Energy Production Corporation v. Northfield Insurance Company et al, No. 2:2010cv00933 - Document 48 (E.D. La. 2010)

Court Description: ORDER denying pla's 36 Motion for Leave to Conduct Jurisdictional Discovery as set forth herein. Signed by Magistrate Judge Karen Wells Roby on 8/5/2010. (rll, ) Modified on 8/6/2010 to edit doc type (rll, ).

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Energy Production Corporation v. Northfield Insurance Company et al Doc. 48 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA ENERGY PRODUCTION CORPORATION CIVIL ACTION VERSUS NO: NORTHFIELD INSURANCE COMPANY, ET AL. SECTION: “C” (4) 10-0933 ORDER Before the Court is Energy Production Corporation’s Motion for Leave to Conduct Jurisdictional Discovery (R. Doc. 36), filed by the Plaintiff, Energy Production Corporation (“EPCO”), seeking to compel discovery related to the citizenship of Defendant, Fairmont Specialty Insurance Company (“FSIC”), prior to the Rule 26(f) conference. FSIC filed a response opposing the motion. (R. Doc. 38.) The motion was heard with oral arguments on July 14, 2010. I. Background EPCO, which is a Texas corporation (R. Doc. 1-2, ¶ 1), originally filed this action in Louisiana state court. (R. Doc. 36-1, p. 1.) EPCO originally named two Texas entities, Fairmont Specialty Insurance Managers, Inc. (“FSMI”) and Fairmont Specialty Managers Corp. (“FSMC”), as Defendants, which destroyed diversity. (R. Doc. 36-1, p. 1.) Defendant, Scottsdale Insurance Company (“Scottsdale”) then removed the action to federal court based on diversity, asserting that FSIM and FSMC were not the proper parties in interest and that the only proper Fairmont party is FSIC, a California Corporation with its principal place of business in New Hampshire. (R. Doc. 361, p. 1.) EPCO later filed an amended complaint (R. Doc. 30), naming FSIC as a Defendant. FSIC is now the only active Fairmont Defendant in the case, but EPCO seeks to ascertain the relationship Dockets.Justia.com between FSIC and the Fairmont entities that are Texas citizens to confirm the existence of diversity. (R. Doc. 36-1, p. 2.) Therefore EPCO seeks leave of the Court to conduct a Rule 30(b)(6) deposition of FSIC on topics limited to the relationship between FSIC, FSMC, and the Ranger Insurance Group entities named in EPCO’s state court complaint. (R. Doc. 36-1, p. 2.) II. Standard of Review Rule 26(b)(1) provides that “[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense.” Fed.R.Civ.P. 26(b)(1). The Rules specify that “[r]elevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” Id. The discovery rules are accorded a broad and liberal treatment to achieve their purpose of adequately informing litigants in civil trials. Herbert v. Lando, 441 U.S. 153, 176 (1979). Nevertheless, discovery does have “ultimate and necessary boundaries.” Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 (1978) (quoting Hickman v. Taylor, 329 U.S. 495, 507 (1947)). Furthermore, “it is well established that the scope of discovery is within the sound discretion of the trial court.” Coleman v. Amer. Red Cross, 23 F.3d 1091, 1096 (6th Cir.1994). Under Rule 26(b)(2)(C), the Court must limit discovery if: (1) the discovery sought is unreasonably cumulative or duplicative, or can be obtained from another more convenient, less burdensome, or less expensive source; (2) the party seeking discovery has had ample opportunity to discover the information during the proceedings; or (3) the burden or expense of the proposed discovery outweighs its likely benefit. Fed.R.Civ.P. 26(b)(2)(C). The balancing of the burden and expense or the likely benefit of the proposed discovery requires the Court to consider: (1) the needs of the case; (2) the amount in controversy; (3) the parties’ resources; (4) the importance of the issues at stake in the action; and (5) the importance of the discovery in resolving the issues. Id. 2 III. Analysis EPCO acknowledges that normally, pursuant to Rule 26(d), discovery cannot be conducted until after the Rule 26(f) conference. (R. Doc. 36-1, p. 3.) However, EPCO argues that jurisdictional discovery is often allowed prior to normal discovery to confirm the Court’s ability to exercise jurisdiction. (R. Doc. 36-1, p. 3.) EPCO claims that it has obtained documents from the Texas Secretary of State and Louisiana Department of Insurance that caused it to question the citizenship of FSIC. (R. Doc. 36-1, p. 3.) EPCO claims that a deposition on the topics listed in Exhibit A (R. Doc. 41-6, Exh. A) is necessary to explain the succession and/or merger of FSIC and the Fairmont Texas and Ranger entities. (R. Doc. 36-1, p. 3.) In response, FSIC argues that jurisdiction is not an issue in this matter and that EPCO failed to file a motion to remand within the time delays allowed by law. (R. Doc. 38, p. 1.) FSIC claims that EPCO is merely trying to conduct a fishing expedition to discover a basis for filing a motion to remand. (R. Doc. 38, p. 2.) At the hearing, counsel for EPCO stated that it had four insurance policies at issue in this case and that three of those policies were issued by a Ranger Lloyd’s entity and that the other policy was issued by Ranger Insurance Company, which were both Texas entities. EPCO stated that after its initial research, it named FSMI and FSMC, which are Texas entities, as Defendants. After the action was removed to federal court, EPCO amended its petition (R. Doc. 30) to include