Court Opinion

ID: 7374826
Source: CourtListenerOpinion
Date Created: 2022-07-28 17:00:42.381604+00
Date Added: 2024-06-11T16:21:03.387693
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

LIBERTY INSURANCE CORPORATION;           No. 21-15444
LM GENERAL INSURANCE COMPANY,
              Plaintiffs-Appellees,        D.C. No.
                                        2:19-cv-00457-
                 v.                       APG-VCF

YVONNE BRODEUR; JERRY
BRODEUR,                                   OPINION
          Defendants-Appellants,

                and

ANGELIQUE VAN-VLIET; ELIAS
MENESES,
                     Defendants.

      Appeal from the United States District Court
               for the District of Nevada
      Andrew P. Gordon, District Judge, Presiding

         Argued and Submitted April 12, 2022
                Pasadena, California

                  Filed July 28, 2022
2                LIBERTY INS. CO. V. BRODEUR

    Before: Consuelo M. Callahan and Lawrence VanDyke,
      Circuit Judges, and David A. Ezra, * District Judge.

                  Opinion by Judge VanDyke

                          SUMMARY **

                Diversity/Insurance Coverage

    The panel reversed the district court’s order imposing
sanctions on defendant homeowners pursuant to Fed. R. Civ.
P. 37(c)(1) and remanded for a new trial in an action brought
by Liberty Insurance Corporation seeking a judicial
determination that defendants were not entitled to any
coverage under Liberty’s homeowner’s insurance policy in
an underlying lawsuit for damages arising from an accident
involving defendants’ all-terrain vehicle.

     While Liberty sought to rely on a general coverage
exclusion, it was aware that its policy also contained an
exception to the general exclusion if the homeowners,
Yvonne and Jerry Brodeur, could show that the all-terrain
vehicle (ATV) was not subject to motor vehicle registration
and was used to “service” their cabin. Defendant Jerry
Brodeur was the only witness who testified during a bench
trial. After the trial concluded, the district court (at Liberty’s
request) imposed Rule 37(c)(1) sanctions on the Brodeurs

      The Honorable David A. Ezra, United States District Judge for the
      *

District of Hawaii, sitting by designation.
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
                LIBERTY INS. CO. V. BRODEUR                    3

for failing to disclose a witness. The court also excluded
Jerry’s testimony about whether the ATV was registered and
used to service the cabin, based on the theory that he had not
been properly disclosed as a witness. The district court then
ruled that, without Jerry’s testimony, there was “insufficient
evidence to show the ATV was used to service the cabin at
any time,” and thus found that the Brodeurs were not entitled
to coverage.

    The panel held that because the Brodeurs complied with
Rule 26(a)(1)(A)(i)’s requirement to disclose “individuals
likely to have discoverable information—along with the
subjects of that information” for the purpose of identifying
potential fact witnesses, sanctions under Rule 37(c)(1) were
not justified. But even if the Brodeur’s had not complied
with Rule 26, the district court abused its discretion by
imposing Rule 37(c)(1) sanctions without analyzing
(1) whether the alleged defects in the disclosures were
harmless and (2) whether the defects involved willfulness,
fault, or bad faith, as required by R & R Sails, Inc. v. Ins. Co.
of Penn., 673 F.3d 1240 (9th Cir. 2012).

                         COUNSEL

Jerome R. Bowen (argued), Bowen Law Offices, Las Vegas,
Nevada, for Defendants-Appellants Yvonne Brodeur and
Jerry Brodeur.

Craig A. Mueller, Mueller & Associates Inc., Las Vegas,
Nevada, for Defendant-Appellant Elias Meneses.

