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First American Title Insurance Co. v. Bowles Rice, LLP

United States District Court, N.D. West Virginia

December 11, 2017

FIRST AMERICAN TITLE INSURANCE CO., Plaintiff,
v.
BOWLES RICE, LLP, Defendant.

          MEMORANDUM OPINION AND ORDER OVERRULING DEFENDANT'S OBJECTIONS [DKT. NO. 103]

          IRENE M. KEELEY UNITED STATES DISTRICT JUDGE

         Now pending are objections filed by the defendant, Bowles Rice, LLP (“Bowles Rice”), to the denial of two motions to compel by the Honorable Michael J. Aloi, United States Magistrate Judge. For the reasons stated on the record during the November 20, 2017, status conference, as well as those that follow, the Court OVERRULES Bowles Rice's objections (Dkt. No. 103).

         I. BACKGROUND

         A. Factual Background[1]

         This case is the most recent in a litany of litigation flowing from the ill-fated construction of a $2 billion, 695-megawatt supercritical coal-fired power plant by Longview Power, LLC (“Longview”), in Maidsville, West Virginia. Longview financed construction of the plant, in part, by borrowing approximately $1.1 billion. The financing was secured by a Fee and Leasehold Credit Line Deed of Trust, Security Agreement, and Assignment of Leases and Rents and Fixture Filing (“Deed of Trust”), in favor of Union Bank of California, N.A. (“Union Bank”), which was executed and recorded in Monongalia County, West Virginia, on February 28, 2007.

         To cover the Deed of Trust's priority, Union Bank obtained a $775 million lender's policy of title insurance from the plaintiff, First American Title Insurance Company (“First American”). The policy has an effective date of March 9, 2007, and includes a mechanic's lien endorsement. Pursuant to its agency agreement with First American, Bowles Rice actually underwrote, performed title searches, and issued the title insurance policy on First American's behalf.[2] First American reinsured portions of its liability under the policy through agreements with Old Republic Title Insurance Company (“Old Republic”) and Stewart Title Insurance Company (“Stewart”).

         As subsequent events make clear, few parties involved with construction of the power plant escaped the project unscathed. First, Longview became entangled in various disputes with its contractors during the course of construction, and the contractors filed mechanic's lien claims in excess of $335 million in February 2012. Because the mechanic's liens claimed priority over its Deed of Trust, Union Bank filed a claim with First American in April 2013. Longview subsequently filed for bankruptcy protection in the District of Delaware in August 2013.

         First American proceeded to litigate the issue of liability under its insurance policy on several fronts. In May 2014, it sought declaratory relief in California state court regarding its obligations to Union Bank. Thereafter, Longview filed an adversary proceeding against First American in the bankruptcy proceeding in the District of Delaware, seeking a determination regarding coverage under the insurance policy. In June 2014, the Delaware bankruptcy court approved the assignment of proceeds under the policy from Union Bank to Longview, and it stayed First American's case in California. In September 2014, First American commenced its own adversary proceeding in the District of Delaware, challenging the priority of the mechanic's liens over the Deed of Trust.

         Ultimately, in December 2014, First American resolved its liability in these matters by contributing $41 million as part of a global settlement in the Delaware bankruptcy court. First American recovered a portion of this loss through its reinsurance policies, but only after Old Republic and Stewart contested their liability and forced First American to litigate the claims. In turn, First American filed this lawsuit for breach of contract against Bowles Rice on November 16, 2016.

         More particularly, First American seeks to recover its loss based on Bowles Rice's alleged breaches of their agency agreements. First, First American contends that Bowles Rice knew construction had commenced on the power plant prior to issuing the title insurance policy - thus giving rise to the possibility of the filing of mechanic's liens that would hold priority over the Deed of Trust - but breached its duty to inform First American of such a critical fact. Second, First American claims that Bowles Rice breached its duty to indemnify it for losses associated with Union Bank's claim under the title insurance policy.

         B. Procedural Background

         The parties have been engaged in discovery since the Court conducted a scheduling conference in February 2017. In August 2017, Bowles Rice filed two motions to compel, which the Court referred to Magistrate Judge Aloi (Dkt. Nos. 51; 52). On October 23, 2017, Magistrate Judge Aloi entered a written order denying portions of Bowles Rice's motions (Dkt. No. 89).[3]

         1. Bowles Rice's Motions

         In its first set of interrogatories, particularly Interrogatory No. 4, Bowles Rice sought the following:

Identify by name, residence and business address and residence and business telephone number, each and every agent, representative and/or employee of Plaintiff who participated in the decision regarding the level at which any reserve should be established as to any claim herein described and state specifically the reasons and rational relied on in support of the decision to set a reserve at the level where it was first established and describe in detail any and all documents which might exist which would indicate the amount of the reserve established; when it was established; who established the reserve; the reasons and rationale relied on in support of the establishment of the reserve, whether such reserve was ever changed, and if so, how and why it was changed.

(Dkt. No. 51-1 at 7). First American responded as follows:

First American objects to this interrogatory on grounds it seeks information that is not relevant, the request is not reasonably calculated to lead to the discovery of admissible evidence, and the request is not proportional to the needs of the case. Further objecting, First American states that the request seeks information protected by the attorney client privilege and the attorney work product doctrine.

Id.

         Bowles Rice moved to compel this information, arguing that 1) reserve information "is relevant to determining the reasonableness of any settlements that [First American] now seeks to recover from Bowles Rice"; 2) without a privilege log, Bowles Rice cannot not adequately assess First American's work-product claims; and 3) the identity of individuals involved with reserves "is clearly discoverable" (Dkt. No. 51 at 8-10).

         At the same time, in Requests for Production Nos. 4, 6, 8, 10, 12, 14, and 16, Bowles Rice sought "litigation related documents which would not have been publicly filed" (Dkt. No. 52 at 10). It specifically sought "all documents reflecting all communications, emails, letters, etc., between Plaintiff and any attorney or representative retained by it or acting on its behalf related to" the following actions, many of which are discussed above:

Jarrett F. Jamison, III, et al. v. Longview Power, LLC, et al., Civil Action No. 07-CV-20 (N.D.W.Va.);
• Jarrett F. Jamison, III, et al. v. Longview Power, LLC, et al., Civil Action No. ...

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