FSIC, a California corporation with its principal place of business in New Hampshire as a Defendant, and remove FSMI and FSMC as Defendants based on the representations of opposing counsel. Counsel for EPCO argued that it needs to conduct jurisdictional discovery to make sure that FSIC is the only proper Fairmont entity and that no Texas Fairmont entity is a proper defendant. The Court inquired as to what other entities EPCO felt should be sued. Counsel for EPCO stated 3 that it believes that it might be possible to sue some of the Texas Fairmont defendants, specifically FSMI and FSMC. Counsel for EPCO stated that it needed to conduct discovery to determine if any Texas Fairmont entities are still active and to clarify the mergers of Fairmont and Ranger entities. Counsel for FSIC submitted documents on the record to clarify the progression from the Ranger entities to FSIC and explain why FSIC is the proper party to be sued. First, counsel for FSIC provided the insurance policies issued to EPCO by Ranger Lloyds and Ranger Insurance Company covering 1993 to 1998. (Attached as Exhibit B.) Ranger Lloyds changed its name to Fairmont Specialty Lloyds on April 21, 2005. (Annual Report of Texas Department of Insurance, attached as Exhibit C, p. 61.) Ranger Insurance Company changed its name to Fairmont Specialty Insurance Company on February 3, 2005. (Annual Report of Texas Department of Insurance, attached as Exhibit C, p. 63.) On December 31, 2007, Fairmont Specialty Lloyds filed its Articles of Dissolution and distributed all of its property, assets, liabilities, and obligations to FSIC. (Articles of Dissolution of Fairmont Specialty Lloyds, attached as Exhibit D, pp. 2-3.) Counsel for FSIC also provided the Articles of Dissolution for Fairmont Specialty Managers Corp., one of the parties named in EPCO’s original Complaint. (Attached as Exhibit E, p. 3.) The Articles of Dissolution distributed all of Fairmont Specialty Managers Corp.’s assets and property to FSIC, which was then a Delaware corporation. (Attached as Exhibit E, p. 7.) FSIC then redomesticated and incorporated in California on March 24, 2009. (See Attached Exhibit G.) Counsel for FSIC claimed that the only two companies that could be sued by EPCO because they were in privity of contract with EPCO were Ranger Lloyds and Ranger Insurance Company. Counsel for FSIC further claimed that the documents provided showed that both of these companies had eventually been subsumed by FSIC before this litigation was filed and that FSIC was formerly 4 a Delaware corporation and is now a California corporation. Counsel for FSIC therefore stated that there was no reason to grant jurisdictional discovery in this matter, because the only parties that could be sued by EPCO are now part of FSIC, a California corporation with its principal place of business in New Hampshire. Counsel for FSIC further argued that the other Fairmont party named in the original Complaint, Fairmont Specialty Mangers, Inc. (“FSMI”), is not affiliated with FSIC at all and is therefore not a proper defendant in this case. Counsel for EPCO stated that the documents only established the legal transition of the Ranger entities and did not address their principal place of business, which she contended was still in Texas. Counsel for EPCO further argued that there is precedent under Texas law that a dissolved entity may be sued. “[C]ourts may permit expedited discovery before the Rule 26(f) conference upon a showing of good cause. Good cause exists ‘where the need for expedited discovery, in consideration of the administration of justice, outweighs the prejudice to the responding party.’” In re Countrywide Fin. Corp., 542 F. Supp. 2d 1160, 1179 (C.D. Cal. 2008) (quoting Semitool, Inc. v. Tokyo Electron Am., Inc., 208 F.R.D. 273, 276 (N.D. Cal. 2002)) (internal citations omitted). As a preliminary matter, the Court finds that the documents provided by counsel for FSIC clarifies the dissolution of the Ranger entities and how those entities were subsumed under FSIC. EPCO contends that although it voluntarily removed FSMI and FSMC, Texas entities, from the matter in its amended Complaint, EPCO now needs to conduct discovery before the Rule 26(f) conference to make sure that those entities are not still active in Texas and cannot be sued under Texas law. However, EPCO fails to provide good cause regarding why it needs to conduct expedited discovery. Furthermore, to the extent that EPCO later discovers that a Texas defendant exists, it is not prohibited from filing an amended complaint adding the defendant. The Court further notes that the prejudice 5 to EPCO is minimized by the fact that if at any time in the proceeding the Court discovers that it lacks subject matter jurisdiction, it must dismiss the case. See Fed.R.Civ.P. 12(h)(3). The Court finds that based on the information provided, the prejudice to the Defendants in responding the expedited discovery outweighs the benefit of conducting discovery before the Rule 26(f) conference in this matter. Therefore, EPCO’s request or leave to conduct expedited discovery is denied. IV. Conclusion Accordingly, IT IS ORDERED that Energy Production Corporation’s Motion for Leave to Conduct Jurisdictional Discovery (R. Doc. 36) is hereby DENIED. New Orleans, Louisiana, this 5th day of August 2010 KAREN WELLS ROBY UNITED STATES MAGISTRATE JUDGE 6

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