Amy M. Samberg (argued), Dylan P. Todd, and Lee H.
Gorlin, Clyde & Co. US LLP, Las Vegas, Nevada, for
Plaintiffs-Appellees.
4               LIBERTY INS. CO. V. BRODEUR

                          OPINION

VANDYKE, Circuit Judge:

    On a trip to a family cabin in Kane County, Utah, Chase
Stewart and Elias Meneses crashed an all-terrain vehicle
(ATV) while driving on nearby property. The ATV crushed
Meneses’s arm, and as a result he sued Stewart’s parents,
Gerrard (Jerry) and Yvonne Brodeur, who own the cabin and
the ATV. The Brodeurs sought coverage for the accident
under a Liberty Insurance Corporation (Liberty)
homeowner’s insurance policy. After determining that the
accident was generally excluded from coverage, Liberty
filed this lawsuit seeking a judicial determination that the
Brodeurs were not entitled to any coverage under the Liberty
policy. Importantly, while Liberty sought to rely on a
general coverage exclusion, Liberty was aware that its policy
also contained an exception to the general exclusion such
that the accident might be covered if the Brodeurs could
show that the ATV was not subject to motor vehicle
registration and was used to “service” the Brodeurs’ cabin.

     Jerry Brodeur was the only witness who testified during
a bench trial. After the trial concluded, the district court (at
Liberty’s request) imposed Rule 37(c)(1) sanctions on the
Brodeurs. The court also excluded Jerry’s testimony about
whether the ATV was registered and used to service the
cabin, based on the theory that he had not been properly
disclosed as a witness. The court interpreted the Brodeur’s
initial disclosures as allowing Jerry to testify only about the
underlying tort lawsuit between the Meneses and the
Brodeurs, not about facts relevant to the Liberty policy at
issue in the current lawsuit. The district court then ruled that,
without Jerry’s testimony, there was “insufficient evidence
to show the ATV was used to service the cabin at any time,”
and thus found that the Brodeurs were not entitled to
                LIBERTY INS. CO. V. BRODEUR                    5

coverage. The Brodeurs appealed, asking this court to
reverse and remand for a new trial.

    We conclude that because the Brodeurs complied with
Rule 26(a)(1)(A)(i)’s requirement to disclose “individuals
likely to have discoverable information—along with the
subjects of that information” for the purpose of identifying
potential fact witnesses, sanctions under Rule 37(c)(1) were
not justified. But even if the Brodeur’s had not complied
with Rule 26, the district court abused its discretion by
imposing Rule 37(c)(1) sanctions without analyzing
(1) whether the alleged defects in the disclosures were
harmless and (2) whether the defects involved willfulness,
fault, or bad faith, as required by R & R Sails, Inc. v. Ins. Co.
of Penn., 673 F.3d 1240 (9th Cir. 2012).

                      BACKGROUND

I. Factual Background

    Jerry and Yvonne Brodeur live in Las Vegas, Nevada
and own a cabin in Kane County, Utah. Beginning on July
16, 2015, and continuing through at least July 16, 2016, the
Brodeurs insured their cabin through a homeowners policy
issued by Liberty Insurance Corporation. In May 2016, the
Brodeurs took Yvonne Brodeur’s son, Chase Stewart, to the
cabin along with Chase’s friend, Elias Meneses. The
Brodeurs own a Yamaha Rhino ATV, which they brought to
the cabin and allowed Meneses to ride in as a passenger with
Stewart driving. While Stewart drove the ATV on nearby
property not owned by the Brodeurs, the ATV flipped and
crushed Meneses’s arm.
6              LIBERTY INS. CO. V. BRODEUR

II. Procedural Background

    Meneses sued the Brodeurs for his injuries in Nevada
state court. The Brodeurs sought coverage under the Liberty
homeowner’s insurance policy on the cabin, as well as a
Liberty homeowner’s insurance policy on their primary
residence in Las Vegas and a Liberty automobile insurance
policy. Liberty then filed this action in federal court, seeking
a judicial declaration that none of the Liberty policies
provided coverage for the Brodeurs’ claim. At summary
judgment, the district court found that neither the Las Vegas
homeowner’s policy nor the automobile policy covered the
Brodeur’s ATV accident claim.

