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Hanover Insurance Co. v. Terra South Corp.

United States District Court, D. Nevada

November 12, 2019

HANOVER INSURANCE COMPANY, a New Hampshire corporation, Plaintiff,
v.
TERRA SOUTH CORPORATION d/b/a MAD DOG HEAVY EQUIPMENT, a Nevada corporation; THE FIRMANI CORPORATION, a Nevada corporation; ROCK HARD CONTRACTING, INC., a Nevada corporation; AMY T. FIRMANI and; JOHN FIRMANI, Nevada residents both individually and as husband and wife; Does 1 through 100; and Roe Corporations 1 through 100, inclusive, Defendants.

          ORDER

          ELAYNA J. YOUCHAH, MAGISTRATE JUDGE.

         Before the Court is Plaintiff's Motion for Protective Order (ECF No. 47), Defendants' Response to Plaintiff's Motion for Protective Order (ECF No. 49), Plaintiff's Reply in Support of its Motion for Protective Order (ECF No. 53), Plaintiff's Motion for Leave to File Supplemental Briefing in Support of its Motion for Protective Order (ECF No. 56), Defendants' Response to Plaintiff's Motion for Leave to File Supplemental Briefing in Support of its Motion for Protective Order (ECF No. 58), and Plaintiff's Reply in Support of its Motion for Leave to File Supplemental Briefing in Support of its Motion for Protective Order (ECF No. 59). The Court finds as follows.

         I. BACKGROUND

         In its briefing, Plaintiff alleges the following: Mad Dog was awarded a (1) subcontract from a general contractor named Engineered Structures, Inc., (“ESI”) to build a Winco Foods store (ECF No. 1 ¶ 17); (2) subcontract from a general contractor known as McCarthy Building Companies, Inc. (“McCarthy”) for a project known as the Indian Springs Collection and Treatment System (Id. ¶ 20); and, (3) subcontract from McCarthy for a project known as the AWT Membrane (Id. ¶ 23). For each project, Mad Dog was required to post payment and performance bonds in an amount equal to the subcontract price and name the awarding contractor as the obligee (Id. ¶¶ 18, 21, 24). At Mad Dog's request, Hanover issued payment and performance bonds for all three projects naming Mad Dog as the bond principal and each awarding contractor as the obligees. Id. ¶¶ 19, 22, 25. As a condition of inducement for Hanover's issuance of the bonds, Defendants executed a General Agreement of Indemnity (“GAI”), [1] which required Mad Dog to indemnify Hanover for all losses, costs, and expenses arising out of the bonds. Id. ¶ 26. Mad Dog defaulted on all three aforementioned projects for which Hanover issued payment and performance bonds. Id. ¶¶ 31, 40, 46. After learning Mad Dog failed to pay all amounts owed, Hanover made payments to those who provided labor or materials or supplies on the projects. Id. ¶¶ 34, 43, 49.

         After its default, Mad Dog filed suit against ESI (the “ESI Litigation”) in the Eighth Judicial District Court of Clark County, Nevada, alleging that it had not been fully paid on the Winco project. Id. ¶ 35. In turn, ESI filed an Answer and Counterclaim, including a cause of action against Hanover for issuing the Hanover performance bond. Id. ¶ 36. What happened next is a subject of dispute.

         Hanover claims Mad Dog blocked Hanover's settlement offer to ESI, under which ESI agreed to pay Hanover $100, 000 and dismiss ESI's claims against Mad Dog and Hanover. ECF No. 47 at 6:16-18. Hanover further contends that Mad Dog convinced the state trial court, through motion practice, that the GAI did not confer a right on Hanover to settle on Mad Dog's behalf. Id. at 13 n.11. Defendants claim Hanover: (i) surreptitiously negotiated with ESI to settle the case for much less than Mad Dog's settlement range; (ii) shut Mad Dog out of settlement discussions once Hanover's efforts were discovered; and, (iii) filed a Motion to Enforce Settlement Agreement in an attempt to force Mad Dog's compliance. ECF No. 14 ¶¶ 23-27. Following a bench trial, the state trial court determined “Hanover overstepped its authority in reaching the Settlement Agreement and Mutual Release with ESI, ” and denied relief to both Mad Dog and ESI. ECF No. 49-1 at 9:6-7, 18:2-4.

