Case Name: Bay Area Surgical Management, LLC, et al. v. DiNicola, et. al.
Case No.: 2014-1-CV-272143

Plaintiff Bay Area Surgical Management, LLC (“BASM”) moves to compel further responses to Request for Production of Documents, Set One, from defendant Allied World National Assurance Company (“AWAC”).

I. Factual Background

This is an action for breach of contract based on an insurance dispute. According to the allegations of the operative third amended complaint (“TAC”), plaintiffs BASM, Forest Surgical Associates, LP, Bay Area Surgical Group (“BASG”), Inc., Julia Hamshemieh, Javad Zolfaghari, and Bobby Sarnevesht (collectively, “Plaintiffs”) are engaged in the business of managing or operating outpatient ambulatory surgical centers. (TAC, ¶¶ 14-15.) Given the high-risk nature of their business, in 2008 Plaintiffs began searching for an insurance broker to assist them in obtaining various types of insurance, including Errors and Omissions, Directors and Officers, malpractice, and commercial general liability. (Id., ¶¶ 16-17.)

In January 2010, Plaintiffs began doing business with defendants Nicholas A. DiNicola (“DiNicola”) and DiNicola Insurance Services, LLC (collectively, the “DiNicola Defendants”), who held themselves out as experts in the area of health-facility liability insurance. (TAC, ¶ 18.) Shortly thereafter, Plaintiffs obtained various policies from defendants AWAC and Darwin Select Insurance Company (“Darwin”). (Id., ¶ 19.)

In January 2011, Plaintiffs entered into an “oral contract founded upon writing” with DiNicola to procure various types of insurance. (TAC, ¶¶ 58-61.) Pursuant to the agreement, DiNicola agreed to procure Directors and Officers insurance to provide defense and indemnity coverage for any claims arising out of Plaintiffs’ business operations. (Id., ¶ 60.) Based on DiNicola’s advice, Plaintiffs purchased an AWAC Directors and Officers liability insurance policy covering BASG from July 28, 2011 through July 28, 2012, and a Darwin Directors and Officers liability insurance policy covering BASM for the same time period. (TAC, ¶¶ 21, 23.)

On February 2, 2012, Aetna Life Insurance Company (“Aetna”) sued Plaintiffs for overbilling and providing kickbacks to physicians. (TAC, ¶ 25.) Both AWAC and Darwin are defending Plaintiffs in that action under a reservation of rights. (Id.) A similar suit was filed on June 18, 2012 by United Healthcare Services, Inc. (“United”). (Id., ¶ 52.) Given the similarity between the two lawsuits, Plaintiffs reasonably believed the two claims were “related claims” under the AWAC policy and a “single claim” under the Darwin policy, such that Plaintiffs were under no obligation to tender separate claims to AWAC and Darwin. (Id., ¶¶ 52- 53.)

Both AWAC and Darwin refused to defend Plaintiffs in the United lawsuit. (SAC, ¶ 54.) AWAC asserted that it had no obligation to provide a defense because BASG was engaged in the “managed care” business, which was excluded from coverage, and the claim was not tendered in a timely manner. (Id.) Similarly, Darwin denied coverage because BASM did not tender its claim in a timely manner. (Id.)

On August 17, 2015, Plaintiffs filed the TAC asserting the following causes of action: (1) breach of contract (against DiNicola); (2) breach of contract: defense coverage; indemnification (against Darwin and AWAC); (3) breach of implied contract (against the DiNicola Defendants); (4) negligence (against DiNicola); (5) negligent misrepresentation (against DiNicola); (6) breach of implied covenant of good faith and fair dealing (against Darwin and AWAC); and (7) declaratory relief (against Darwin and AWAC).

II. Discovery Dispute

On June 24, 2015, BASM propounded Request for Production of Documents (“RPD”), Set One, on AWAC. (Declaration of Kevin Panahi in Support of BASM’s Motion to Compel Further Responses (“Panahi Decl.”), ¶ 4 and Exhibit A.) AWAC served its responses on July 29, 2015, which consisted primarily of objections. (Id., ¶ 5 and Exhibit B.) No documents were produced. (Id.)

