UNITED STATES DISTRICT COURT 1 DISTRICT OF NEVADA 2 * * * 3 RICHARD CHOWNING, CASE No: 2:22-cv-00798-CDS-EJY 4 Plaintiff, ORDER 5 vs. 6 NATIONWIDE INSURANCE COMPANY OF 7 AMERICA; ALLIED INSURANCE COMPANY OF AMERICA; NATIONWIDE ARGIBUSINESS 8 INSURANCE COMPANY; TITAN INSURANCE COMPANY INC.; VICTORIA FIRE & 9 CASUALTY COMPANY and DOES I - V, and ROE CORPORATIONS I - V, inclusive, 10 Defendants. 11 12 Pending before the Court is Defendants’ Motion for Leave to Amend Their Answers to the 13 First Amended Complaint. ECF No. 91. Also Pending is Plaintiff’s Motion for Leave to File 14 Supplement to Response to Defendants’ Motion for Leave to Amend Answer. ECF No. 106. The 15 Court considered the Motions, respective Responses, and respective Replies. 16 I. Relevant Background 17 Plaintiff filed his Complaint in this action in the Eighth Judicial District Court for Clark 18 County, Nevada in April 2022.1 ECF No. 1 at 10. Defendants removed the action in May 2022. Id. 19 at 1. An Amended Complaint was filed on August 17, 2022 (ECF No. 25), and is the operative 20 complaint in this action at this time. The issue presented is whether Defendants’ Answers to the 21 Amended Complaint may be amended to include an affirmative defense titled: “Failure to 22 Cooperate.” ECF No. 91 at 9. Defendants request no other amendments to their Answers. 23 Defendants contend there is good cause for the amendment because they did not discover the 24 basis for the amended affirmative defense until “mid-February 2023.” Id. at 11. It was at that time 25 Defendants say they first learned that the entire insurance claims file disclosed in this action was 26
1 Underlying this action was a dispute filed by Deeanna Parks (“Parks”) in the Eighth Judicial District Court. 27 Parks was a passenger on a motorcycle owned by Richard Chowning—Plaintiff in this action—and insured, according 1 given to Plaintiff’s rebuttal expert Kimball Jones (“Jones”). Id. Defendants argue the claims file 2 contains documents protected by “the tripartite” attorney client privilege that exists between and 3 among Plaintiff’s counsel, Defendants, and Defendants’ counsel. Id. at 7. In sum, Defendants say 4 that Plaintiff’s disclosure of the privileged information to his rebuttal expert violated the cooperation 5 clause in the policy under which Plaintiff was insured. That clause is quoted by Defendants as 6 requiring Plaintiff to “assist us and, if applicable, the defense counsel chosen for you by us, with any 7 claim or suit…. [and] provide … cooperation to us during any claim or suit for the investigation, 8 settlement or defense of that claim or suit.” Id. at 9 citing ECF No. 18-6 at 19.2 Defendants go on 9 to quote the “General Provisions” of the policy as stating: “We, you, and anyone insured by this 10 policy must do certain things in order for the provisions of the policy to apply. The following are 11 policy conditions: … (8) Legal Action Limitations: No legal action may be brought against the 12 company concerning any of the coverages provided in this policy until the insured has fully complied 13 with all the terms of the policy.” Id. citing id. at 21. Defendants argue they meet the standard 14 applicable to Federal Rule of Civil Procedure 15 because they were diligent in bringing the Motion 15 to Amend, there is no bad faith, there is an absence of delay, there is no prejudice to Plaintiff, and 16 the amendment is not futile. Id. at 12-17. 17 When boiled down to its essence, Plaintiff argues in response that Defendants delayed their 18 filing, the cooperation clause is inapplicable to the facts presented by Defendants, and the proposed 19 amendment is futile. ECF No. 94. That is, Plaintiff contends he shared information with his rebuttal 20 expert (not the public), Defendants identified no limiting designation on the claims file it produced 21 to him, Defendants did not indicate there was anything produced by them in this case that Plaintiff 22 was precluded from providing to his expert, there is no evidence of a request for cooperation of any 23 kind that Plaintiff failed to provide, Defendants suffered no prejudice arising from disclosure of the 24 claims file to Plaintiff’s expert (let alone substantial prejudice as a result of the disclosure), and 25 Plaintiff will suffer substantial prejudice if the amendment requested is permitted. Id., generally. 26 Defendants’ Reply initially focuses on Plaintiff’s “waiver” of the attorney client privilege 27 without Defendants’ agreement to do so. ECF No. 97. This argument was not raised in Defendants’ 1 moving papers. See ECF No. 91. Defendants say there is no implied waiver by virtue of the 2 production of the claims file to Plaintiff, and that Plaintiff could not make the file “public” simply 3 based on Defendants’ production. Id. at 3-4. Defendants also argue collusion (which they mention 4 in their moving papers as well), and more than once contend that Plaintiff has somehow obstructed 5 their defense. ECF Nos. 91 at 8, 12; 97 at 9. Nowhere do Defendants offer any facts to support 6 obstruction. Id. Defendants turn to futility and discuss the limitations of case law interpreting NRS 7 485.3091.5(a) that does not reach “excess of additional coverage … not covered” by the statute.3 8 ECF No. 97 at 10. Defendants state that “[w]hile the statute might make … [them] liable to 9 indemnify … [Plaintiff] up to the statutory minimum amount of liability coverage, it does not 10 preclude … [Defendants] from disclaiming liability beyond that amount based on his violation of 11 the [p]olicy’s cooperation clause.” Id. relying on Torres v. Nev. Direct Ins. Co., 353 P.3d 1203, 12 1207-08 (Nev. 2015) (“we hold that no post-injury violation of a policy will release the insurer under 13 the absolute-liability provision” and “absolute-liability statutes are interpreted to require payment of 14 the minimum statutorily required insurance benefits, if the law required the policy to be in place, 15 even if the insured has breached the insurance contract or made misrepresentations in the insurance 16 application.”) (internal citations omitted). 