOT DISCLOSED IN 10 SJVIA’S RULE 26(A)(1) DISCLOSURES 11 GBS’s motion in limine No. 3 seeks exclusion of evidence of restitution or disgorgement 12 damages on the ground that they were not disclosed in SJVIA’s Rule 26(a)(1) disclosures. (ECF 13 No. 84, at p. 18). 14 SJVIA concedes that disgorgement of fees paid to Gallagher was not included in its Rule 15 26 disclosures but argues it should be allowed to seek disgorgement damages from the jury 16 because any failure was substantially justified or harmless. SJVIA primarily relies on the fact 17 that its complaint seeks “the amount of professional fees paid by SJVIA to GBS” in its prayer for 18 relief. (ECF No. 94, at p. 15). 19 Federal Rule of Civil Procedure 26(a)(1)(iii) requires each party, “without awaiting a 20 discovery request, [to] provide to the other parties . . . a computation of each category of damages 21 claimed by the disclosing party—who must also make available for inspection and copying as 22 under Rule 34 the documents or other evidentiary material, unless privileged or protected from 23 disclosure, on which each computation is based, including materials bearing on the nature and 24 extent of injuries suffered.” Fed. R. Civ. P. 26(a)(1)(iii). Rule 37(c)((1) states that “If a party 25 fails to provide information or identify a witness as required by Rule 26(a) or c, the party is not 26 allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a 27 trial, unless the failure was substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1). 28 SJVIA’s complaint states in its prayer for relief that SJVIA is seeking, among other 1 damages: “An award of restitution in the amount of the professional fees paid by SJVIA to GBS.” 2 (ECF No. 1-1, at p. 25). 3 However, its Rule 26 initial disclosures do not refer to restitution, disgorgement, or other 4 professional fees. SJVIA’s initial disclosures dated August 3, 2017 state in relevant part “This 5 negligent conduct fell below the standard of care and breached the contract resulting in damages 6 that exceed $28,000,000. But for Gallagher’s breaches and professional negligence, SJVIA 7 would currently have an approximate $8,000,000 surplus instead of a $20,000,000 deficit.” (ECF 8 No. 87-29, at p. 7). SJVIA’s supplement to its initial disclosures included the statement 9 “Attached as Exhibit A is a detailed breakdown of Plaintiff’s damages in the amount of 10 $28,249,265.” (ECF No. 87-30, at p. 3). The attached spreadsheet does not list any restitution, 11 disgorgement, or professional fees. (ECF No. 87-30, at p. 5). 12 SJVIA claims that the failure to disclose was harmless because “the full amount of fees 13 the SJVIA paid” is known. SJVIA asserts that amount is $2,911,744.25. GBS argues, however, 14 that such a disclosure is insufficient because “[t]he amount of fees and how they should be 15 apportioned between obligations Gallagher adequately performed and obligations Gallagher 16 allegedly breached have not been the subject of any discovery or expert analysis.” (ECF No. 84, 17 at p. 22). SJVIA counters that “under applicable California law, it would be GBS’ burden—not 18 the SJVIA’s—to provide evidence of any amount of set-off GBS could possibly be entitled to 19 (though the SJVIA would dispute such a claim) because GBS contends that it performed some of 20 its services competently.” (ECF No. 94, at p. 16). 21 Also relevant to this issue is the substantial discussion made about SJVIA’s initial 22 disclosures regarding damages as part of the motions for summary judgment. GBS moved for 23 summary judgment on the basis that Plaintiff’s only theory of damages was legally improper. In 24 response, SJVIA claimed, in part, that it could also seek additional theories of damages, including 25 recovery of fees, even though those theories had not been in SJVIA’s rule 26 disclosures. The 26 following discussion took place on the record: 27 The Court: Ms. Strickroth [Plaintiff’s counsel], let me ask, we didn’t cover these alternative theories. Are you or are you trying to reserve the right to 28 do either the loan amount/liquidity or the fees, and why do you get to do that? Or 1 made? 2 Ms. Strickroth: We are reserving the right to recover the loan amount, 3 which is part and parcel to the damages that we’ve calculated. It’s subsumed in it. We are reserving the right to recover the fees that Gallagher collected, which they 4 know exactly how much fees they’ve collected. 5 The Court: What do you do with the fact—was it in—I have your disclosure. Is it in the disclosure? 6 7 Ms. Strickroth: No, it was not. 8 The Court: So are you going to amend the disclosure? 9 Ms. Strickroth: We can amend the disclosure, number one, and I don’t think that, it is my argument, that Gallagher is prejudiced in any way. They know 10 exactly how much they received in fees. It’s not a calculation that is foreign or 11 hidden from them in any way. 12 (ECF No. 87-22, at p. 10). 