On August 11, 2015, counsel for BASM sent a meet and confer letter to opposing counsel outlining perceived deficiencies in the responses to the first set of production requests and setting August 21st as the deadline for AWAC to provide responsive documents. (Panahi Decl., ¶ 6 and Exhibit C.) A week later, AWAC’s counsel responded to the correspondence stating his intention to respond to the meet and confer letter in detail by September 4th, or sooner. (Id., ¶ 7 and Exhibit D.) No response to the letter or document production was provided by that date. (Id., ¶ 8.) Consequently, on September 17, 2015, BASM’s counsel sent another letter to AWAC’s counsel requesting that his client serve supplemental responses and produce responsive documents by September 22, 2015. (Id. and Exhibit E.)

After additional responses were not provided by September 22nd, counsel for BASM wrote an email to opposing counsel requesting both the outstanding discovery and his availability for hearing on a potential motion to compel. (Panahi Decl., ¶ 9 and Exhibit F.) Opposing counsel responded that a response would be provided that day, and ultimately provided a five-page meet and confer letter addressing the issues raised in BASM’s August 11th letter. (Id., ¶ 10 and Exhibit G.) In the letter, counsel for AWAC also stated that AWAC would provide supplemental responses by September 30th. (Id.)

On September 30, 2015, AWAC produced 2,104 documents along with a privilege log and stated that it would be serving supplemental responses and objections the next day. (Panahi Decl., ¶ 12.) Accordingly, on October 1, 2015, AWAC served supplemental responses to the first set of production requests. (Id., ¶ 13 and Exhibit I.)

BASM believed that deficiencies still existed in AWAC’s supplemental responses, as well as its document production and privilege log, and on October 22, 2015, sent a meet and confer letter to opposing counsel stating as much. (Panahi Decl., ¶ 14 and Exhibit J.) BASM requested that AWAC provide further responses and additional documents by October 28th. (Id.) Counsel for AWAC responded to the meet and confer correspondence on October 27th and served further supplemental responses. (Panahi Decl., ¶ 16 and Exhibit L.)

On November 10, 2015, counsel for BASM wrote a letter to opposing counsel responding to AWAC’s October 27th correspondence stating that rather than filing a motion to compel based on AWAC’s “inappropriate unilateral decision” to extend the time to respond, it would agree to continue AWAC’s time to respond and correct the outstanding deficiencies in its responses and document production until November 27th, and suggested a deadline of January 13, 2016 to file a motion to compel, if such a motion was ultimately necessary. (Panahi Decl., ¶ 17 and Exhibit M.) AWAC agreed to the proposed deadlines. (Id.)

On November 24, 2015, AWAC produced approximately 600 additional documents and served an updated privilege log. (Panahi Decl., ¶ 18 and Exhibit N.) No verifications were provided, and BASM believed the privilege log to be deficient. (Id.) On December 29, 2015, BASM’s counsel wrote to opposing counsel notifying her that the parties had reached an “impasse” regarding the discovery issues and therefore BASM had no choice but to file a motion to compel. (Id., ¶ 19 and Exhibit O.) Counsel for AWAC responded that it was evaluating BASM’s letter and indicated that it was available for hearing on March 1, 2016 for a motion to compel, the date suggested by opposing counsel. (Id.) That same day, AWAC, Darwin and Plaintiffs entered into a protective order. (Id., ¶ 20.) A month later, on December 23, 2015, a second protective order was entered into which replaced the first and added the DiNicola Defendants. (Id. and Exhibit P.)

On January 13, 2016, BASM filed the instant motion to compel further responses to RPD, Set One. On February 16, 2016, AWAC served additional supplemental responses, a second supplemental privilege log, and second supplemental document production. (Declaration of David C. Capell in Support of Opposition to Motion to Compel (“Capell Decl.”), ¶ 13 and Exhibits 4-6.) AWAC also emailed BASM’s counsel regarding production of documents and communications relating to the Aetna lawsuit that are responsive to RPD, Set One, Nos. 6 and 7. (Id., ¶ 14 and Exhibit 7.) On February 17, 2016, AWAC filed its opposition to BASM’s motion to compel. On April 26, 2016, BASM filed its reply.

III. Discussion

A. Motion to Compel

With the instant motion to compel, BASM moves to compel further responses to RPD, Set One, Nos. 1, 6, 7 and 23, as well as the production of certain documents without redactions and an amended privilege log that contains sufficient information to enable BASM (and the Court) to evaluate whether the items being withheld from production are in fact privileged.