17 With respect to prejudice, Defendants say that their proposed amended answer begins with 18 the conclusory statement that they have “been prejudiced by … [Plaintiff’s] breach of [his] 19 contractual duties.” ECF No. 97 at 11 citing ECF No. 91-12 at 14 ¶ 92 (second brackets in original). 20 Defendants contends the “[C]ourt must accept” this pleading as true. Id. at 11. Of course, accepting 21 a pleading as true presumes the pleading is filed and presumes what is asserted is fact, not a legal 22 conclusion. Defendants next argue that Nevada law does not require them to show any prejudice 23 arising from Plaintiff’s alleged non-cooperation. Id. Defendants closes out their Reply contending 24 their Motion was not limited to the disclosure of attorney client communications to Plaintiff’s expert, 25 but is broader—that is, the alleged “collusion since” the beginning of the underlying action in state 26 court. Id. at 12. 27 1 II. Discussion 2 a. The Standard Applicable to a Motion to Amend an Answer. 3 The standard for leave to amend a complaint under Rule 15 of the Federal Rules of Civil 4 Procedure applies equally to a request for leave to amend an answer. Lopez v. Swift, Case No. 12- 5 CV-5099-TOR, 2014 WL 2957459, at *4 (E.D. Wash. July 1, 2014). Courts consider five factors 6 in deciding whether to do so: (1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) 7 futility of amendment, and (5) whether the pleading has previously been amended. See, e.g., United 8 States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011). Prejudice is given the greatest 9 weight. Eminence Capital, LLC, v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (describing 10 prejudice as the “touchstone of the inquiry”). Nevertheless, well settled law holds leave to amend 11 “shall be freely given when justice so requires.” Carvalho v. Equifax Services, LLC, 629 F.3d 876, 12 892 (9th Cir. 2010). In fact, leave to amend is “to be applied with extreme liberality.” Eminence 13 Capital, LLC, 316 F.3d at 1051-52. 14 However, when a pleading amendment is sought after the scheduling order deadline to file 15 motions to amend the pleadings, the moving party “must first make a showing of good faith under 16 Rule 16(b) before … [the C]ourt analyzes the motion under Rule 15(a).” United States v. Boyce, 17 148 F. Supp. 2d 1069, 1077-78 (S.D. Cal. 2001), aff’d, 36 Fed. Appx. 612 (9th Cir. 2002). “‘If the 18 court considered only Rule 15(a) without regard to Rule 16(b), it would render scheduling orders 19 meaningless and effectively would read Rule 16(b) and its good cause requirement out of the Federal 20 Rules of Civil Procedure.’” Id. (internal brackets omitted) (quoting Sosa v. Airprint Sys., Inc., 133 21 F.3d 1417, 1419 (11th Cir. 1998)) (citing Jackson v. Laureate, Inc., 186 F.R.D. 605, 607 (E.D. Cal. 22 1999)). 23 Rule 16(b)‘s “good cause standard primarily considers the diligence of the party seeking the 24 amendment.” Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 609 (9th Cir. 1991) (internal 25 quote marks omitted). Thus, the “party seeking modification must first show good cause for 26 amendment under Rule 16, then if good cause is shown, the party must demonstrate that amendment 27 is proper pursuant to Rule 15.” Kowalski v. Anova Food, LLC, Case No. CIV. 11-00795 HG-RLP, 1 2015 WL 1119450, at *1 (D. Haw. Feb. 12, 2015) (citing Finjan, Inc. v. Blue Coat Sys., Inc., Case 2 No. 13-cv-03999-BLF, 2014 WL 6626227, at *2 (N.D. Cal. Nov. 20, 2014)). 3 Further, in the U.S. District Court for the District of Nevada, “[a] request made after the 4 expiration of the specified period will not be granted unless the movant or attorney demonstrates 5 that the failure to file the motion before the deadline expired was the result of excusable neglect.” 6 LR IA 6-1(a). When considering whether Plaintiff demonstrates excusable neglect here, the Court 7 examines four factors: “(1) danger of prejudice to the opposing party; (2) length of delay and its 8 potential impact on the proceedings; (3) reason for the delay; and (4) whether the movant acted in 9 good faith.” Lemoge v. United States, 587 F.3d 1188, 1192 (9th Cir. 2009) (internal citation and 10 quotation marks omitted); Pioneer Investment Services Company v. Brunswick Associates Limited 11 Partnership, 507 U.S. 380, 395 (1993). 12 The last day to amend pleadings or add parties in this action was August 17, 2022. ECF No. 13 14 at 2. See ECF No. 34, 78, 104-05, 112. The instant Motion was filed seven months later on 14 March 16, 2023. ECF No. 91.
