Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-00198/USCOURTS-cand-5_05-cv-00198-28/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Breach of Contract

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United States District Court

For the Northern District of California

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NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

SANTANA ROW HOTEL PARTNERS, L.P.,

Plaintiff,

 v.

ZURICH AMERICAN INSURANCE

COMPANY, GALLAGHER-PIPINO, INC. and

ARTHUR J. GALLAGHER & CO.,

Defendants. /

No. C05-00198 JW (HRL)

ORDER GRANTING GALLAGHER

DEFENDANTS’ MOTION TO

WITHDRAW ADMISSIONS

[Re: Docket No. 202]

Pursuant to Fed. R. Civ. P. 36(b), defendants Gallagher-Pipino, Inc. (“GP”) and Arthur

J. Gallagher & Co. (“AJG”) (collectively, “Gallagher Defendants”) move for an order

permitting them to withdraw admissions. Plaintiff Santana Row Hotel Partners (“SRHP”)

opposes the motion. The motion subsequently was referred as a discovery matter to the

undersigned for disposition; and, it was heard by this court on March 27, 2007. After the

motion hearing, and at this court’s direction, the Gallagher Defendants submitted their amended

responses to the requests for admission for the court’s review. Having considered the papers

*E-FILED: 4/17/2007*

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United States District Court

For the Northern District of California

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1 The Gallagher Defendants have filed evidentiary objections to several exhibits

submitted by SRHP, as well as to a reference in SRHP’s opposition papers to the Declaration

of Doyle Graham. In essence, the objections concern the admissibility of the exhibits and

referenced declaration as proof on ultimate issues of liability. Since this court is not ruling

upon the merits of the parties’ claims and defenses, it has considered the challenged papers

only as background information.

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filed by the parties,1

 as well as the arguments of counsel, this court grants the motion. 

However, as discussed more fully below, the court will award monetary sanctions to SRHP.

I. BACKGROUND

This is an insurance action for alleged breach of contract and fraud. SRHP is the owner

and operator of the Hotel Valencia located at Santana Row. Santana Row was developed by

Federal Realty Investment Trust (“FRIT”). Defendant Zurich is an insurance carrier that issued

a builder’s risk insurance policy (“Policy”) to FRIT related to the construction of the Santana

Row development. Defendants GP and AJG are insurance brokers. AJG is GP’s parent

company.

SRHP claims that it is an insured under the Policy issued by Zurich and that the Policy

covers losses it sustained in a fire at Santana Row on August 19, 2002. SRHP’s claimed

damages include alleged losses stemming from delays in completion of the Hotel’s

construction. It further alleges that the Gallagher Defendants represented to SRHP in person,

through certificates of insurance and a letter (written by the Gallagher Defendants’ current

counsel) that SRHP was an insured under an insurance policy, including coverage for delays in

completion of the Hotel’s construction. Zurich denies that it agreed to insure plaintiff under the

policy or that it authorized others to bind coverage on plaintiff’s behalf. The Gallagher

Defendants apparently take the position that they were not obliged to secure coverage for SRHP

and that SRHP (a) was not an intended beneficiary of the Zurich policy and (b) never received

any representations that it was covered by that policy.

The instant motion concerns two sets of requests for admission (RFAs) served by SRHP

on the Gallagher Defendants: (1) SRHP’s first set of RFAs to GP served on July 13, 2005 and

(2) SRHP’s first set of RFAs to AJG served one year later, on July 14, 2006. Under Fed. R.

Civ. P. 36, defendants’ respective responses to the RFAs were due within thirty days of service. 

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See FED.R.CIV.P. 36(a). However, SRHP agreed that defendants could have an extension of

time to respond. With respect to the RFAs served on GP, it was agreed that defendant would

serve its responses before September 19, 2005, when the depositions of certain Gallagher

witnesses were to start. As for the RFAs served on AJG, SRHP agreed that AJG could have

until September 5, 2006 to serve its responses.

However, no responses were served by the agreed-upon deadlines. Under Fed. R. Civ.

P. 36(a), the Gallagher Defendants’ failure to timely respond to the RFAs resulted in automatic

admission of the matters requested. In fact, the Gallagher Defendants’ responses were not

served until January 26, 2007 – that is, nearly a year and a half after GP’s responses were to

have been served, over four months after AJG’s responses were due, and over one month after

they filed a motion for summary judgment (which currently is pending before the District

Court). On that same day, the Gallagher Defendants also filed the instant motion pursuant to

Fed. R. Civ. P. 36(b), seeking an order permitting them to withdraw the deemed admissions.

