Case Number: BC476114    Hearing Date: August 28, 2014    Dept: 46

Case Number: BC476114
PROFESSIONAL UNDERWRITING GROUP INC VS MICHAEL FELDMAN INSUR
Filing Date: 12/29/2011
Case Type: Other Contract (General Jurisdiction)

08/28/2014 at 08:32 am in department 46 at 111 North Hill Street, Los Angeles, CA 90012

Motion for Protective Order & Motion to Compel Further Responses

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This tentative ruling is posted at 1:05 p.m. on 8-27-2014 and the matter is set for hearing on 8-28-2014 at 8:30 a.m.

If there are no parties other than Plaintiff/Petitioner, then Plaintiff/Petitioner may submit to the tentative without appearance by telephonic notification to the clerk of Dept. 46 between 8:00 a.m. and 4:30 p.m. on a date prior to the hearing or morning prior to the hearing by calling (213) 974-5665, and the court will issue the tentative ruling as the final ruling. If the other parties have appeared in the action, then the parties must first confer and all agree that the tentative ruling will be the final ruling on the matter. If the parties to the matter before the court all agree, a representative of the parties may call the clerk and submit without an appearance, and the court will issue the tentative ruling as the final ruling. If an order is required, it should be lodged directly in Dept. 46 with a copy to adverse/other parties, if any.

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(1) Michael Feldman Insurance Services, Inc. Motion To Compel Further Responses to Special Interrogatories, Set 2 (and request for sanctions of $2,500). Motion is GRANTED per CCP §2030.300 conditioned on the parties first agreeing to a proper protective order as stated below in section (3). Professional Underwriting Group, Inc. (PUG) is ordered to provide further verified code-compliant responses to Special Interrogatories 37 and 38 to include all names on the Excel sheets, to whom faxes were sent, who purchased insurance in each of the years from 2008-present, and what they paid in premiums each year. PUG to provide verified responses within 30 days. PUG’s trade secret objection is overruled. Sanctions are denied as to this motion.

The discovery requested is relevant to the allegations in the 13th and 26th paragraphs of the Third Amended Cross Complaint (TACC) and allegations in the TACC that makes it clear that MFIS is alleging that Plaintiff misused its proprietary information commencing in 2008. Paragraph 13 of the TACC alleges:

“13 In order to obtain insurance to secure, supply and to sell to their customers, Cross-Complainant was required to and did furnish to PUG, Cross-Complainant’s proprietary information that Cross-Complainant developed for its customers. Said proprietary information was furnished to PUG for the sole purpose of enabling it to provide insurance for Cross-Complainant to secure, supply, and to sell, and no other purpose accordingly, PUG had a duty to Cross-Complainant to not (1) use Cross-Complainant’s proprietary information or leads for any other purposes; and/or (2) use Cross-Complainant’s proprietary information to take Cross-Complainant’s clients and refer them to other Broker representatives.” (TACC, ¶ 13).

The TACC further alleges that one or more of these breaches was occurring as late as August 2012. (Id., ¶ 26).

The subject discovery requests (Special Interrogatories 37 and 38) request lists of “business written” in Florida and Texas since June 2008.

On 2/21/14, Professional Underwriting Group (PUG) served further responses (not attached to moving papers), which unilaterally limited the response to these interrogatories to one year (i.e., that of 2008-2009) and to insurance which was written “directly.” On 4/7/14, PUG served further supplemental responses (See Declaration of William Stoner [hereinafter, “Stoner”], Exhibit “F”), which reflect whether or not the seven Plaintiff’s customers identified in Nos. 37 and 38 renewed the policy or paid a premium during the next year. This supplemental response is insufficient. (The court notes that in the reply brief that there is an explanation regarding confusion between the first and second further responses wherein it is argued that the “second further response served in April had the same caption as the first further response served in February, making it easy to confuse them. When MFIS prepared this motion, it did not appreciate that some additional tidbits of information had been provide[d] in the April 7 ‘further response.’ The Stoner Declaration included a copy of the April 7 response, but not the February The reply brief explains that “this second further response served in April had the same caption as the first further response served in February, making it easy to confuse them. When MFIS prepared this motion, it did not appreciate that some additional tidbits of information had been provide[d] in the April 7 ‘further response.’ The Stoner Declaration included a copy of the April 7 response, but not the February 21 response. MFIS’s opening Memorandum set forth the text of the February response, rather than the more recent April 7 response, both of which PUG confusingly captioned the same…[r]egardless, the April 7 response did not fully comply with the terms of the agreement…” (Reply, 3:1-10). The court concludes that regardless of the additional information in the second further responses, the responses are inadequate.