15 b. Defendants Demonstrate the Diligence Necessary to Establish Good Cause Under Rule 16(b). 16 Good cause is all about diligence. As stated in Johnson, 17 carelessness is not compatible with a finding of diligence and offers no reason for 18 a grant of relief. Cf. Engleson v. Burlington Northern R.R. Co., 972 F.2d 1038, 1043 (9th Cir. 1992) (carelessness not a ground for relief under Rule 60(b)); 19 Martella v. Marine Cooks & Stewards Union, 448 F.2d 729, 730 (9th Cir. 1971) (same), cert. denied, 405 U.S. 974 … (1972); Smith v. Stone, 308 F.2d 15, 18 (9th 20 Cir. 1962) (same). Although the existence or degree of prejudice to the party opposing the modification might supply additional reasons to deny a motion, the 21 focus of the inquiry is upon the moving party’s reasons for seeking modification. See Gestetner Corp. v. Case Equip. Co., 108 F.R.D. 138, 141 (D. Me. 1985). If 22 that party was not diligent, the inquiry should end. 23 Johnson, 975 F.2d at 609. 24 Defendants assert they meet the good cause standard because it was not until February 11, 25 2023 that they received Plaintiff’s twelfth supplemental Rule 26 disclosure including the 32 page 26 supplemental expert report from Plaintiff’s expert (Jones) revealing disclosure of the entire claims 27 file including attorney client privileged communication. Here, it is important to note that Jones was 1 injured upon a crash of that motorcycle—who sued Plaintiff in state court and ultimately prevailed 2 winning damages in excess of $8 million. ECF No. 91 at 4, 5, 7. 3 Defendants say that before receiving Jones’ supplemental report they had no knowledge that 4 attorney client communications had been shared by Plaintiff with Jones. Id. at 12. Defendants point 5 out that the instant Motion to Amend was filed 35 days after their discovery of the disclosure. 6 Defendants also point to the opening sentences of Jones’ supplemental report that they say begins 7 by thanking Plaintiff’s counsel for a copy of the claims file. In toto, the commencement of the 8 supplemental report states the claims file provided:
9 additional context and supports the opinions … [the expert] previously offered. These documents further demonstrate that Nationwide’s expert report cannot be 10 relied on for an accurate history. Nationwide’s report includes logical inconsistencies, cherry picked evidence, and omissions of relevant information, 11 often taking the record and evidence out of context. 12 ECF No. 91-10 at 2. 13 Plaintiff did not file the supplemental report—which Defendants says discloses attorney 14 client communications—on the publicly available docket. It is Defendants who did so without 15 redacting or seeking to seal what they contend is privileged communications. ECF No. 91-10. 16 Defendants also discuss and submitted to the docket in the case an unredacted copy of a motion filed 17 by Jones in state court in which Jones sought reconsideration of the denial of an attorney’s fees 18 award. ECF No. 91 at 8 citing ECF No. 91-11 at 7-10, 13-15.4 Before Defendants filed the rebuttal 19 expert report and state court motion on the docket, there is no record of the complained of 20 communications being available to the public through this action. 21 Plaintiff responds claiming Defendants have known that Jones would serve as an expert in 22 this matter since October 17, 2022. ECF No. 94 at 2. Plaintiff says Defendants disclosed the claims 23 file on October 31, 2022, which is after learning of Jones’ role as an expert and despite knowing 24 Jones was Parks’ counsel in the state court action. Plaintiff repeats throughout his opposition to the 25 Motion to Amend that there was no request by Defendants to maintain confidentiality of any portion 26 of the claims file. Defendants offer no evidence to the contrary. 27 On March 17, 2023, Plaintiff’s counsel asked Defense Counsel to: 1 advise … if there are any pleadings, documents, and/or other tangible items which you and/or your client believe … [Plaintiff] should not disclose to Parks’ counsel 2 (or to anyone else for that matter) … [; and [p]lease … provide me with any prior communications … wherein you and/or your client advised me and/or … [Plaintiff] 3 that it had any issue with … disclosing any pleadings, documents, and/or other tangible items to anyone (other than those identified in the protective order of 4 course). 5 ECF No. 94-2 at 2. Defendants responded, in pertinent part:
6 My client has been communicating with your client either directly or through you about the underlying action since 2016. Your client has had a contractual obligation 7 to cooperate with Depositors’ defense of the underlying action from the very outset, and Depositors advised him of that obligation. … With respect to the information 8 … you have requested in your email, there is simply no procedural rule by which you can compel my clients … to provide you with such information and then use 9 any response or non-response to that email as any sort of “admission” as you claim.