    On February 8, 2021, the district court held a bench trial
on the issue of whether the remaining Utah homeowner’s
policy covered the ATV accident. The court found that the
Utah homeowner’s policy generally excluded coverage for
an ATV accident occurring away from the property. But the
policy included an exception to the general exclusion
(hereinafter the “exception”), providing that the Brodeurs
could be entitled to coverage if the ATV was (1) a vehicle
not subject to motor vehicle registration and (2) used to
“service” the cabin. Liberty’s amended complaint identified
the exception.

     Long before the trial, the Brodeurs served Liberty with
initial disclosures and included Jerry Brodeur as an
“individual likely to have discoverable information”
pursuant to Rule 26(a)(1)(A)(i). The disclosures stated that
Brodeur was likely to have information about “the claims of
the underlying case and the damages at issue.” Liberty never
objected to the Brodeurs’ initial disclosures and the Brodeurs
never supplemented them.
                  LIBERTY INS. CO. V. BRODEUR                          7

    Years later, on the morning of the bench trial, Liberty
moved for judgment under Federal Rule of Civil Procedure
52(c), arguing that the Brodeurs’ Rule 26 disclosures were
insufficient to put Liberty on notice of Jerry Brodeur’s
anticipated testimony and that the testimony concerning the
ATV was therefore barred by both the rule and Liberty’s
motion in limine. The district court allowed Jerry to testify
but informed the parties it would rule on the issue after trial.
Jerry testified about the ATV, its use to maintain the Utah
property (to remove wood, as a snowplow, to move dirt, and
to pick up food in town), and whether the vehicle was
registered or required to be registered. Jerry Brodeur was
the only witness who testified.

    After trial, the district court—purporting to apply
Federal Rule of Civil Procedure 26(a)(1)(A)(i)—excluded
much of Jerry’s testimony relevant to the Liberty policy by
sanctioning the Brodeurs under Federal Rule of Civil
Procedure 37(c)(1). The court used the sanction to limit the
testimony to “the facts and claims of the underlying state
court lawsuit,” and exclude testimony about the exception. 1
Excluding that testimony led the district court to rule that the
Brodeurs failed to present sufficient “evidence to show [that]
the ATV was used to service the cabin at any time,” and that
“[b]ecause the Brodeurs have not satisfied their burden of
proof as to the second part of the exception (that the ATV
was used to service the cabin), I need not resolve whether
the ATV was subject to motor vehicle registration in any
jurisdiction.”    The court ultimately concluded that
“[b]ecause there is no evidence [that] the ATV was used to
service the Brodeurs’ cabin, it does not fall within the

    1
     The court also found that Meneses’s initial disclosures barred Jerry
from testifying about the Liberty policy. The Meneses originally
appealed but settled their case and voluntarily dismissed their appeal.
8              LIBERTY INS. CO. V. BRODEUR

exception to the exclusion. Therefore, the Brodeurs are not
entitled to coverage under the Policy for the ATV accident
that is the subject of the state court lawsuit.” The Brodeurs
appealed, arguing that the district court abused its discretion
by imposing Rule 37(c)(1) sanctions.

    JURSDICTION AND STANDARD OF REVIEW

    This court has jurisdiction under 28 U.S.C. § 1291. “We
review the imposition of discovery sanctions for abuse of
discretion.” Yeti by Molly Ltd v. Deckers Outdoor Corp.,
259 F.3d 1101, 1105 (9th Cir. 2001) (citing Payne v. Exxon
Corp., 121 F.3d 503, 507 (9th Cir. 1997)). Specifically,
because the district court imposed discovery sanctions
pursuant to Rule 37(c)(1) without resolving a disputed
question of law, we analyze its factual determinations and
legal conclusions for abuse of discretion. See Goodman v.
Staples The Office Superstore, LLC, 644 F.3d 817, 827 (9th
Cir. 2011); Yeti by Molly, Ltd., 259 F.3d at 1106.

