Parkside/El Centro Homeowners Association v. Travelers Casualty Insurance Company of America

• Court: District Court, S.D. California
• Decided: January 11, 2022
• Docket: 3:20-cv-01732
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 PARKSIDE/EL CENTRO Case No.: 20cv1732-JAH(RBB) HOMEOWNERS ASSOCIATION, 12 ORDER GRANTING MOTION FOR Plaintiff, 13 LEAVE TO DEPOSE DALE v. ERLENBUSCH [ECF NO. 71] 14 TRAVELERS CASUALTY 15 INSURANCE COMPANY OF 16 AMERICA, 17 Defendant. 18 19 Presently before the Court is a Motion for Leave to Depose Dale Erlenbusch filed 20 by Defendant Travelers Casualty Insurance Company of America (“Travelers”) [ECF No. 21 71]. Plaintiff Parkside/El Centro Homeowners Association (“Parkside” or “HOA”) filed 22 an opposition [ECF No. 73], and Travelers filed a reply [ECF No. 75]. For the reasons 23 set forth below, Travelers’ motion is GRANTED. 24 I. BACKGROUND 25 This bad faith case arises out of an insurance policy issued by Travelers to 26 Parkside that included a Directors and Officers Liability Owners Association Claims 27 Made Form endorsement (“D&O Coverage”). (Compl. 4, ECF No. 1.) On July 25, 2014, 28 a member of the Parkside HOA discovered that the HOA had been suspended by the 1 California Secretary of State and the Franchise Tax Board had a collection account open 2 due to the HOA’s failure to pay taxes. (Def.’s Req. Judicial Notice Attach. #1 [Cross- 3 Compl.], at 10, ECF No. 20.) On August 14, 2014, the HOA terminated the employment 4 of Linda Heater, a part-time employee of Parkside who had served as the HOA’s 5 manager since 1988. (Id. at 7, 10.) Shortly thereafter, Parkside terminated its 6 relationship with Martin Mohamed, the HOA’s accountant and Heater’s son-in-law. (Id. 7 at 8, 10.) After Heater’s employment was terminated, a new HOA Board discovered that 8 Heater had embezzled $80,000 from the HOA from January 2010 through July 2014, and 9 later realized that she had embezzled at least $228,000 from 1990 through 2009. (Id. at 10 11.) On October 2, 2014, Parkside reported Heater to the police. (Cinco Decl. Supp. 11 Def.’s Opp’n Pl.’s Mot. Summ. J. Ex. 3 [police report], at 2, ECF No. 21.) Almost two 12 years later, on August 26, 2016, Heater pleaded no contest to a felony charge of 13 embezzlement under Cal. Penal Code section 504, committed between January 1, 2010, 14 and July 11, 2014. (Pl.’s Opp’n Attach. #1 Steinberg Decl. Ex. 10 [Heater plea 15 agreement], at 39-40, ECF No. 59.) 16 On April 26, 2016, before the criminal charges against Heater were resolved and in 17 response to a civil lawsuit brought by Heater against the HOA, Parkside filed a cross- 18 complaint against Heater, Mohamed, and three of its former directors and officers, Dale 19 Erlenbusch, Scott Devoy, and Hernan Mendez. (Def.’s Req. Judicial Notice Attach. #1 20 [Cross-Compl.], at 1, ECF No. 20.) The HOA alleged that the former directors were 21 negligent and breached their fiduciary duties to Parkside and caused Parkside financial 22 losses by failing to properly supervise and control the activities of Heater and Mohamed. 23 (Id. at 15-17, 19-20.) On March 2, 2017, Travelers declined to indemnify the three 24 former directors for any losses in the lawsuit filed by Parkside against them. (Compl., 6, 25 ECF No. 1.) 26 In July 2018, the former directors stipulated to liability and causation, and agreed 27 to permit a referee to determine damages. (Def.’s Req. Judicial Notice Attach. #2 28 [Statement of Decision], at 5, ECF No. 20.) On April 13, 2019, the three former 1 directors, who Parkside contends are insureds under the policy, assigned their claims 2 under the Travelers D&O policy to Parkside. (Compl. 