10 Id. at 1. 11 Plaintiff further argues that the claims file was not produced by Defendants in accordance 12 with a confidentiality or protective order to which the parties agreed and no request was made to 13 maintain the confidentiality of the documents. Plaintiff says that (1) Defendants did not address the 14 disclosure prior to filing their Motion for Leave to Amend, and (2) Plaintiff had no role in Jones’ 15 decision to file a motion on behalf of Parks in state court. A Stipulated Protective Order was entered 16 by the Court on January 24, 2023. ECF No. 75. The Protective Order states that “[i]f timely 17 corrected, an inadvertent failure to designate qualified information or items does not, standing alone, 18 waive the Designating Party’s right to secure protection under this Order for such material.” Id. at 19 6. 20 Setting aside arguments that go to the merits of Defendants’ proposed affirmative defense, 21 there appears no dispute that until the supplemental report was issued by Jones and reviewed by 22 Defendants in late February 2023, Defendants did not know that Jones was in possession of the 23 entire claims file including documents at least a portion of which appear to include privileged 24 communications.5 Plaintiff provides nothing other than the argument that Defendants should have
25 5 The Court reviewed ECF No. 91-10 at 4, 6, 24, and 33. The Court finds not all of these communications appear to fall within the definition of an attorney client privileged communication. Just because “a person is a lawyer does not, 26 ipso facto, make all communications with that person privileged.” U.S. v. Chen, 99 F.3d 1495, 1501 (9th Cir. 1996). Only those communications pertinent to the seeking or providing legal advice are privileged. U.S. v. Martin, 278 F.3d 27 988, 999-1000 (9th Cir. 2002). Page 4 contains an exchange between Defendants and outside counsel for Defendants 1 known all documents received would have been disclosed. That Defendants did not mark the claims 2 file confidential may be, in part, explained by the fact that the Stipulated Protective Order was not 3 presented to and granted by the Court until two months after the disclosure. Defendants did not 4 subsequently attempt to identify materials in the claims file as confidential, but this does not change 5 the fact that upon learning of the disclosure, Defendants promptly filed their instant Motion. 6 In sum, the time between production of Jones’ supplemental report in which the disclosure 7 of attorney client communications was discovered and the filing of the Motion to Amend was a 8 relatively short period of time (35 days). This demonstrates reasonable diligence and, thus, meets 9 the good cause standard under Rule 16(b). 10 c. Excusable Neglect 11 Neither Plaintiff nor Defendants discuss excusable neglect as it applies to Defendants’ instant 12 Motion that was filed months after the last day for amendment had lapsed. ECF No. 14 at 2 compare 13 ECF No. 91. The parties only debate “good cause” and whether Defendants were delayed. 14 Nonetheless, because Plaintiff does not oppose Defendants’ Motion based on the failure to address 15 excusable neglect, the Court treats the prejudice, delay, and good faith arguments made as equally 16 applicable to this standard. And, given the overlap with Rule 15, the Court discusses these issues 17 only once. In contrast, futility (a Rule 15 consideration only) would obviate the need to discuss any 18 other elements under Rule 15 or excusable neglect. Thus, the Court turns to this issue first. 19 d. Futility of Defendants’ Proposed Amended Affirmative Defense. 20 Futility is decided under Federal Rule of Civil Procedure 12(b)(6) that is applicable to 21 motions to dismiss. Hines v. Washington Federal Bank, Case No. 2:21-cv-01621-APG-DJA, 2022 22
back, going to watch trial video, responses are needed in a “reasonable time,” and if Defendants would forward “the 23 letter,” counsel will provide his “initial thoughts.” Page 24 asks for a status report from counsel. Page 33 is Jones’ expert opinion. Based on the review of these pages, the Court finds the communications on pages 24 and 33 do not 24 support an application of attorney client privilege. The communications on pages 4 and 6 of ECF No. 91-10, that are privileged, occurred in 2022. 