    “A district court abuses its discretion if it bases its
decision on an erroneous view of the law or on a clearly
erroneous assessment of the evidence.” Ingenco Holdings,
LLC v. Ace Am. Ins. Co., 921 F.3d 803, 808 (9th Cir. 2019)
(cleaned up); see also United States v. Working, 287 F.3d
801, 807 (9th Cir. 2002) (explaining that a district court
abuses its discretion when a ruling is guided by erroneous
legal conclusions). Likewise, “[a district] court abuses its
discretion when it fails to apply the correct legal standard or
bases its decision on unreasonable findings of fact.” Briseño
v. Henderson, 998 F.3d 1014, 1022 (9th Cir. 2021) (quoting
Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir.
2011)).
               LIBERTY INS. CO. V. BRODEUR                   9

                       DISCUSSION

     The district court abused its discretion for three reasons
by imposing Rule 37(c)(1) sanctions to exclude material
portions of Jerry Brodeur’s testimony. First, the district
court abused its discretion when it imposed the sanctions for
failing to identify a witness, because the Brodeurs’
disclosures properly identified Jerry Brodeur as a witness
under Rule 26(a)(1)(A)(i). Second, even if the disclosures
were inadequate under Rule 26(a)(1)(A)(i), the purported
defect—that the Brodeurs disclosed Jerry could testify only
about the claims in the “underlying lawsuit” as opposed to
disclosing that he could testify about the claims in the
“current lawsuit”—was harmless because Liberty filed this
action for the sole purpose of determining its coverage
obligations to the Brodeurs and Jerry Brodeur was the only
witness who testified about facts relevant to his Liberty
insurance policy. Finally, because the district court’s Rule
37(c)(1) sanctions amounted to dismissal of the case, it
abused its discretion by imposing them without analyzing
whether the Brodeurs’ alleged noncompliance with
disclosure obligations involved willfulness, fault, or bad
faith. See R & R Sails, Inc., 673 F.3d at 1247.

I. Because the Brodeurs Adequately Identified Jerry
   Brodeur as a Potential Fact Witness Under Rule
   26(a)(1)(A)(i), the District Court Abused its
   Discretion When it Imposed Rule 37(c)(1) Sanctions.

    The district court abused its discretion by imposing Rule
37(c)(1) sanctions for failure to disclose a witness because
the Brodeurs properly identified Jerry Brodeur as a potential
fact witness under Rule 26(a)(1)(A)(i). See Cadkin v. Loose,
569 F.3d 1142, 1147 (9th Cir. 2009) (“A district court abuses
its discretion when its decision is based on an inaccurate
view of the law or a clearly erroneous finding of fact.”
10             LIBERTY INS. CO. V. BRODEUR

(cleaned up)). Rule 26(a)(1)(A)(i) requires parties to
disclose “the name and, if known, the address and telephone
number of each individual likely to have discoverable
information—along with the subjects of that information—
that the disclosing party may use to support its claims or
defenses . . . .” Fed. R. Civ. P. 26(a)(1)(A)(i). The rule
requires identification of potential witnesses because “‘[a]
major purpose’ of the initial disclosure requirements ‘is to
accelerate the exchange of basic information about the case
and to eliminate the paper work involved in requesting such
information.’” R & R Sails Inc., 673 F.3d at 1246 (citing
Fed. R. Civ. P. 26 advisory committee’s note to 1993
Amendments).           Rule 37(c)(1) further clarifies the
importance of identifying potential witnesses, stating that
“[i]f a party fails to provide information or identify a witness
as required by Rule 26(a) or (e), the party is not allowed to
use that information or witness to supply evidence on a
motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless.” Fed. R. Civ. P.
37(c)(1) (emphasis added).

    Here, the Brodeurs timely served Rule 26 disclosures on
Liberty that stated both Yvonne and Jerry Brodeur were
available to testify “[r]egarding the claims of the underlying
case and the damages at issue,” and provided their contact
information. By doing so, the Brodeurs complied with
Rule 26’s requirement that they identify potential witnesses
with discoverable information. But instead of applying Rule
26(a)(1)(A)(i) as a rule requiring identification of
individuals “likely to have discoverable information” at the
outset of discovery, the district court interpreted the rule as
placing substantive limits on Jerry’s trial testimony two
years later. Fed. R. Civ. P. 26(a)(1)(A)(i).
                LIBERTY INS. CO. V. BRODEUR                    11

    Under the district court’s view, it could bar discussion of
any discoverable information it deemed to be outside of
disclosed “subjects of that information.” Id. The court
decided that because the Brodeur disclosure used the term
“underlying case,” Jerry should be allowed to testify only
about the underlying state court lawsuit—not about material
facts at issue in the federal lawsuit. To enforce that limiting
view of Rule 26, the district court concluded that Rule
37(c)(1) sanctions could be used to exclude portions of
Jerry’s testimony relating to the Liberty policy. But the
district court was wrong about this too.