4, 6, ECF No. 1.) On November 3 15, 2019, a final judgment in favor of Parkside against the former directors for $688,931 4 was entered. (Id.)1 On May 11, 2020, Travelers denied the former directors’ claims and 5 the HOA’s claim for indemnification under the D&O policy. (Id.) On September 3, 6 2020, Parkside initiated this lawsuit against Travelers for breach of contract and breach of 7 the implied covenant of good faith and fair dealing. (Id. at 1.) 8 Turning to the facts giving rise to the current motion, Travelers sought to take the 9 depositions of former directors Erlenbusch, Devoy, and Mendez. (Def.’s Mot. 3, ECF 10 No. 71.) According to Travelers, its process server, Jesse Lopez of First Legal, 11 personally served a deposition subpoena and notice of remote deposition on Erlenbusch 12 on September 6, 2021, at his address at 1138 S. 8th Street in El Centro, California. (Id. 13 Attach. #2 Lopez Decl. 2; see also id. Attachs. #3-5 Lopez Decl. Exs. A-C [depo. 14 subpoena, notice, and proof of service].) The deposition was scheduled to take place on 15 September 17, 2021, at 10:00 a.m. via remote means coordinated by Ben Hyatt Court 16 Reporting. (Id. Attach. #3 at 2; id. Attach #4 at 2.) The deposition notice instructed 17 recipients of the notice (i.e., Erlenbusch and Plaintiff’s counsel) to call the court reporting 18 firm’s telephone number “to retrieve the necessary credentials to access the remote 19 deposition, as well as information related to any technical assistance” required to attend 20 the deposition. (Id. Attach. #4 at 3.) The notice also instructed the deponent to “contact 21 the noticing attorney at least five (5) calendar days before the deposition to confirm your 22 intent to appear at this deposition via remote means to ensure you receiving the necessary 23 credentials, . . . .” (Id. at 4.) 24

25 26 1 The $688,931 is comprised of $371,922 in damages ($173,107 for unauthorized amounts paid to Heater/lost assessment income, $22,341 for tax penalties and interest, $5,125 for costs related to 27 preparation of HOA tax returns, $22,621 in increased insurance costs, and $148,728 in prejudgment interest); $269,755 in attorney’s fees, and $47,254 in costs. (Def.’s Req. Judicial Notice Attach. #2 28 1 There is some dispute about precisely what happened on September 16, 2021, the 2 scheduled date of Mr. Devoy’s deposition, but according to copies of emails submitted to 3 the Court, Plaintiff’s counsel, Mr. Steinberg, emailed Ms. Yanni, Defendant’s counsel, on 4 1:23 p.m. that day to inquire: “Are your depos on or off? Your reporter does not have 5 any logon information for these depositions. Please advise ASAP.” (Def.’s Reply 6 Attach. #2 Yanni Decl. Ex. A, at 3, ECF No. 75.) At 1:46 p.m., Ms. Yanni responded, 7 “We will provide the log in information. Will you be defending the witnesses?” (Id. at 8 2.) Mr. Steinberg states that he spent one hour preparing for the deposition and forty-five 9 minutes waiting for Mr. Devoy’s deposition to start. (Pl.’s Opp’n Attach. #2 Steinberg 10 Decl. 2, ECF No. 73.) At 2:27 p.m., he emailed Yanni: “It is now 26 minutes past the 11 scheduled time for this deposition and I’ve heard nothing further from you and your court 12 reporting firm indicates there is no deposition scheduled.” (Def.’s Reply Attach. #2 13 Yanni Decl. Ex. A, at 2, ECF No. 75.) Yanni responded three minutes later, “Mr. Devoy 14 was not served, so his deposition is not proceeding today. Mr. Erlenbusch and Mr. 15 Mendez are scheduled for 10 and 2 tomorrow and have been served.” (Id.) At 4:45 p.m., 16 Yanni emailed Zoom meeting information for the Erlenbusch and Mendez depositions to 17 Mr. Steinberg. (Id. Attach. #3 Yanni Decl. Ex. B, at 2.) 18 The following day, September 17, Mr. Erlenbusch did not appear for his 19 deposition. (Def.’s Mot. Attach. #6 Yanni Decl. 2, ECF No. 71.) On September 21, 20 2021, four days after the scheduled date of the deposition, Mr. Erlenbusch emailed Ms. 21 Yanni the following: 22 Rebekah,