25 With respect to Defendants’ reference to the motion for reconsideration filed by Jones in the state trial court (ECF No. 91 at 8 referencing ECF No. 91-11), pages 7 and 8 state that Plaintiff was at fault for the underlying accident, 26 which is an undisputed fact and not, on its face, a privilege communication. Page 9 states an answer has been filed and Parks had 30 days to seek an exemption from a mandatory arbitration program adopted in the state court. This too does 27 not, on its face, appear to qualify as a privileged communication. In contrast, pages 10 and 15 provide counsel’s 1 WL 60878, at *1 (D. Nev. Jan 6, 2022) (“To determine futility, the Court applies the same standard 2 used on a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 3 12(b)(6)”), citing Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1998); see also Warren 4 v. Nevada Dep’t of Corrections, Case No. 3:17-cv-00228-MMD-WGC, 2019 WL 11093580, at *1 5 (D. Nev. Sept. 5, 2019) (“The standard for futility is whether the proposed amended complaint states 6 a claim upon which relief may be granted, ... the same standard that is utilized in a motion to dismiss 7 under Federal Rule of Civil Procedure 12(b)(6).”). 8 “[I]f no set of facts can be proved under the amendment to the pleadings that would constitute 9 a valid and sufficient claim or defense,” a proposed amendment is futile. Miller, 845 F.2d at 214. 10 Although futility alone can justify denying a motion for leave to amend (Nunes v. Ashcroft, 375 F.3d 11 805, 808 (9th Cir. 2004)), “denial on this ground is rare and courts generally defer consideration of 12 challenges to the merits of a proposed amended pleading until after leave to amend is granted and 13 the amended pleading is filed.” Cates v. Stroud, Case No. 2:17-cv-01080-GMN-PAL, 2017 WL 14 11429893, at *2 (D. Nev. Oct. 26, 2017) (internal citations omitted). 15 A thorough review of case law calls into question whether Defendants can state a breach of 16 the cooperation clause based on Plaintiff’s disclosure of the claims file to his retained rebuttal expert 17 when that fact is applied to the requirement that Plaintiff—the insured—provided assistance “with 18 any claim or suit” or “cooperation to” the insurer “during any claim or suit for the investigation, 19 settlement or defense of that claim or suit.” In Schalk v. Infinity Insurance Company, Case No. 3:20- 20 cv-00615-YY, 2021 WL 1877976, at *4 (D. Ore. Apr. 21, 2016), the court stated:
21 State and federal courts across the country have recognized that “[t]o deny liability coverage under” a cooperation clause, “an insurer must prove ... a material breach.” 22 Heubel Materials Handling Co. v. Universal Underwriters Ins. Co., 704 F.3d 558, 563 (8th Cir. 2013); see, e.g., Tran v. State Farm Fire & Cas. Co., 136 Wash. 2d 23 214, 232 (1998) (“[A]n insurance company should not have license to burden an insured with demands for items that are immaterial.”); Wood v. Allstate Ins. Co., 21 24 F.3d 741, 745 (7th Cir. 1994) (holding cooperation clauses are designed to “‘enable the [insurance] company to possess itself of all knowledge, and all information as 25 to other sources of knowledge, in regard to facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims’”) 26 (emphasis added); Barbian v. Cooper, 32 Ohio Misc. 59, 62 (1972) (“Generally speaking, to constitute a breach of the cooperation provision of the insurance 27 contract, there must be a lack of cooperation by the assured in some material and material or substantial respect. It is not sufficient for the defendant to allege that 1 plaintiff failed to cooperate without ... showing that the assured failed in some substantial or material particular or particulars to cooperate with and to assist the 2 insurer in the defense of the action for damages covered by the policy.”); Bradford v. Com. Cas. Co., 10 N.J. Misc. 301, 306-07 (1932) (“Failure to co-operate in some 3 inconsequential or immaterial matter cannot be set up as a defense, nor can it hardly be a ground for a defense where an insured makes an honest mistake.”). … 4 Information is material when it “pertain[s] to a subject that was ‘relevant and germane to the insurer’s investigation as it was then proceeding.’” Callaway v. 5 Sublimity Ins. Co., 123 Or. App. 18, 23 (1993) (quoting Fine v. Bellefonte Underwriters Ins. Co., 725 F.2d 179, 183 (2d Cir. 1984)); see also Tran, 136 Wash. 6 2d at 224 (same). 7 In one context, the U.S. District Court for the Northern District of California interpreted California 8 law as defining information as “material” relating “to matters reasonably relevant to the [insurer’s] 9 investigation” of a claim and “determination of its obligations under the policy.” Ram v. Infinity 10 Select Ins., 807 F.Supp.2d 843, 853 (N.D. Cal. 2011). The leading case on materiality out of 11 California states that “an insurer must demonstrate that it has been substantially prejudiced by an 12 insured’s breach of the contractual duty to cooperate in the investigation of a claim, when the insurer 13 is asserting such breach as a defense to an action on the policy.” Brizuela v. CalFarm Ins. Co, 10 14 Cal.Rptr.3d 661, 670 (Cal. App. 4th 2004) (citing Campbell v. Allstate Ins. Co., 32 Cal.Rptr. 827 15 (Cal. 1963)). 