The court bases this conclusion on the fact that MFIS is seeking discovery related to its allegation that Plaintiff misused its proprietary information from 2008. Plaintiff’s relevancy argument fails, because MFIS has alleged that Plaintiff breached the Brokerage Agreement by, inter alia, “directly contact[ing] various MFIS clients” and “attempt[ing] to refer MFIS’ clients to new broker representatives.” (Id., ¶¶ 30 & 31). Determining the specific entities that placed insurance through PUG—directly or indirectly—from 2008-present is needed information for MFIS to prove and determine the scope of damages it may have sustained from Plaintiff’s alleged misappropriation of its proprietary information. This information is also relevant to MFIS’ affirmative defenses of unclean hands and in pari delicto.

Furthermore, MFIS explains that “it has arrangements with brokers licensed in Texas and Florida who pay [it] a substantial commission for business they write as a result of [its] referrals and marketing efforts.” (Reply, 5:2-4). Although Plaintiff’s Vice President and Cross-Defendant Frankel claims that “[b]oth Laurel Fowler and John Walls, respectively for Laurel Fowler Insurance Agency and Brown Bacher and Walls Insurance Agency, have both testified under oath that PUG/AAIP had fully paid any commissions due to them for the placement of Florida (Fowler) or Texas (Fowler and Walls) policies” (Frankel Declaration, ¶15), Cross-Complainant should be able to confirm for itself whether Plaintiff received any additional premiums from customers who received the faxes. Cross-Complainant MFIS does not seek a blanket list, as Plaintiff claims; rather, as narrowed during the meet and confer process, it seeks only to know which of the names on the Excel sheets, to whom faxes were sent, purchased insurance in each of the years from 2008-present, and what they paid in premiums each year. (See Reply, 6:6-9).

Plaintiff’s trade secret objection is without merit. Evidence Code § 1060 states that “[i]f he or his agent or employee claims the privilege, the owner of a trade secret has a privilege to refuse to disclose the secret, and to prevent another from disclosing it, if the allowance of the privilege will not tend to conceal fraud or otherwise work injustice.” Under CC §3426.1(d), a “trade secret” is defined as “information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

“[T]he party claiming the privilege has the burden of establishing its existence. (Evid. Code, § 405; [Agricultural Labor Relations Bd. v. Richard A. Glass Co. (1985)] 175 C.A.3d [703,] at p. 715). Thereafter, the party seeking discovery must make a prima facie, particularized showing that the information sought is relevant and necessary to the proof of, or defense against, a material element of one or more causes of action presented in the case, and that it is reasonable to conclude that the information sought is essential to a fair resolution of the lawsuit. It is then up to the holder of the privilege to demonstrate any claimed disadvantages of a protective order. Either party may propose or oppose less intrusive alternatives to disclosure of the trade secret, but the burden is upon the trade secret claimant to demonstrate that an alternative to disclosure will not be unduly burdensome to the opposing side and that it will maintain the same fair balance in the litigation that would have been achieved by disclosure.” Bridgestone/Firestone, Inc. v. Superior Court (1992) 7 C.A.4th 1384, 1393.

Even assuming P met its initial burden through the Frankel Declaration, Cross-Complainant met its responsive burden, as explained above. Plaintiff has not, however, “demonstrate[d] any claimed disadvantages of a protective order.” Plaintiff has not proposed any protective order language (see below). Plaintiff’s request for a protective order, in fact, seems illogical inasmuch as it has already disclosed the names of 7 customers and the premiums they paid without one in place.

Sanctions are denied as the parties expended significant effort to resolve the discovery dispute.