23 I called the # on the attached Deposition Request (Which was for Ivan 24 Mendez and not myself) and was informed that I was not on any list. I contacted Mr. Steinberg and he informed me he had the same response. I 25 was awaiting a call Thursday and Fri [September 16 and 17, 2021] and no 26 one contacted me. I have no problem complying with any requests concerning this matter as I have stated before. 27

28 1 (Pl.’s Opp’n Attach. #1 Erlenbusch Decl. Ex. B, at 16, ECF No. 73.) Mr. Erlenbusch 2 attests to the same in his declaration. (Id. at 2.) After receiving his email, Ms. Yanni 3 spoke with Mr. Erlenbusch, who advised that he would appear for a deposition. (Def.’s 4 Mot. Attach. #6 Yanni Decl. 3, ECF No. 71.) Ms. Yanni asked Mr. Steinberg to stipulate 5 to proceed with the deposition, but Mr. Steinberg declined. (Id.) Travelers now seeks 6 leave of court to proceed with the deposition after the fact discovery deadline of 7 September 20, 2021. 8 II. LEGAL STANDARDS 9 A notice of deposition must state the time and place of the deposition and, if 10 known, the deponent’s name and address. Fed. R. Civ. P. 30(b)(1). A deposition may 11 take place by remote means. Id. R. 30(b)(4). The scheduling order issued by the court is 12 required to limit the time to join other parties, amend the pleadings, complete discovery, 13 and file motions. Fed. R. Civ. P. 16(b)(3). The schedule may be modified only for good 14 cause and with the judge's consent. Id. R. 16(b)(4). The "'good cause" standard under 15 Rule 16(b) "primarily considers the diligence of the party seeking the amendment." 16 Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1992); see also Fed. 17 R. Civ. P. 16 advisory committee notes to 1983 Amendment ("[T]he court may modify 18 the schedule on a showing of good cause if it cannot reasonably be met despite the 19 diligence of the party seeking the extension."). This is unlike the liberal amendment 20 policy of Federal Rule of Civil Procedure 15(a), which governs amended and 21 supplemental pleadings, and which focuses on the bad faith of the party seeking 22 amendment and the prejudice to the opposing party. Johnson, 975 F.2d at 609. While the 23 court is not required to consider prejudice under Rule 16(b), it may supply an additional 24 reason to deny a motion to modify a scheduling order. See Coleman v. Quaker Oats Co., 25 232 F.3d 1271, 1295 (9th Cir. 2000). The focus of the inquiry is on the moving party's 26 reasons for seeking modification. Johnson, 975 F.2d at 609. "If that party was not 27 diligent, the inquiry should end" and the motion to modify should not be granted. Id. 28 / / / 1 III. DISCUSSION 2 A. Motion for Leave to Take Deposition 3 Travelers contends that Mr. Erlenbusch was properly served with the deposition 4 subpoena. (Def.’s Mot. 4-5, ECF No. 71.) Defendant is not presently seeking an order 5 compelling Mr. Erlenbusch’s deposition or holding him in contempt because he has 6 agreed to his deposition, but is seeking leave of court to proceed with the deposition after 7 the fact discovery cutoff, which was September 20, 2021. (Id. at 6.) Plaintiff argues that 8 Mr. Erlenbusch’s failure to appear was a problem of Travelers’ own making because 9 Erlenbusch was not properly served with the deposition subpoena and Travelers failed to 10 provide him with the Zoom credentials in advance of the deposition. (Pl.’s Opp’n 3-5, 11 ECF No. 73.) Parkside also argues that prejudice exists because its counsel prepared and 12 waited for two depositions (Mr. Devoy’s and Mr. Erlenbusch’s) that did not go forward. 