16 Here, Plaintiff shared a claims file, not designated as confidential or containing confidential 17 information, with a retained expert in this bad faith case long after the investigation into the 18 underlying motorcycle accident concluded and a jury had returned an award to Parks—a third 19 party—who was injured in that accident. ECF No. 91 at 5 (Defendants represent that the jury 20 awarded Parks in excess of $8 million on April 7, 2022; the claims file was not provided to Plaintiff 21 until October 31, 2022). While Defendants states this was a “brazen act of collusion,” they don’t 22 offer anything that demonstrates substantial prejudice when defending the underlying claim or, for 23 that matter, in fulfilling their duties under the policy. 24 The Court does not suggest the disclosure of the privileged communications to which 25 Defendants point was appropriate; however, Defendants could have marked these documents as 26 confidential once the Stipulated Protective Order was entered, sought disqualification of Plaintiff’s 27 rebuttal expert (who represented Parks in the state case), sought claw-back of privileged documents, 1 done none of these things. Instead, Defendants filed the instant Motion asserting a “brazen act” by 2 Plaintiff without demonstrating Plaintiff knew attorney client privileged information was contained 3 within the claims file or that Plaintiff’s disclosure of that information was purposeful or intended to 4 interfere with the insurer’s defense in the state case. 5 Nevertheless, Defendants also contend Plaintiff engaged in collusion. Collusion is defined 6 as “[a]n agreement to defraud another or to obtain something forbidden by law.” In re Tiffany, BAP 7 Nos. NC-06-1256-SKuB, NC-06-1287-SKuB, 2007 WL 7541013, at *11 (9th Cir. Aug. 24, 2007) 8 (quoting Black’s Law Dictionary 259 (7th ed.1999)). A nationwide search of collusion allegations 9 in support of an insurer’s claim that its insured breached the cooperation clause of a policy led the 10 Court to Forest City Grant Liberty Associates v. Genro II, Inc., 652 A.2d 948, 951 (Sup. Ct. Pa. 11 1995), in which that trial court stated:
12 The purpose of a cooperation clause in an insurance contract is to protect the insurer’s interest and to prevent collusion between the insured and the injured 13 party. 8 Appleman, Insurance Law and Practice § 4741. Although a breach of a duty to cooperate will relieve the insurer from liability under the policy, a failure 14 to cooperate must be substantial and will only serve as a defense where the insurer has suffered prejudice because of the breach. Id. § 4773. 15 16 (Case law citation omitted.). This standard was also noted by a state court in Wisconsin and 17 discussed by Ohio’s Court of Appeals. Dietz v. Hardware Dealers Mut. Fire Ins. Co., 276 N.W. 2d 18 808, 811-12 (Wisc. 1979); Valley Paint v. Natl. Union Fire Inc. Co., Case No. CA2010-08-060, 19 2011 WL 947036, at *3 (Ohio Ct. of Appeals, Mar. 21, 2011).6 Importantly, a case out of Los 20 Angeles County stated: “[c]ollusion constitutes an affirmative defense that may be asserted by the 21 insurer … [and c]ollusion in the procurement of a judgment constitutes breach of the cooperation 22 clause ….” Rio Vista Associates v. Hartford Cas. Ins. Co, Case No. BC 257264, 2005 WL 408007, 23 at *18 (L.A. Sup. Ct., Mar. 1, 2005), (internal citation omitted). That court defined collusion as a 24 “secret agreement” for “one party to bring an action against the other for some evil purpose, as to 25 defraud a third party of his rights” or “secret arrangement … to make use of the forms and 26 proceedings of law … to obtain that which justice would not give them” or “a secret … concert of 27 1 action … for fraudulent or deceitful purpose.” Id. (citations omitted). Finally, the court stated that 2 “[a] finding concerning collusion depends upon the facts of each case.” Id. (citations omitted). 