13 Despite this discussion, SJVIA did not amend its initial disclosures to add these categories 14 of damages. Moreover, SJVIA’s pretrial statement does not include any of these categories in its 15 statement of damages. ECF No. 68, at p. 16 (“The SJVIA seeks damages from GBS in the 16 amount required to restore the SJVIA to the financial position it would have been in but for 17 GBS’s breaches and negligence.”). Notably neither party has submitted a jury instruction on the 18 proper measure for disgorgement of fees or restitution. 19 Given this history, the Court will GRANT GBS’s motion to the extent it will preclude 20 Plaintiff from seeking an award of disgorgement of fees it paid to GBS. Such a result follows 21 from Rules 26 and 37. It is undisputed that this category of damages was not included in 22 Plaintiff’s initial disclosures. The failure is not substantially justified or harmless. Plaintiff could 23 have included this category of damages in its initial disclosures, yet chose not to. Indeed, 24 Plaintiff chose not to amend its initial disclosures even when this issue became apparent in 25 connection with the motion for summary judgment, and notwithstanding the Court’s direct 26 question whether Plaintiff would amend its disclosures to add this category. Moreover, it is not 27 harmless. Although the parties disagree on who bears the burden of proving what portion of fees 28 could be claimed, they each claim that some allocation may need to be done. Even under 1 SJVIA’s understanding of the law, GBS lost its opportunity to prepare a calculation and 2 associated evidence or expert testimony as to the amount of fees at issue by the claims in this 3 case. Finally, there are no jury instructions to consider on this legal issue and it is not ready to be 4 tried. 5 III. GBS’ MIL NO. 4 SEEKING EXCLUSION OF TESTIMONY REGARDING 6 UNDISCLOSED EXPERT DAMAGES OPINIONS 7 GBS’s motion in limine number 4 seeks to prelude SJVIA’s expert witness, Mr. Bednar, 8 from testifying to three matters discussed in the declaration he filed in support of SJVIA’s 9 opposition to GBS’s summary judgment motion. Specifically: 10 • The opinion that a higher increase to non-founders helped the SJVIA when 11 compared to applying the 17% blended rate increase that GBS proposed. 12 • Had GBS set the rates appropriately, the increase would have been within the 13 range of normal. 14 • Had GBS set the rates correctly, the SJVIA would have collected enough premium 15 from the departing entities during the plan year to cover each entity’s incurred but 16 not reported IBNR claims. 17 GBS claims that these opinions were not timely disclosed by Mr. Bednar’s expert report, 18 under Fed. R. Civ. P. 26(a)(2). (ECF No. 84, at p. 23). 19 SJVIA agrees that Mr. Bednar will not testify as to the first opinion. (ECF No. 94, at p. 20 18 (“The SJVIA does not intend to offer at trial the complained-of statement from paragraph 15 21 of Bednar’s declaration and is willing to agree that it will not elicit testimony from Bednar at trial 22 to the effect that had the SJVIA adopted the 17% blended rate increase in 2016 that GBS 23 recommended, the SJVIA would have suffered additional damage.”). 24 SJVIA argues that the other two opinions were adequately disclosed by Mr. Bednar’s 25 expert report. 26 Regarding the opinion that “Had GBS set the rates appropriately, the increase would have 27 been within the range of normal,” SJVIA points to the following statement in Mr. Bednar’s timely 28 disclosed Rule 26 expert report: “SJVIA’s rates would have been competitive in the marketplace 1 and would have remained attractive to new groups.” (ECF No. 81-8, at p. 13.) The Court finds 2 that this disclosure is substantially similar to the opinion at issue. The Court will therefore deny 3 GBS’s motion to the extent it seeks to preclude Mr. Bednar from offering the opinion that that 4 “Had GBS set the rates appropriately, the increase would have been within the range of normal.” 5 Regarding the opinion that “Had GBS set the rates correctly, the SJVIA would have 6 collected enough premium from the departing entities during the plan year to cover each entity’s 7 incurred but not reported IBNR claims,” SJVIA pointed to the chart at the end of his report that 8 calculates revised premium from departing entities and corresponding IBNR claims. (ECF No. 9 81-8, at p. 46). Counsel for GBS countered that the chart demonstrates that SJVIA did not collect 10 sufficient premiums, noting certain negative numbers on the chart. The Court concludes that the 11 basis for Mr. Bednar’s opinion on this subject was adequately disclosed to allow GBS to 12 understand the basis for this claim and challenge it through cross-examination. The Court will 13 therefore deny GBS’s motion to the extent it seeks to preclude Mr. Bednar from offering the 14 opinion that “Had GBS set the rates correctly, the SJVIA would have collected enough premium 15 from the departing entities during the plan year to cover each entity’s incurred but not reported 16 IBNR claims.”2 17 IV. GBS’S MOTION IN LIMINE NUMBER 5 SEEKING EXCLUSION OF 18 ADVERSE TESTIMONY FROM DEFENDANT’S WITNESSES BEYOND 19 RULE 45 GEOGRAPHICAL LIMITS 20 GBS’s motion in limine number 5 asks the Court to rule that a subpoena by SJVIA for Mr. 21 Volk and Mr. Toole fall outside the Court’s subpoena power, and cannot be commanded to testify 22 adversely in SJVIA’s case-in-chief. 