         Hanover now sues all Defendants in this Court to enforce its contractual indemnification rights and recover: (i) all losses, costs, and expenses incurred under the GAI, with pre and post-judgment interest; (ii) an award of Hanover's attorneys' fees and costs incurred in litigating this action; and, (iii) additional relief this Court deems just and equitable. ECF No. 1 at 8:20-9:6. In return, Defendants filed an Answer and Counterclaim against Hanover asserting claims for breach of contract, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, accounting, and special damages of attorneys' fees. ECF No. 14. On September 27, 2019, the Court granted Plaintiff's Motion for Partial Summary Judgment. ECF No. 54.

         At issue presently are Defendants' deposition notices directed at Hanover's attorney of record, Patrick F. Welch and Scott F. Frerichs (collectively, “Hanover's Counsel”). ECF No. 47 at 3 n.4.

         II. DISCUSSION

         “The court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense. ...” Fed.R.Civ.P. 26(c)(1). The burden of persuasion under Fed.R.Civ.P. 26 is on the party seeking the protective order. Cipollone v. Liggett Grp., Inc., 785 F.2d 1108, 1121 (3d Cir. 1986). “To meet that burden of persuasion, the party seeking the protective order must show good cause by demonstrating a particular need for the protection sought.” Barket v. Clark, No. 2:12-cv-00393-JCM-GWF, 2013 WL 647507, *2 (D. Nev. Feb. 21, 2013), citing Beckman Indus., Inc., v. Int'l. Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992). “A mere showing that the discovery may involve some inconvenience or expense does not suffice to establish good cause under Rule 26(c). . . .” U.S. E.E.O.C. v. Caesars Entertainment, Inc., 237 F.R.D. 428, 432 (D. Nev. 2006) (internal citation omitted).

         “[T]he Federal Rules of Civil Procedure do not specifically prohibit the taking of opposing counsel's deposition.” Shelton v. Am. Motors Corp., 805 F.2d 1323, 1327 (8th Cir. 1986) (internal citation omitted). Although deposing opposing counsel is not absolutely prohibited, it is disfavored. Harter v. CPS Sec. (USA), Inc., No. 2:12-cv-00084-MMD-PAL, 2013 WL 129418, at *8 (D. Nev. Jan. 9, 2013) (internal citation omitted). This is because “allowing the deposition of opposing counsel ‘not only disrupts the adversarial system and lowers the standards of the profession, but it also adds to the already burdensome time and costs of litigation.'” Id., citing Shelton, 805 F.2d at 1327. Deposing opposing counsel also “‘detracts from the quality of client representation,' and has a “chilling effect” on attorney-client representations.'” Id. (internal citation omitted). Citing these negative consequences, the “Nevada Supreme Court therefore adopted Shelton's three-factor test for determining when a party may take the deposition of opposing counsel.” Id. (internal citation omitted). In order for depositions of opposing counsel to go forward, the Shelton standard requires a party to show that: “(1) no other means exist to obtain the information than to depose opposing counsel; (2) the information sought is relevant and nonprivileged; and (3) the information is crucial to the preparation of the case.” Id. (internal citations omitted). Consequently, a party seeking to depose opposing counsel bears a “difficult burden.” Ditech Fin. LLC v. SFR Invs. Pool 1, LLC, No. 2:15-cv-476-JCM-VCF, 2016 WL 4370034, at *2 (D. Nev. Aug. 15, 2016). Plaintiff urges the Court to assess whether Defendants' depositions of Hanover's Counsel should proceed under Shelton's heightened standard. ECF No. 47 at 7:25-8:2.