3 The above case law supports the finding that collusion, when sufficiently pleaded, is a 4 cognizable basis upon which Defendants’ proposed affirmative defense of non-cooperation may rest. 5 Defendants’ Motion states: “the collusion at issue has included disclosing privileged defense 6 communications to Ms. Parks’ counsel during the course of the suit and actively assisting Ms. Parks 7 and her counsel in the prosecution of the suit.” ECF No. 91 at 17. In the proposed amended answers, 8 Defendants allege “Chowning has breached each the forgoing contractual duties set forth above in 9 paragraph 89 by colluding with Deeana Parks to assist her in the maintenance of the suit that she 10 filed against him rather than assisting Depositors’ in the defense of that suit. That collusion has 11 included disclosing privileged defense communications to Ms. Parks’ counsel during the course of 12 the suit and actively assisting Ms. Parks and her counsel in the prosecution of the suit.”7 ECF No. 13 91 at 17; see also, ECF No. 91-12 ¶ 91, repeated by each Defendants in each proposed amended 14 answer. 15 Based on the above case law, the Court finds the affirmative defense Defendants seek to add 16 is not futile as a matter of law. Whether the defense adequately states an effective, that is, whether 17 that defense will be proven, is an entirely different question that is not properly decided on a motion 18 to amend. Miller, 845 F.2d at 214; Cates, 2017 WL 11429893 at *2. Nonetheless, Plaintiff’s 19 argument regarding futility fails. The Court finds it is at least possible for Defendants to assert a set 20 of facts, which could be proved, that would constitute a valid non-cooperation defense. Thus, the 21 Court considers the remaining standards under excusable neglect and Rule 15(a) as applicable to a 22 motion to amend. 23 e. Whether Amendment will Result in Prejudice to Plaintiff and Delay the Proceedings. 24 Because prejudice is given the greatest weight when reviewing a motion to amend, and is 25 considered when determining if a moving party has established excusable neglect, the Court 26
7 Of course, the claims file that contains the attorney client privileged communications was not produced until 27 October 2022, and the jury returned its award in favor of Parks six months earlier in April 2022. Therefore, as a practical 1 considers this issue next. Eminence Capital, LLC, 316 F.3d at 1052; Lemoge, 587 F.3d at 1192. The 2 Court also considers delay because if amendment is granted, discovery, which is otherwise 3 completed in this case, will need to be reopened causing delay in resolution of this dispute. 4 In their moving papers, Defendants’ lack of prejudice argument is only that Plaintiff will 5 contend he “spent time and money preparing for trial based on the existing issues ….” ECF No. 91 6 at 14-15 (citation omitted). However, Plaintiff does not raise this argument. ECF No. 94 at 22-23. 7 Plaintiff, whose burden it is to show prejudice, argues he “had no way of knowing that Defendants 8 would consider production of the claim[s] file to [his] duly disclosed experts … [would be 9 considered] violative of the cooperation clause in [his] insurance policy,” and had “Defendants given 10 the slightest indication … the claims file should not be produced to … [a] duly disclosed expert 11 witness …” it would not have been. Id. at 22. Plaintiff argues requiring him to defend against a 12 claim that would not exist had Defendants made clear the claims file could not be produced shows 13 “tremendous prejudice.” Id. at 22. 14 Plaintiff cites two cases in support of his position. Id. at 23. The first, Eminence Capital, 15 316 F.3d at 1051, says nothing that aligns with Plaintiff’s argument. Rather, this case and the citation 16 thereto summarize the trial court’s decision and the elements considered when a court is presented 17 with a motion to amend. In the second cited case, Owens v. Kaiser Foundation Health Plan, Inc., 18 244 F.3d 708, 712 (9th Cir. 2001), the Ninth Circuit found an amended complaint was not prejudicial 19 because “the amendment caused no delay in the proceedings and required no additional discovery.” 20 Plaintiff offers no argument regarding discovery or a delay in proceedings. ECF No. 94 at 22-23. 21 Instead, Plaintiff moves from prejudice into a discussion of bad faith. Id. at 23. Nonetheless, the 22 Court notes “[p]rejudice requires greater harm than simply that relief would delay resolution of the 23 case.” Lemoge, 587 F.3d at 1196. Thus, while the Court is loath to further delay resolution of this 24 dispute, in the absence of any cogent argument by Plaintiff the Court finds consideration of prejudice 25 and any delay are not bases upon which the Motion to Amend can be denied. 