Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_05-cv-03178/USCOURTS-cand-5_05-cv-03178-16/pdf.json

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

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United States District Court

For the Northern District of California

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1 Plaintiffs, in a passing reference in one of their counsel’s declarations, also

request that this court “revoke” the confidentiality order issued in connection with its

December 7, 2006 order clarifying its prior discovery rulings. Plaintiffs’ request is denied.

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

EDUARDO CECENA and MARIA CECENA,

Plaintiffs,

 v.

ALLSTATE INSURANCE COMPANY and

DOES 1-100,

Defendants. /

No. C05-03178 JF (HRL)

ORDER DENYING PLAINTIFFS’ FIRST,

SECOND AND THIRD MOTIONS FOR

SANCTIONS

[Docket Nos. 96, 108, 114]

I. BACKGROUND

On November 9, 2006, this court issued several discovery orders requiring defendant

Allstate Insurance Company (“Allstate”) to produce certain documents to plaintiffs. Plaintiffs

subsequently filed, on an expedited basis, three motions for sanctions, alleging that Allstate

failed to comply with those discovery orders in several respects. They request that the court

impose issue-preclusion, evidentiary or terminating sanctions under Fed. R. Civ. P. 37.1

Allstate opposed the motions. The parties were given leave to, and did, file supplemental briefs

on certain issues which were raised at the December 21, 2006 motions hearing. Upon

consideration of the papers filed by the parties, as well as the arguments of counsel, this court

issues the following order.

*E-FILED ON 12/29/06*

Case 5:05-cv-03178-JF Document 134 Filed 12/29/06 Page 1 of 9
United States District Court

For the Northern District of California

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II. LEGAL STANDARD

Where a party fails to obey an order to provide or permit discovery, Fed. R. Civ. P. 37

authorizes sanctions in the form of orders (1) deeming certain matters established for the

purpose of the action in accordance with the claim of the party obtaining the order; (2) refusing

to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting

that party from introducing designated matters in evidence; (3) striking out pleadings, in whole

or in part, or staying the proceedings until the order is obeyed, or dismissing the action, or

rendering a judgment by default against the disobedient party; and (4) treating the failure to

obey as contempt of court. FED.R.CIV.P. 37(b). In addition, or in lieu of such orders, “the court

shall require the party failing to obey the order or the attorney advising that party or both to pay

the reasonable expenses, including attorney’s fees, caused by the failure, unless the court finds

that the failure was substantially justified or that other circumstances make an award of

expenses unjust.” Id. However, terminating sanctions are “authorized only in ‘extreme

circumstances’ and only where the violation is ‘due to willfulness, bad faith, or fault of the

party.’” In re Exxon Valdez, 102 F.3d 429, 432 (9th Cir. 1996) (quoting United States v.

Kahaluu Const., 857 F.2d 600, 603 (9th Cir. 1988)).

III. DISCUSSION

A. Plaintiffs’ First Motion for Sanctions

In view of this court’s December 7, 2006 order clarifying its prior discovery rulings,

plaintiffs have withdrawn the portion of their motion concerning the Claims Core Process

Review (“CCPR”) “casualty” documents. The only other issue raised in plaintiffs’ first motion

concerns Allstate’s delayed production of “financial incentive” documents dating from the

period that plaintiffs’ claim was handled, i.e., December 2003 through May 2005.

In their underlying discovery motion, plaintiffs sought an order compelling Allstate to

produce (a) “[a]ll writings about the incentive compensation plans for Allstate personnel

involved in homeowner’s claims handling, including and not limited to managers, supervisors,

regional managers, district managers, and field and office adjusters”; and (b) “writings about

employment financial incentives” for Catherine Smith, Steve Bryan, Hubert Chappell, Kim

Case 5:05-cv-03178-JF Document 134 Filed 12/29/06 Page 2 of 9
United States District Court

For the Northern District of California

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Beardon, Bob Purdy, and all “claims managers responsible for Northern California

homeowners.” (See November 9, 2006 Order, Docket No. 78 at 4:7-13). In its ruling, this court

found that plaintiffs had not shown a “compelling need” for the financial information of the

identified individuals. However, it concluded “that plaintiffs are entitled to explore, generally,

whether Allstate offers financial incentives to its managerial employees” and directed Allstate

to produce “all documents indicating whether Allstate offers financial incentives to its Northern

California managers and supervisors (i.e., those ranks of employees above claims adjusters).” 

