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LM Insurance Corp. v. Folse

United States District Court, M.D. Louisiana

August 23, 2017

LM INSURANCE CORPORATION
v.
SCOTT FOLSE, et al.

          ORDER

          RICHARD L. BOURGEOIS, JR. UNITED STATES MAGISTRATE JUDGE.

         Before the Court is LM Insurance Corporation and Liberty Mutual Fire Insurance Company's (collectively, “Liberty”) Motion to Compel DMI to Produce Settlement Agreement and Related Documents (R. Doc. 18) filed on July 5, 2017. The motion is opposed. (R. Doc. 25). Liberty has filed a Reply. (R. Doc. 29).

         Also before the Court is Hymel Davis & Peterson L.L.C.'s (“Hymel”) Motion to Quash Subpoena to Hymel Davis & Peterson L.L.C. or for Protective Order (R. Doc. 21) filed on July 13, 2017. The motion is opposed. (R. Doc. 24). DMI has filed a memorandum in support of the Motion. (R. Doc. 25).

         Because the foregoing motions concern the same documents sought in discovery, the Court considers them together.

         I. Background and Procedural History

         Liberty brings this action for declaratory relief against defendants Scott Folse, DMI Contractors, Inc., and DMI Pipe Fabricators, L.L.C. (collectively, “DMI”) arising from DMI's claim for reimbursement for a settlement of claims asserted against them in the underlying lawsuits of Powko Industries, L.L.C. v. Folse, , M.D. La. No. 3:15-cv-388-BAJ-SCR (“the Federal Lawsuit”) and Powko Industries, L.L.C. v. DMI Contractors, Inc. and DMI Pipe Fabrication, L.L.C., 19th Judicial District Court No. 629238 (“the State Lawsuit”). (R. Doc. 1; R. Doc. 16 “Am. Compl.”).

         Liberty seeks declaratory relief regarding its obligations under four consecutive Commercial General Liability and Umbrella Excess Liability policies issued to DMI Contractors, effective for one-year terms from October 30, 2009 to October 30, 2013, and to which DMI Pipe was subsequently added as an additional named insured (the “Policies”). (Am. Compl. ¶¶ 7, 15).

         Liberty alleges that on or about October 30, 2015, Powko Industries, L.L.C., which was represented by Hymel in the underlying litigation, settled its claims in the State and Federal Lawsuits in exchange for payment of $1.5 million. (Am. Compl. ¶ 40). DMI denies that allegation, asserting that “Powko agreed to general terms of a settlement with [DMI] on November 2, 2015, [but] the terms of that settlement continued to be negotiated up to December 8, 2015 when formal settlement documents were executed.” (R. Doc. 17 at 8). DMI's initial disclosures in this action provide that pursuant to certain settlement documents, DMI paid Powko the amount of “$1, 500, 000 together with attorneys fees” incurred in the underlying State and Federal Lawsuit. (R. Doc. 18-2 at 6). DMI further asserts in its initial disclosures that it had in its possession, custody or control the “Settlement Documents executed on December 8, 2015, ” which “support its defenses and/or claims in this matter.” (R. Doc. 18-2 at 6).

         On November 15, 2015, Liberty informed DMI that it was denying coverage for the settlement to the extent the settled claims in the Federal Lawsuit were not covered by the Policies, and that it was denying coverage for the settled claims in the State Lawsuit because DMI had never tendered the State Lawsuit for coverage. (Am. Compl. ¶ 41; R. Doc. 17, “Am. Ans., ” ¶ 41).

         On January 11, 2017, Liberty removed the State Lawsuit on the basis that DMI filed a Third Party Demand against Liberty, conferring diversity jurisdiction over the action. See Powko Industries, L.L.C. v. DMI Contractors, Inc. et al., No. 17-cv-19-BAJ-EWD (M.D. La.). That same day, Liberty filed the instant action for declaratory relief. (R. Doc. 1). The Court remanded the State Lawsuit on the basis that DMI did not obtain leave of court to file the Third Party Demand. See Powko Industries, No. 17-cv-19, ECF Nos. 19, 20.

         On July 17, 2017, Liberty again removed the State Lawsuit, this time on the basis that the State Court judge signed an order permitting DMI to file the Third Party Demand against Liberty. See Powko Industries, L.L.C. v. DMI Contractors, Inc. et al., No. 17-cv-458-BAJ-RLB (M.D. La.).[1] In the Third Party Demand, DMI asserts that in accordance with its agreement to defend the Defendants in the Federal Lawsuit pursuant to a reservation of rights, Liberty assigned the defense to the attorney Richard G. Duplantier, Jr. (“Duplantier”). (R. Doc. 18-2 at 2). DMI further asserts that a mediation was conducted on October 23, 2015, and that through Duplantier, Liberty refused to contribute to the settlement or pay any expenses of the mediator. (R. Doc. 18-2 at 2). DMI further asserts that on November 2, 2015, all of the parties, with the exception of Liberty, agreed to a settlement framework. (R. Doc. 18-2 at 2). DMI seeks recovery from Liberty for alleged bad faith breach of the duty to defend and settle the claims in the State Lawsuit. (R. Doc. 18-2 at 3-4).

         In the instant action, Liberty seeks declarations (1) that it does not owe a duty to DMI in the State Lawsuit under the Policies; (2) that the Policies do not cover the $1.5 million settlement with regard to either the State Lawsuit or Federal Lawsuit, and that Liberty has no duty to indemnify DMI for the settlement; and (3) that DMI's bad faith claims against Liberty are prescribed. (R. Doc. 16 at 14-18).

         On June 26, 2017, Liberty served Hymel, a non-party to this action, with a subpoena for documents seeking production in New Orleans, Louisiana, by July 14, 2017. (R. Doc. 21-2 at 1). The subpoena seeks documents reflecting Hymel's communications with DMI, Chad Rousse (another defendant in the underlying lawsuits), and their attorneys (L. Loren Kleinpeter, James R. Chastain, Jr., and Richard Duplantier) concerning the claims asserted in the State Lawsuit and/or Federal Lawsuit; the settlement of the State Lawsuit and/or Federal Lawsuit; coverage for the claims asserted in the lawsuits or settlement of the lawsuits; a copy of the memorandum of settlement agreement; the final executed settlement agreement; all documents reflecting any payment to Powko in connection with the settlement; and all documents reflecting communications between Hymel and DMI and/or Ms. Kleinpeter concerning the Third Party Demand and the instant declaratory judgment action. (R. Doc. 21-2 at 3-4). Liberty specifically states in the subpoena that it is not seeking the production of “any documents subject to the attorney-client privilege or the work product doctrine.” (R. Doc. 21-2 at 3-4).

         On June 28, 2017, DMI provided responses to Liberty's First Set of Requests for Admission, Interrogatories and Request for Production of Documents propounded in the instant action. (R. Doc. 18-2 at 8-23).[2] Liberty's Request for Production No. 1 seeks production of the final executed settlement agreement between DMI and Powko. (R. Doc. 18-2 at 18). Liberty's Request for Production No. 6 seeks production of all documents related to the payments by DMI to Powko in connection with the settlement. (R. Doc. 18-2 at 19). DMI objected to the foregoing requests for production on the basis that they did not seek relevant information. (R. Doc. 18-2 at 18, 20). Liberty now seeks an order compelling DMI to produce the settlement agreement and the ...


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