26 f. Bad Faith 27 Plaintiff argues “Defendants have been attempting to manufacture” a failure to cooperate 1 at issue asked Plaintiff to admit that counsel requested Plaintiff to attend every day of trial in the 2 state court action brought by Parks, and Plaintiff chose not to be there. ECF No. 94 at 21 citing id. 3 at 23. Plaintiff says these requests demonstrate Defendants believed he has been uncooperative 4 “since the state court trial took place in March 2022.” Id. at 21. Plaintiff further submits that when 5 Defendants’ assertion that his lack of cooperation started with the state court trial is coupled with 6 Defendants’ failure to inform Plaintiff he could not disclose the claims file to his expert, there is 7 “strong” evidence “that the request to amend the Answer … to allege non-cooperation is … made in 8 bad faith.” Id. 9 Throughout his Response to the Motion to Amend Plaintiff references a conversation his 10 attorney had with defense counsel in which defense counsel recommended Plaintiff’s counsel speak 11 with Parks’ state court counsel. See, for example, ECF No. 94 at 2, 23. It appears that during a 12 discovery conference discussing Plaintiff’s objections to interrogatories seeking information about 13 how Parks’ counsel came into possession of documents produced by Defendants in this case, 14 Defense counsel told Plaintiff’s counsel he could not refuse to answer based on a speculation 15 objection. ECF No. 97 at 9. Defense counsel suggested Plaintiff’s counsel gather responsive 16 information by contacting Park’s counsel. Id. Plaintiff’s counsel responded by expressing concern 17 about “allegations of impropriety.” Id. Defense counsel told Plaintiff’s counsel “simply 18 communicating” with Parks counsel “to obtain information was not improper.” Id. This exchange, 19 Plaintiff contends, demonstrates Defendants’ inconsistency with their current position that Plaintiff’s 20 counsel colluded with Parks’ counsel throughout this litigation. Plaintiff submits this is further 21 evidence of Defendants manufacturing a non-cooperation defense in bad faith. ECF No. 94 at 23. 22 “In the context of a motion for leave to amend, bad faith means acting with intent to deceive, 23 harass, mislead, delay, or disrupt.” Wizards of the Coast LLC v. Cryptozoic Entertainment LLC, 309 24 F.R.D. 645, 651 (W.D. Was. 2015) citing Leon v. IDX Sys. Corp., 464 F.3d 951, 961 (9th Cir. 2006); 25 In re Ezzell, 438 B.R. 108, 117-18 (Bkrtcy. S.D. Tex. 2010). “As it has been defined in other 26 contexts, ‘bad faith’ means more than acting with bad judgment or negligence, but ‘rather it implies 27 the conscious doing of a wrong because of dishonest purpose or moral obliquity.... [I]t contemplates 1 Manchester Farming P’ship, 315 F.3d 1176, 1185 (9th Cir. 2003). In Boyd v. Wolchok, Case No. 2 22-cv-00716-APG-VCF, 2022 WL 4483165, at *1 (D. Nev. Sept. 27, 2022), the Court explained 3 there is a split among the courts whether a preponderance or clear and convincing evidence is 4 required to demonstrate bad faith when considering a motion to amend. As was true in Boyd, the 5 Court finds it makes no difference which standard applies here because Plaintiff has not established 6 Defendants are acting in bad faith even under a preponderance standard. 7 Defendants may have been negligent in failing to designate the claims file as confidential or 8 advise that certain documents could not be disclosed because they were protected by the attorney 9 client privilege. Defendants may also have been negligent or used bad judgment by not seeking to 10 claw back attorney client communications that were disclosed without their permission, and or 11 striking portions of rebuttal expert report relying on the same. And, Defendants may be unable to 12 prove collusion given the timing of the claims file disclosure (which was after the jury returned a 13 verdict in the state court action) and that Defendants had no issue with Plaintiff gathering information 14 from Parks’ counsel (who serves as Plaintiff’s rebuttal expert). But these facts do not evidence 15 “conscious doing of a wrong because of dishonest purpose or moral obliquity.” It may be that 16 Plaintiff can develop evidence of conscious wrongdoing, or that Plaintiff will readily overcome the 17 failure to cooperate defense, but the Court finds, after weighing all that is before it, Plaintiff has not 18 carried his burden of demonstrating bad faith. 19 III. Order 20 Accordingly, IT IS HEREBY ORDERED that Defendants’ Motion for Leave to Amend 21 Their Answers (ECF No. 91) is GRANTED. 22 IT IS FURTHER ORDERED that Plaintiff’s Motion for Leave to Supplement (ECF No. 106) 23 is DENIED as moot. 24 Dated this 4th day of November, 2025. 25 26
27 ELAYNA J. YOUCHAH