(See id. at 5:9-10, 12-14). Plaintiffs’ sanctions motion references certain booklets which they

contend were not produced. However, the motion indicates that plaintiffs’ only concern is over

the production of the “financial incentive” documents in effect during the period that their claim

was handled. They argue that issue-preclusion, evidentiary, or terminating sanctions are

warranted because Allstate did not produce the desired documents until after the instant motion

was filed.

For its part, Allstate says that it timely produced documents indicating that it offers

(present tense) financial incentives to its employees by the November 20, 2006 court-ordered

deadline. Because the court order in question is phrased in the present tense, Allstate disagrees

that it was obliged to produce documents from the 2003-2005 period when plaintiffs’ claim was

handled. Nevertheless, on December 7 and 12, 2006, it voluntarily supplemented its production

with (1) documents indicating that it had an incentive program from the years 2003 through

2005 and (2) two booklets describing the annual incentive program which were referenced in

the 2006 documents previously produced. It maintains, however, that no sanctions are

warranted because the later-produced documents were not specifically called for by this court’s

November 9, 2006 order.

It is curious that Allstate takes the position that the “financial incentive” documents for

the period during which plaintiffs’ claim was handled were not called for, when it has taken the

opposite position on virtually every other document request made by plaintiffs. Although it

seems that Allstate’s production was not timely completed, this court cannot fault Allstate to the

extent that it apparently complied with the letter of the discovery order in question. In any

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United States District Court

For the Northern District of California

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event, it seems that all of the documents plaintiffs seek were produced by December 12, 2006,

and the District Court apparently has granted plaintiffs’ request for a continuance of summary

judgment proceedings to allow time for additional briefing on the issues raised therein. This

court does not find that sanctions are supported by the record presented.

B. Plaintiffs’ Second Motion for Sanctions

In one of their underlying discovery motions, plaintiffs sought an order compelling

Allstate to produce “[a]ll documents in effect from 12/14/03 and 3/1/06 regarding Allstate’s

objective to ‘win every claim.’” (See November 9, 2006 Order, Docket No. 77 at 3:20-22). 

This court agreed that the request was overbroad, vague and ambiguous. Nevertheless, insofar

as Allstate’s counsel indicated that there was no goal, policy or objective at Allstate named

“win every claim,” the court ordered Allstate to “submit affidavit(s) from appropriate corporate

officer(s) with requisite authority and knowledge so attesting.” (See id. at 4:7-8). In response

to that order, Allstate served the declaration of Gary Mellini, who (1) is identified as an Allstate

employee and the “Vice President of PCCSO” and (2) attests that “[t]here is no goal, objective

or policy at Allstate which is named ‘win every claim,’ either at the national level or in the

Northern California region.” (See Shepardson Decl., Docket No. 109, Ex. 2 at ¶ 5).

Plaintiffs now contend that this declaration is a “sham” because they have found a “win

every claim” reference in Allstate’s CCPR property documents (see Shepardson Decl., Docket

No. 109, Ex. 3). The phrase appears on a single page in a bullet-point discussion apparently

addressing Allstate’s “New approach.” Plaintiffs contend that issue-preclusion, evidentiary, or

terminating sanctions are warranted because Allstate allegedly misled them and the court as to

the existence of such a policy or objective and has withheld documents about it. At oral

argument, Allstate indicated that the single page cited by plaintiffs is but one of thousands

which Allstate has produced. Allstate insists that it acted appropriately in determining that

there is no goal, policy, or objective to “win every claim.” Further, it argues that no sanctions

are warranted because it provided a declaration as required by the court.

In essence, the instant sanctions motion highlights the parties’ apparent disagreement as

to the interpretation of the reference to “win every claim” in the page produced by Allstate and

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For the Northern District of California

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2 The language, in any event, did not suggest to this court that “win[ning]” was

to be accomplished at the expense of policyholders.

3 This court understands that the CPPP Manual is the same manual referred to

by the parties elsewhere as “Claims Manual: Policy, Practices, Procedures.”