(2) Michael Feldman Insurance Services, Inc. Motion To Compell Further Responses to Requests To Produce, Set 7 (and request for sanctions of $2,250) is GRANTED pursuant to CCP 2031.310 conditioned on the parties first agreeing to a proper protective order as stated below in section (3). Professional Underwriting Group, Inc. (PUG) is ordered to provide further verified code-compliant responses and produce all responsive writings related to Requests To Produce, Set 7, Requests 131 to 161, inclusive, within 30 days. Sanctions are denied.

In the TACC MFIS has also alleged, in relevant part, as follows:

“22. Prior to January of 2011, PUG placed substantial E&O Insurance on a wholesale basis through Maxum Specialty Insurance Group (‘Maxum’), a client of MFIS. The Maxum ‘book of business’ approximated $4 million and entitled MFIS to substantial amounts under the above-described contractual agreements On or around January of 2011, PUG entered into an agreement with AXIS to move the E&O Insurance business that PUG placed through Maxum with AXIS.Upon learning of this, Maxum terminated its relationship with PUG…
23. On or after June of 2011, PUG entered into a contractual agreement with AXIS SURPLUS, and subsequently with AXIS INSURANCE (subject to the latter’s then-pending applications for state approval for admission in Texas, California and Florida) to become the exclusive national program administrator for E&O Coverage nationwide This agreement was the first step in a scheme by PUG, using AXIS, to steal long-term established clients of MFIS as described in further detail below…
24. After PUG and AXIS reached the agreement described in the preceding paragraph, starting in or around January of 2012, PUG started sending communications to clients of MFIS (i) advising them that PUG was no longer working with MFIS, (ii) providing notices of non-renewal and (iii) offered them the opportunity to maintain their E&O insurance through an ‘A rated carrier,’ and (iv) providing them with the contact information for other brokers who were business competitors of MFIS…” (TACC, ¶¶ 22-24).

The subject discovery requests in Requests for Production 131, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142 – 161 all are reasonably focused on determination of relevant evidence (writings) relating to the relationship between Plaintiff and seven insurance carriers. The Cross-Complainant alleges that these writings are expected to disclose agreements, communications and policies by PUG intended to disrupt and interfere with MFIS’s client relationships.” (Motion, 6:12-17). Such documentation, if it exists, would be supportive of Cross-Complainant MFIS’ affirmative defenses of unclean hands and in pari delicto.

Plaintiff’s conditional, hypothetical objection on the basis of trade secret privilege is not appropriate. Plaintiff has not provided Cross-Complainant MFIS or this court with a privilege log. As Cross-Complainant MFIS notes, “the trade secret argument in PUG’s Opposition relates solely to PUG’s customer lists.” (Reply, 8:13). These requests do not call for such information. Any privacy argument made on behalf of the insurers can be satisfied by the preparation of a protective order, in which the material is deemed for “attorney’s eyes only.”

Sanctions are denied as it appears to the court that the parties expended significant effort to resolve the discovery dispute.

(3): Professional Underwriting Group, Inc. dba PUG Insurance Agency Motion for Protective Order Limiting Discovery (and request for sanctions of $2,535). Motion is DENIED for the reasons stated in regard to motions #1 and #2. Sanctions are denied. However, it is evident that some protective order is appropriate relative to the sensitive financial and client information that is ordered to be disclosed. The parties are ordered to meet and confer on fashioning an “attorney’s eyes only” protective order limiting the dissemination of the information sought disclosed in the subject discovery requests to be completed and submitted to the court within 15 days so that the order will be in place prior to the date that the production of information is required pursuant to the prior orders.

Plaintiff/ Cross-Defendants motion is DENIED, for the reasons set forth in the analysis on Motions #1 and #2. Additionally, as MFIS points out: “[g]ranting PUG’s MPO would go much further than merely denying MFIS’s Motions to Compel since it is designed to preclude any future discovery on the broad subject areas covered by the interrogatories and RFPs.” (Reply, 2:16-18; emphasis theirs).

Notwithstanding denial of the motion the court orders the parties to meet and confer on fashioning an “attorney’s eyes only” protective order limiting the dissemination of the information sought in the subject discovery requests.

Sanctions are denied as it appears to the court that the parties expended significant effort to resolve the discovery dispute.