         Defendants argue that Shelton's heightened standard does not apply to this case, and instead asks this Court to apply the Pamida rule. ECF No. 49 at 10:12-12:24. In Pamida, Inc. v. E.S. Originals, Inc., the Pamida department store brought an indemnification suit against shoe manufacturer Dynasty after the store was sued by a patentholder alleging patent infringement. 281 F.3d 726 (8th Cir. 2002). Pamida was represented by the same attorneys in the indemnification suit as it was in the concluded patent infringement suit. Id. at 728. Dynasty sought to depose Pamida's attorneys on issues including “what actions Pamida took to give Dynasty notice of the patent infringement action . . . and [Pamida's] claim for indemnity from Dynasty as well as whether the $750, 000 in attorneys' fees sought by Pamida were reasonably incurred in defending the patent infringement action.” Id. at 729. In its analysis, the court in Pamida distinguished the Shelton test as one that “was not intended to provide heightened protection to attorneys who represented a client in a completed case and then also happened to represent that same client in a pending case where the information known only by the attorneys regarding the prior concluded case was crucial.” Id. at 731. Under the specific facts provided in Pamida, proposed depositions of opposing counsel should be evaluated under the ordinary discovery standards of the Federal Rules of Civil Procedure and any asserted privileges. Id.

         As Plaintiff points out, “[t]his District follows the Shelton standard.” ECF No. 53, citing Ditech Fin. LLC, 2016 WL 4370034; Couturier v. Am. Invsco Corp., et al., No. 2:12-cv-01104-APG-NJK, 2013 WL 4499008, at *1 (D. Nev. Aug. 20, 2013); Harter, 2013 WL 129418 at *9; Fernandez v. Penske Truck Leasing Co., L.P., 2013 WL 438669, at *2 (D. Nev. Feb. 1, 2013); Kabins Family Ltd. P'Ship v. Chain Consortium, No. 2:09-cv-01125-GMN-RJJ, 2012 WL 13048564, at *2 (D. Nev. Sept. 28, 2012). “District courts in this district and elsewhere in the Ninth Circuit recognize Shelton as the leading case on attorney depositions.” Chao v. Aurora Loan Servs., LLC, No. C 10-3118 SBA (LB), 2012 WL 5988617, at *3 (N.D. Cal. Nov. 26, 2012) (collecting cases). The Court follows the prevailing trend and applies the Shelton factors to determine whether the Defendants' depositions of Hanover's Counsel should go forward.

         A. The Shelton Factors Support Not Deposing Hanover's Counsel

         As explained below, Hanover demonstrates good cause for issuing a protective order preventing Plaintiff's notices of Hanover's Counsel's depositions from going forward as Plaintiff has shown that Defendants seek to depose its counsel in contravention of the Shelton rule.

         1. Plaintiff's Notices of Defendants' Counsel's Depositions Should Not Go Forward Because the Information Sought is Readily Available from Other Sources.

         Defendants state they need to depose Hanover's Counsel, as the only source of information, with respect to “(i) the personal acts of Hanover's Counsel before and during the State Court Case; (ii) the exchange of thousands of emails between Hanover's Counsel and the Defendants; and[, ] (iii) the attorneys' fees, and corresponding invoices, allegedly incurred by Hanover in connection with the bonds at issue and the State Court Case.” ECF No. 49 at 13:9-13. However, when consulting the first factor of the Shelton test, the record in this case “indicates that the information sought can be . . . obtained by means other than deposing [opposing counsel].” Shelton, 805 F.2d at 1327.

         Defendants cite two cases in which the deposition of opposing counsel was appropriate because the attorney was a “fact witness such as an actor or viewer, rather than ‘one whose role in the transaction is not central to the dispute.'” ECF No. 49 at 11:19-24 (citing Am. Cas. Co. v. Krieger, 160 F.R.D. 582, 588 (S.D. Cal. 1995); Johnston Dev. Grp., Inc. v. Carpenters Local Union No. 1578, 130 F.R.D. 348, 352 (D.N.J. 1990)). The court in Krieger, however, noted that:

the Johnston court's holding . . . appears to be the exception. Most courts which have addressed these issues have held that the taking of opposing counsel's deposition should be permitted only in limited circumstances, and that, because of the potential for abuse inherent in deposing an opponent's attorney, the party seeking the deposition must demonstrate its propriety and need before the deposition may go forward. . . . Courts have reached this ...

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