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the significance, if any, to be attributed to it. Plaintiffs argue that it signifies a sinister “sea

change” in Allstate’s claim handling procedures and attitudes. Allstate disputes that contention

and argues that the single reference hardly constitutes a national or regional policy, program or

objective. Suffice to say, each side will have an opportunity at the appropriate time to present

its arguments as to evidence in the case. This court supposes that plaintiffs might be free to

pursue their theory as to the existence of a policy to “win every claim” if discovery were still

open or if discovery were to be re-opened by the District Court (a proposition which this court,

as it understands the claims in this case, is not recommending under the circumstances

presented here). Nevertheless, the court cannot conclude that Mr. Mellini’s declaration is a

“sham,” as plaintiffs insist. Nor does it find that the bullet point reference to “win every claim”

is an ominous indicator that Allstate has willfully concealed pertinent information in bad faith.2

Plaintiffs’ motion for sanctions is denied.

C. Plaintiffs’ Third Motion for Sanctions

Confusingly, the moving papers for plaintiffs’ third sanctions motion replicates the

issues and discussion from their second sanctions motion. Nevertheless, plaintiffs’ counsel’s

supporting declaration indicates that the third motion concerns (1) certain redactions Allstate

made to portions of its “Claim Policy Practices Procedures Manual” (“CPPP Manual”);3 and (2)

additional documents (namely, an “E&O Manual” and a “Claim Bulletin”) which they say

Allstate should have, but did not, produce pursuant to two of this court’s November 9, 2006

discovery orders (see Docket Nos. 78 and 81).

The gist of plaintiffs’ third motion is as follows: During the course of discovery,

Allstate agreed to produce relevant portions of its CPPP Manual. In May 2006, Allstate

produced a redacted version of that manual. On December 11, 2006, plaintiffs’ counsel

obtained an unredacted version of Allstate’s CPPP Manual from a third-party document

repository. There is some question about whether the manual Allstate produced is identical to

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the manual that plaintiffs obtained. In any event, according to plaintiffs, the unredacted version

of the manual reveals that Allstate (1) withheld two pages from its manual concerning “Policy

Reformation Category 1 E&O Claims,” which show that there exists an “E&O Manual” and a

“Claim Bulletin” that should have been produced (see Shepardson Decl., Docket No. 115, Ex.

11); and (2) redacted a relevant portion of its claims manual (namely, Chapter 4, Section 4.0)

(see id, Ex. 10). With respect to the “E&O Manual” and “Claim Bulletin” documents, plaintiffs

argue that they are relevant to the handling of their property claim because Allstate generated an

“Errors and Omissions – E&O” form in their claim file to include roughly $16,000 in building

code coverage (see id., Ex. 2). As for the redacted Section 4.0, plaintiffs claim that it never

should have been redacted because it is generally applicable to the disclosure of first-party

coverages. They further argue that the documents fall within the ambit of this court’s

November 9, 2006 discovery orders which directed Allstate to produce, for the period

December 2003 through May 2005:

• “[A]ll policies, manuals, rules, guidelines or memoranda other than

its “Claims Core Process Review” documents and its “Claims Manual:

Policy, Practices, Procedures” which refer to, relate to, amend, clarify,

amplify or interpret any Allstate policy, practice, goals, or objectives as

to its loss management procedures pertaining to homeowners’ insurance

claims”;

• “[A]ny Northern California policies, manuals, rules, guidelines or

memoranda other than its “Claims Core Process Review”

documents and its “Claims Manual: Policy, Practices, Procedures”

which refer to, relate to, amend, clarify, amplify or interpret any

Allstate policy, practice, goals, or objectives as to its claim adjustment

procedures for homeowners claims (including procedures for handling

contents claims, adjusting fire claims and determining home replacement

cost)”; and

• “[D]ocumentation other than Allstate’s “Claims Manual: Policy,

Practices, Procedures” – namely, national and regional (i.e., Northern

California) policies, manuals, rules, guidelines or memoranda which

refer to, relate to, amend, clarify, amplify or interpret Allstate’s

procedures that explain what should or should not be told to insureds

about their benefits after an alleged loss has occurred.”

(November 9, 2006 Order, Docket No. 78 at 3:14-18 and 3:24-4:1; Docket No. 81 at 4:8-12).

Allstate argues that the issues raised in the instant motion were never the subject of a

prior court order and cannot now be the subject of a motion for sanctions. Indeed, it is true that

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4 In their supplemental reply, plaintiffs reference a “Policy Reformation

manual.” Because plaintiffs have not explained what this manual is, this court assumes that

they mean the “E&O Manual” referenced in their earlier-filed motion papers.