II. LEGAL STANDARD

When a party fails to timely respond to requests for admission, the matters requested are

automatically deemed admitted. See FED.R.CIV.P. 36(a) (“The matter is admitted unless, within

30 days after service of the request, or within such shorter or longer time as the court may allow

or as the parties may agree to in writing . . . the party to whom the request is directed serves

upon the party requesting the admission a written answer or objection addressed to the matter,

signed by the party or by the party’s attorney.”). “Any matter admitted under this rule is

conclusively established unless the court on motion permits withdrawal or amendment of the

admission.” FED.R.CIV.P. 36(b).

Withdrawal or amendment of the admissions may be permitted where (1) the

presentation of the merits of the action will be furthered by the withdrawal; and (2) withdrawal

will not prejudice the party who obtained the admission in maintaining the action or defense on

the merits. FED.R.CIV.P. 36(b). “[A] district court must specifically consider both factors

under the rule before deciding a motion to withdraw or amend admissions.” Conlon v. United

States, 474 F.3d 616, 622 (9th Cir. 2007). Nevertheless, “Rule 36(b) is permissive, not

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mandatory, with respect to the withdrawal of admissions.” Id. at 621. Thus, a district court is

not required to grant relief even when the two-pronged test is satisfied. Id. at 624.

III. DISCUSSION

A. Presentation of the Merits

“‘The first half of the test in Rule 36(b) is satisfied when upholding the admissions

would practically eliminate any presentation of the merits of the case.’” Conlon, 474 F.3d at

622 (quoting Hadley v. United States, 45 F.3d 1345, 1348 (9th Cir. 1995)). Here, withdrawal of

the deemed admissions as to several RFAs will not impact the presentation of the merits one

way or another. Indeed, in its belated RFA responses, GP has answered the following RFAs

with unqualified admissions: RFA Nos. 1-3, 6, 9, 12 and 14. (See Selvin Decl., Ex. C; see also

GP Amended Responses to Requests for Admission). GP has also essentially admitted the

matters in RFA Nos. 7 and 10 (i.e., admitting that it issued specified documents). Additionally,

although AJG initially asserted a number of objections to RFA No.1, it admits that the

referenced document is genuine. (See id., Ex. D; see also AJG Amended Responses to

Requests for Admission).

Nonetheless, many of the admissions pertain to core issues in this litigation and bear

upon the Gallagher Defendants’ alleged liability – e.g., the existence of SRHP’s insurance

coverage, the Gallagher Defendants’ acknowledgment of coverage for completion delays,

Gallagher’s communications to Zurich about the claimed coverage, and Zurich’s approval of the

claimed coverage. (See, e.g., RFA Nos. 11, 13 and 15 to GP and RFA Nos. 2-10, 13-14 to

AJG). Accordingly, the first prong of the test under Fed. R. Civ. P. 36(b) is satisfied.

B. Prejudice to SRHP

SRHP has the burden of establishing that it will be prejudiced if the admissions are

withdrawn. See Conlon, 474 F.3d at 622 (“The party relying on the deemed admission has the

burden of proving prejudice.”). “The prejudice contemplated by Rule 36(b) is ‘not simply that

the party who obtained the admission will now have to convince the factfinder of its truth.’” 

Hadley, 45 F.3d at 1348 (quoting Brook Village North Associates v. Gen. Elec. Co., 686 F.2d

66, 70 (1st Cir. 1982)). “‘Rather, it relates to the difficulty a party may face in proving its case,

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e.g., caused by the unavailability of key witnesses, because of the sudden need to obtain

evidence’ with respect to the questions previously deemed admitted.” Id. “Courts are more

likely to find prejudice when the motion for withdrawal is made in the middle of trial.” Hadley,

45 F.3d at 1348.

In the instant case, all discovery closed on February 23, 2007. SRHP says that the

Gallagher Defendants’ counsel previously indicated that the Gallagher Defendants were

essentially in agreement with SRHP on the ultimate issue of liability. (See Ellenberg Decl., ¶

3). SRHP contends that in reliance upon this representation (and the deemed admissions), its

counsel refrained from questioning the Gallagher witnesses during deposition in a way that

would “disrupt[] the admissions.” (See id., ¶ 4).

SRHP may have believed that the Gallagher Defendants’ views on liability were

consistent with its own, but its disappointed expectations do not amount to prejudice. 