13 (Id. at 5.) Plaintiff further asserts that good cause to permit the deposition after the fact 14 discovery deadline is lacking because Travelers has had over a year to depose the former 15 directors, their testimony is not necessary because Travelers’ denial had nothing to do 16 with the former directors, the pertinent legal issues are currently pending in motions 17 before Judge Houston, and Travelers did not argue in any of the motions that it needed 18 discovery from the former directors. (Id. at 5-6.) 19 Based on his email to Defendant’s counsel, Mr. Erlenbusch was clearly expecting 20 to be deposed on September 17, 2021, and remains willing to sit for his deposition. (Pl.’s 21 Opp’n Attach. #1 Erlenbusch Decl. Ex. B, at 16, ECF No. 73.) Travelers noticed the 22 deposition in advance of the fact discovery deadline, but the deposition did not proceed 23 on the scheduled date due to confusion and logistical issues. Defendant acted diligently 24 in seeking relief when it realized it would not be able to comply with the scheduling 25 order. Mr. Erlenbusch likely possesses relevant information; it is, after all, the former 26 directors’ claims against Travelers that Parkside is pursuing in this litigation through the 27 assignment of those claims by the directors to Plaintiff. That Travelers did not argue any 28 need for Erlenbusch’s deposition in relation to the summary judgment motions is not 1 pertinent because litigants are "obligated to prepare [their] case[s] in a diligent manner" 2 consistent with the court's scheduling order even while pursuing other means of 3 proceeding with the case. See Osakan v. Apple Am. Grp., No. C 08-4722 SBA, 2010 4 WL 1838701, at *4 (N.D. Cal. May 5, 2010). Reopening fact discovery to permit 5 Travelers to take Mr. Erlenbusch’s deposition will not prejudice Parkside, as it will not 6 delay any other deadlines in the case. In sum, Travelers has established good cause for 7 modifying the scheduling order as required by Fed. R. Civ. P. 16(b), particularly because 8 this Court, like other courts, prefers that cases be resolved on their merits. See, e.g., 9 Caldwell v. Bloomin’ Brands, Inc., Case No. ED CV 19-754-DMG (MRWx), 2021 WL 10 3264145, at *1 (C.D. Cal. Apr. 8, 2021) (granting application to reopen discovery to 11 permit deposition even though Plaintiff was mistaken about the discovery deadline and 12 did not schedule the deposition until one week before the discovery deadline). Travelers 13 has proceeded with sufficient diligence for the Court to find that good cause exists to 14 reopen fact discovery for the limited purpose of taking Erlenbusch’s deposition. See 15 Johnson, 975 F.2d at 609 (the good cause standard under Rule 16(b) primarily considers 16 the diligence of the party seeking the amendment). Accordingly, Travelers’ motion for 17 leave to depose Dale Erlenbusch is GRANTED. 18 B. Civil Local Rule 2.1 Professionalism 19 In its September 30, 2021 order, this Court directed both sides to “address whether 20 their actions relating to the scheduling of Mr. Erlenbusch’s deposition were consistent 21 with Civil Local Rules 2.1(a)(2)(f) (requiring counsel ‘to attempt to resolve disputes 22 promptly, fairly and reasonably, with resort to the Court for judicial relief only if 23 necessary’) and (a)(3)(b) (expecting counsel ‘to treat adverse witnesses, litigants and 24 opposing counsel with courtesy, fairness and respect’).” (Order 2, Sept. 30, 2021, ECF 25 No. 68.) The Court is disappointed that neither party addressed Rule 2.1 in its brief but 26 assumes that counsel have reviewed the entirety of this rule and will be mindful of its 27 application to circumstances such as these going forward. 28 / / / I IV. CONCLUSION 2 For the reasons set forth above, Travelers’ Motion for Leave to Depose Dale 3 || Erlenbusch is GRANTED. 4 IT IS SO ORDERED. 5 6 Dated: January 11, 2022 | 7 Hon. Ruben B. Brooks g United States Magistrate Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28