23 SJVIA indicates that it intends to call adversely in its case in chief the following 24 witnesses: 25 • Mr. Volk, an Area Vice President and Consulting Actuary at GBS. 26 • Mr. Toole, GBS’s designated expert and Senior Managing Director at FTI 27 28 2 To the extent Mr. Bednar seeks to testify to other opinions outside of his expert report, not addressed in this 1 Consulting, Inc. 2 GBS represents that neither witness reside, work in, or regularly transact business in 3 California. Mr. Volk is based out of FTI’s Boca Raton, Florida office. Mr. Toole is based out of 4 FTI’s Winston-Salem, North Carolina office. 5 Federal Rule of Civil Procedure 45 governs the reach of subpoenas for trials. Specifically, 6 Fed. R. Civ. P. 45(c)(1) provides: 7 (1) For a Trial, Hearing, or Deposition. A subpoena may command a person to attend a 8 trial, hearing, or deposition only as follows: 9 a. within 100 miles of where the person resides, is employed, or regularly 10 transacts business in person; or b. within the state where the person resides, is employed, or regularly transacts 11 business in person, if the person i. is a party or a party’s officer; or 12 ii. is commanded to attend a trial and would not incur substantial expense. 13 Fed. R. Civ. P. 45(c)(1). 14 Based on the facts represented by GBS, neither Mr. Volk nor Mr. Toole are within the 15 subpoena power. SJVIA does not contend otherwise. The Court will grant GBS’s motion to the 16 extent it seeks confirmation that a subpoena by SJVIA for Mr. Volk and Mr. Toole fall outside 17 the Court’s subpoena power, and that Mr. Volk and Mr. Toole cannot be commanded to testify 18 adversely in SJVIA’s case-in-chief. 19 As a consequence of this ruling, SJVIA may use Mr. Volk and Mr. Toole’s deposition 20 testimony at trial. Fed. R. Civ. P. 32 (a)(4) (“A party may use for any purpose the deposition of a 21 witness, whether or not a party, if the court finds . . . that the witness is more than 100 miles from 22 the place of hearing or trial . . . .”). 23 V. CONCLUSION 24 For the reasons set forth herein, IT IS HEREBY ORDERED that: 25 1. GBS’s Motion in Limine 2 seeking exclusion of testimony within the scope of 26 SJVIA’s proper assertion of deliberative process privilege, (ECF No. 84, at p. 13), is 27 GRANTED IN PART: 28 • SJVIA is precluded from eliciting any testimony from any SJVIA Board Member 1 regarding any “undisclosed discussions that took place, which then were relied 2 upon by [a decision-maker] in making decisions as a board member.” It does not 3 include anything that was “disclosed publicly with regards to your actions on the 4 board.” 5 • Additionally, the Court will bar all SJVIA staff and Board members from 6 testifying to issues over which SJVIA previously claimed deliberative process 7 privilege, with specific questions to be addressed at trial. 8 • GBS’s motion is denied insofar as it seeking a ruling that SJVIA be precluded 9 from presenting any testimony “from any Board members about whether the Board 10 would have adopted higher rates or reserves had Gallagher recommended them.” 11 2. GBS’s Motion in Limine No. 3 seeking exclusion of evidence of restitution or 12 disgorgement damages not disclosed in SJVIA’s Rule 26(A)(1) Disclosures (ECF No. 13 84, at p. 18) is GRANTED. 14 • Plaintiff SJVIA is precluded from seeking an award of disgorgement of fees it paid 15 to GBS. 16 3. GBS’s Motion in Limine No. 4 seeking exclusion of testimony regarding undisclosed 17 expert damages opinions (ECF No. 84, at p. 23) is GRANTED IN PART AND 18 DENIED IN PART. 19 • Mr. Bednar is precluded from testifying to the opinion that a higher increase to 20 non-founders helped the SJVIA when compared to applying the 17% blended rate 21 increase that GBS proposed. 22 • Mr. Bednar may testify to the opinion that had GBS set the rates appropriately, the 23 increase would have been within the range of normal. 24 • Mr. Bednar may testify to the opinion that had GBS set the rates correctly, the 25 SJVIA would have collected enough premium from the departing entities during 26 the plan year to cover each entity’s incurred but not reported (IBNR) claims. 27 //// 28 //// 1 4. GBS’s Motion in Limine No. 5 seeking exclusion of adverse testimony from 2 Defendant’s witnesses beyond Rule 45 geographical limits (ECF No. 84, at p. 28) is 3 GRANTED. 4 e The Court holds that Mr. Volk and Mr. Toole fall outside the Court’s subpoena 5 power and cannot be commanded to testify adversely in SJVIA’s case-in-chief. 6 e SJVIA may use Mr. Volk and Mr. Toole’s deposition for any purpose in its case- 7 in-chief. 8 9 IT IS SO ORDERED. 10 | Dated: _ February 6, 2020 [Jee hey — i UNITED STATES MAGISTRATE JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12