Moreover, the Ninth Circuit has declined to conclude that “a lack of discovery, without more,

constitutes prejudice.” Conlon, 474 F.3d at 624. Here, SRHP has not identified what testimony

or documents it needs (but failed to obtain) in reliance on the Gallagher Defendants’

admissions. The record presented indicates that SRHP proceeded with all of the depositions it

believed were necessary. SRHP suggests that it was somehow deprived of a meaningful

opportunity to depose witnesses because it relied on the Gallagher Defendants’ deemed

admissions. However, at the motion hearing, SRHP’s counsel explained that some witnesses

did not have good recollection, and he merely refrained from questioning them in a way that

would refresh their recollection. Additionally, SRHP’s counsel indicated that he did vigorously

examine one particular witness whose testimony appeared to be contrary to the documentary

evidence. Further, at oral argument, SRHP’s counsel acknowledged that even while SRHP

deemed the RFAs admitted, it proceeded with discovery knowing that it was possible that the

court might allow those admissions to be withdrawn. While SRHP has cited to the Gallagher

Defendants’ deemed admissions in its opposition to defendants’ summary judgment motions,

SRHP acknowledges that the admissions are not critical to its opposition.

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SRHP further asserts that RFA Nos. 1-7 to AJG were designed to avoid calling the

Gallagher Defendants’ counsel, Gary Selvin, as a witness at trial (and, relatedly, to avoid the

possibility that the Gallagher Defendants would have to retain new trial counsel and further

delay this litigation). That may be, but it does not establish that SRHP has been prejudiced in

any way in terms of obtaining evidence necessary to present its case.

Moreover, no trial date has been set in this matter, and the parties’ papers indicate that

no such date is likely to be set until the Fall. SRHP argues that it has been prejudiced by the

Gallagher Defendants’ long delay in seeking relief from the deemed admissions. Here, it points

out that in Conlon, the Ninth Circuit upheld a finding of prejudice – even though the motion to

withdraw was filed before trial – where the moving party delayed for several months in seeking

relief from the deemed admissions. However, in Conlon, the Ninth Circuit observed that at the

time the district court issued its order denying the motion for withdrawal, only eight days

remained until trial. Even then, the Ninth Circuit stated that it was “a close question” as to

whether the government would have been prejudiced. See Conlon, 474 F.3d at 624. Here, by

contrast, the parties do not expect a trial date to be set for at least another six or seven months.

Accordingly, this court concludes that the second prong of the Fed. R. Civ. P. 36(b) test

is also satisfied.

SRHP nonetheless urges this court to exercise its discretion to deny the Gallagher

Defendants’ motion for withdrawal in view of the undue delay in the service of their RFA

responses. Indeed, this court is not bound to grant the requested relief even where both prongs

of the Fed. R. Civ. P. 36(b) test are satisfied. As the Ninth Circuit recently stated:

[I]n deciding whether to exercise its discretion when the moving party has

met the two-pronged test of Rule 36(b), the district court may consider

other factors, including whether the moving party can show good cause for

the delay and whether the moving party appears to have a strong case on the

merits.

Conlon, 474 F.3d at 625. In this case, defense counsel acknowledges that he was negligent in

failing to timely respond to the RFAs at issue. He suggests that the failure to timely serve his

clients’ responses was due to his scheduled vacations and trial in another matter. However, the

record indicates that defense counsel obtained an extension of time from SRHP to accommodate

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28 2 Fed. R. Civ. P. 36 does not require responses to be verified. However, the

parties evidently have agreed to do so.

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his vacation and trial schedules, and then simply forgot to attend to the responses when he

returned. (See Selvin Decl., ¶¶ 7 and 10). Moreover, although defense counsel suggests that

AJG’s responses were ready to be served sometime in September 2006 (see Selvin Decl., ¶ 10),

the responses which were actually served (a) are dated January 26, 2007, (b) are signed by a

different attorney and (c) indicate that a verification2

 was “to follow.” (See Selvin Decl., Ex. D;

see also Selvin Decl., Ex. C).

Although defense counsel suggests that his negligence was “excusable,” the record

presented shows that he was careless and that his negligence was unjustified. It is not for this

court to say whether the Gallagher Defendants have a strong case on the merits. And, under

different circumstances, this court might well exercise its discretion to deny the motion to

withdraw the deemed admissions. It is a close call. However, since the court finds that there

has been no prejudice to SRHP, and since it appears that trial in this matter likely will not be set

for several months, this court will grant the motion to withdraw.

Nevertheless, the Gallagher Defendants’ counsel shall pay monetary sanctions for the

unnecessary expenses caused by the failure to timely serve the RFA responses. See Hadley, 45

F.3d at 1350 (the court may impose less severe sanctions, including the payment of a substantial

monetary fine or the opposing party’s increased costs and expenses).

C. The Gallagher Defendants’ RFA Responses

As noted above, the Gallagher Defendants have served amended responses to the RFAs

at issue. Those amended responses appear to eliminate many of the objections that were

asserted in the Gallagher Defendants’ January 26, 2007 responses. However, SRHP maintains

that the responses to several RFAs are still deficient under Fed. R Civ. P. 36.