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sanctions generally are not available without a prior court order compelling the discovery under

Fed. R. Civ. P. 37. See FED.R.CIV.P. 37(b)(2); see also Unigard Security Ins. Co. v. Lakewood

Eng'g & Mfg. Corp., 982 F.2d 363, 367-68 (9th Cir. 1992). Although plaintiffs insist that they

only learned about the “E&O Manual” and “Claim Bulletin” through the unredacted version of

the manual they obtained on December 11, 2006, it appears that the manual produced by

Allstate in May did reference at least an “Errors & Omissions” claim manual (see Shepardson

Decl., Docket No. 115, Ex. 4 at p. AS01330). However, no issue as to the redactions or the

allegedly missing documents were raised in plaintiffs’ prior discovery motions.

Even if the issues now raised by the instant motion could be construed as falling within

the scope of this court’s prior discovery orders, this court does not find that sanctions are

warranted. With respect to the two previously redacted (now revealed) “E&O” pages in

question, the pages submitted by plaintiffs appear to comprise (1) a blank form titled “Policy

Reformation Category 1 E&O Claims”; and (2) instructions about when and how that form is to

be completed. (See Shepardson Decl, Docket No. 115, Ex. 11). Allstate asserts that these

pages were withheld from its production because they concern “Policy Reformation,” and it

says that there is no claim for policy reformation in this case. Plaintiffs contend that policy

reformation is an issue and that the two “E&O” pages (and the documents cited therein)4 are

relevant because Allstate retroactively added building code coverage to their policy due to an

apparent oversight by the insurance agent. (See id., Ex. 2).

However, this case does not appear to present a situation where plaintiffs claim

entitlement to coverage which was refused. Allstate apparently agreed (once the claim arose) to

add the coverage in question (by “reforming” the policy). Indeed, the “Errors and Omissions –

E&O” document which plaintiffs submitted from their claim file shows that Allstate, after the

fact, provided building code coverage, which worked out to be approximately $16,000 – that is,

“10% of structure limits of $164,670.” (See Shepardson Decl., Docket No. 115, Ex. 2). 

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Plaintiffs seem to contend that $16,000 was insufficient to actually pay for the code upgrades,

but that does not seem to be a “reformation” claim.

With respect to the previously redacted (now unveiled) Section 4.0, it is not entirely

clear whether, in context, the section applies to first-party coverages generally (as plaintiffs

insist) or whether it applies only to auto and casualty claims (as Allstate contends). However,

this court concludes that, either way, the sanctions requested by plaintiffs are not warranted. 

Here, plaintiffs have obtained an unredacted claim manual, and as noted above, they have been

given additional time to address issues raised on summary judgment. Moreover, it is not

apparent that Allstate has redacted a “smoking gun.” The Section 4.0 in question is a brief

paragraph which appears to confirm Allstate’s obligations to advise insureds of available

coverages and benefits. (See Shepardson Decl., Docket No. 115, Ex. 10). As confirmed by the

parties at oral argument, Allstate has all along acknowledged the existence of a duty to inform

plaintiffs of the benefits available under their homeowners policy. In this litigation, they

apparently disagree only about whether Allstate fulfilled that obligation. That being the case,

this court does not find that plaintiffs have been seriously prejudiced by the now unveiled

redaction in question, which only seems to confirm the existence of a duty as to which there is

no dispute.

IV. ORDER

Based on the foregoing, this court does not find that sanctions are warranted. 

Accordingly, plaintiffs’ three motions for sanctions are DENIED.

Dated:

 

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

December 29, 2006

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United States District Court

For the Northern District of California

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5:05-cv-3178 Notice will be electronically mailed to: 

Michael A. Barnes mbarnes@sonnenschein.com, msaplala@sonnenschein.com 

Sonia Renee Martin smartin@sonnenschein.com, clakes@sonnenschein.com;

msaplala@sonnenschein.com 

John A. Shepardson johnshepardson@hotmail.com 

Jessica Lou Woelfel jwoelfel@sonnenschein.com, ddonner@sonnenschein.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.

Case 5:05-cv-03178-JF Document 134 Filed 12/29/06 Page 9 of 9