As set forth above, subsequent to the filing of the instant motion to compel (specifically on February 16, 2016), AWAC served further supplemental responses to RPD, Set One, including the requests that are the subject of the motion, as well as an amended privilege log. Consequently, the motion to compel is MOOT to the extent that BASM seeks to compel further responses to RPD Nos. 1, 6, 7 and 23 and an amended privilege log. (See Sinaiko Healthcare Consulting, Inc. v. Pacific Healthcare Consultants (2007) 148 Cal.App.4th 390, 409 [stating that the court in its discretion may deny a motion to compel as moot where responses are served after the motion is filed].)

To the extent that BASM seeks to compel production of documents previously provided by AWAC which contain redactions, the motion is DENIED because BASM fails to identify which documents contain redactions such that the Court can evaluate whether they are appropriate or not.

B. Requests for Sanctions

Both parties request the imposition of sanctions in this matter.

1. BASM’s Request

In support of its motion to compel further responses, BASM requests that the Court impose monetary sanctions against AWAC and its counsel in the amount of $5,800 pursuant to Code of Civil Procedure sections 2031.310, subdivision (d), and 2023.030, subdivision (a). The Court presumes that BASM intended to cite subdivision (h) rather than subdivision (d) of Code of Civil Procedure section 2031.310, which provides that the court must impose monetary sanctions against any party, person, or attorney who unsuccessfully makes or opposes a motion to compel further responses to a production demand unless the one subject to the sanctions acted with substantial justification or circumstances make the imposition of sanctions unjust. Subdivision (d) relates to a motion to compel electronically stored information and the objecting party’s obligation to demonstrate that the information is from a source that is not reasonably accessible. This subdivision is not implicated here. Subdivision (d) of Code of Civil Procedure section 2023.030 gives the court the discretion to impose monetary sanctions against any party that engages in the misuse of the discovery process.

Here, because BASM’s motion to compel is moot, it cannot be characterized as “successful” and thus BASM is not entitled to sanctions pursuant to Code of Civil Procedure section 2031.310, subdivision (h). However, sanctions are still potentially recoverable under California Rules of Court, rule 3.1348 (“Rule 3.1348”), which provides that “the court may award sanctions under the Discovery Act in favor of a party who files a motion to compel discovery, even though no opposition to the motion was filed, or opposition to the motion was withdraw, or the requested discovery was provided to the moving party after the motion was filed.” (Cal. Rules of Court, rule 3.1348(a) [emphasis added].) Unlike most of the provisions authorizing sanctions in connection with motions to compel further responses, Rule 3.1348, subdivision (a), is discretionary. In this instance, the Court elects to impose sanctions against AWAC and its counsel as it is persuaded that AWAC was compelled to provide further supplemental responses and an amended privilege log to BASM by the filing of the instant motion to compel.

As stated above, BASM requests $5.800 in sanctions, which is supported by declarations from BASM’s counsel stating that they spent a total of 12 hours preparing the moving papers in this matter, including related meet and confer correspondence, at a rate of $275 per hour, 9 hours on the reply papers, including related meet and confer correspondence, at $250 per hour, and anticipates spending 1 hour preparing for and attending the hearing at a rate of $250 per hour. (Panahi Decl., ¶ 21; Declaration of Katherine A. Bowles in Support of Reply, ¶¶ 6-8.) Neither anticipated time nor the time expended in the meet and confer process (which parties are required to engage) are compensable. With that in mind, the Court finds eleven hours to be an appropriate amount of time to prepare the motion to compel and reply papers and therefore awards BASM monetary sanctions in the amount of $ 2,925 = (7 hrs x $275 + 4 hrs x $250). Accordingly, BASM’s request for monetary sanctions is GRANTED IN PART.

2. AWAC’s Request

In connection with its opposition, AWAC requests that the Court impose monetary sanctions against BASM and its counsel in the amount of $5,227 pursuant to Code of Civil Procedure section 2031.31, subdivision (d), the same section cited by BASM as the basis for its request for sanctions. As BASM’s motion to compel was rendered moot by AWAC’s service of further supplemental responses after its filing, AWAC has not successfully opposed the motion on its merits. Consequently, it is not entitled to an award of monetary sanctions under Code of Civil Procedure section 2031.31, subdivision (d), and therefore its request for sanctions is DENIED.

IV. Conclusion and Order

BASM’s motion to compel further responses to RPD, Set One, and a supplemental privilege log is DENIED as moot.

BASM’s related request for monetary sanctions is GRANTED IN PART. AWAC and its counsel shall pay $2,925 to counsel for BASM within 20 calendar days of this order.