1. RFAs to GP

RFA No. 8 to GP seeks an admission that “[t]he representations contained in the

document entitled ‘Evidence of Property Insurance’ that is attached hereto as Exhibit ‘A’ are

truthful.” (See Selvin Decl., Ex. C at p. 4). Similarly, RFA No. 11 seeks an admission that

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“[t]he representations contained in the document entitled ‘Evidence of Property Insurance’ that

is attached hereto as Exhibit ‘B’ are truthful.” (See id. at p. 5). GP objected to both RFAs on

the grounds that they are vague, ambiguous and compound. (See id; see also GP Amended

Responses to Requests for Admission). Notwithstanding its objections, GP responded to both

RFAs as follows: “The Policy itself is the best evidence.” At oral argument, GP asserted that

the RFAs mischaracterize the information in the referenced “Evidence of Property Insurance”

(“EPI”) documents as “representations,” and do not, in any event, specify whose representations

are the subject of inquiry. GP further contends that the Policy itself provides that the EPI

documents are evidence only of coverage as to FRIT. SRHP appears to claim that whatever the

Policy might say, the Gallagher Defendants represented to SRHP that it was covered as

evidenced, in part, by the EPI documents.

The RFAs could have been more focused. However, the court does not find them to be

so vague or ambiguous that GP cannot fairly be made to respond. Fed. R. Civ. P. 36 requires a

responding party to either admit, deny, or explain in detail why it cannot truthfully admit or

deny the matter. FED.R.CIV.P. 36(a). Moreover, “when good faith requires that a party qualify

an answer or deny only a part of the matter of which an admission is requested, the party shall

specify so much of it as is true and qualify or deny the remainder.” Id. Here, GP did not admit,

deny or clearly explain why it could not do either. GP shall serve a response to these RFAs that

complies with Fed. R. Civ. P. 36.

2. RFAs to AJG

With respect to RFA Nos. 11 and 12, SRHP seeks admissions that two “Evidence of

Property Insurance” documents (which were attached to the requests) are genuine. AJG

responded that it could not answer because the referenced documents were issued by GP. (See

Selvin Decl., Ex. D; see also AJG Amended Responses to Requests for Admission). 

Nevertheless, Fed. R. Civ. P. 36 provides that “[a]n answering party may not give lack of

information or knowledge as a reason for failure to admit or deny unless the party states that the

party has made reasonable inquiry and that the information known or readily obtainable by the

party is insufficient to enable the party to admit or deny.” FED.R.CIV.P. 36(a); see also Asea,

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Inc. v. Southern Pacific Transp. Co., 669 F.2d 1242, 1247 (9th Cir. 1982). AJG made no such

statement in its response and it is not apparent that AJG has, in fact, made a reasonable inquiry

or whether information that is readily obtainable by AJG may be sufficient to enable it to

answer the matter. Accordingly, AJG shall (a) conduct a reasonable inquiry; and (b) serve a

response to these RFAs that complies with Fed. R. Civ. P. 36.

IV. ORDER

Based on the foregoing, IT IS ORDERED THAT:

1. The Gallagher Defendants’ motion to withdraw admissions is GRANTED.

2. However, SRHP will be permitted to file detailed declaration(s) (a) itemizing

with particularity the otherwise unnecessary expenses (including attorney fees) incurred in

connection with the instant motion which were directly caused by the Gallagher Defendants’

belated responses; and (b) setting forth an appropriate justification for any attorney-fee hourly

rate claimed. SRHP’s declaration(s) shall be filed within ten court days after the date of this

order. The Gallagher Defendants may file a response within five court days after SRHP’s

declaration(s) are filed. Unless it orders otherwise, the court will award expenses without

further oral argument.

3. No later than ten days after the date of this order, the Gallagher Defendants shall

serve amended responses to SRHP’s RFAs in accordance with this order.

Dated:

 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

April 17, 2007

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5:05-cv-198 Notice will be electronically mailed to: 

Steven A. Ellenberg sellenberg@rubyschofield.com, mjones@rubyschofield.com 

Alan Michael Jones ajones@jonesturner.com, jgallagher@jonesturner.com 

Allen Ruby aruby@rubyschofield.com 

Glen W. Schofield gschofield@rubyschofield.com, bug@rubyschofield.com 

Gary R. Selvin gselvin@selvinwraith.com, kshahin@selvinwraith.com 

Steven Donald Turner sturner@jonesturner.com, htornay@jonesturner.com 

Counsel are responsible for distributing copies of this document to co-counsel who have

not registered for e-filing under the court’s CM/ECF program.

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