    Rule 37(c)(1) provides that sanctions are warranted for
failure to comply with Rule 26(a)(1)(A)(i) in two specific
situations. First, it provides that when a witness is not
disclosed by a party then, as a sanction, that witness cannot
testify. See Fed. R. Civ. P. 37(c)(1) (“If a party fails to . . .
identify a witness as required by Rule 26(a),” the
unidentified witness is not allowed to “supply evidence on a
motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless.”). Second, it provides
that if a party fails to disclose discoverable information (like
documents or electronically stored information required by
Rule 26(a)(1)(ii)) then the party cannot rely on that
undisclosed information as evidence. Id. (“If a party fails to
provide information . . . as required by Rule 26(a) . . . the
party is not allowed to use that information . . . to supply
evidence on a motion, at a hearing, or at a trial, unless the
failure was substantially justified or was harmless.”). What
the rule does not do is grant the district court broad power to
pick and choose portions of witness testimony to exclude as
a sanction because it concludes those portions of testimony
were not encompassed “within the scope of the Rule 26(a)
disclosures.” If there is a rule for that, under its plain text it
isn’t Rule 37(c)(1).
12             LIBERTY INS. CO. V. BRODEUR

    Because the Brodeurs properly disclosed Jerry Brodeur
as a potential witness under Rule 26(a)(1)(A)(i), the district
court abused its discretion by imposing Rule 37(c)(1)
sanctions. See Golden v. Cal. Emergency Physicians Med.
Grp., 782 F.3d 1083, 1089 (9th Cir. 2015) (“A district court
abuses its discretion when . . . it applies an incorrect rule of
law.”).

II. The District Court Abused its Discretion by Imposing
    Rule 37(c)(1) Sanctions Without Considering
    Whether Defects in the Brodeur Disclosures Were
    Harmless or Substantially Justified.

     Second, even if the district court had been correct that
the Brodeur disclosures were inadequate under Rule
26(a)(1)(A)(i), it abused its discretion by imposing Rule
37(c)(1) sanctions without considering whether defects in
the disclosures were harmless or substantially justified. See
Fed. R. Civ. P. 37(c)(1) (“If a party fails to provide
information or identify a witness as required by Rule 26(a)
or (e), the party is not allowed to use that information or
witness to supply evidence on a motion, at a hearing, or at a
trial, unless the failure was substantially justified or is
harmless.” (emphasis added)); see also Barnett v. Norman,
782 F.3d 417, 421 (9th Cir. 2015) (“A district court abuses
its discretion when it does not apply the correct law or
erroneously interprets the law.” (internal citation omitted)).
Ninth Circuit caselaw interpreting Rule 37(c)(1) makes clear
that exclusion of evidence under Rule 37(c)(1) is not
appropriate if the “failure to disclose the required
information is substantially justified or harmless.” Yeti by
Molly Ltd., 259 F.3d at 1106. To that end, district courts
have identified “[s]everal factors to guide the determination
of whether substantial justification and harmlessness exist,
including (1) prejudice or surprise to the party against whom
                LIBERTY INS. CO. V. BRODEUR                    13

the evidence is offered; (2) the ability of that party to cure
the prejudice; (3) the likelihood of disruption of trial; and
(4) bad faith or willfulness in not timely disclosing the
evidence.” Silvagni v. Wal-Mart Stores, Inc., 320 F.R.D.
237, 242 (D. Nev. 2017). Here, the district court abused its
discretion because it completely failed to consider whether
any defect in the Brodeur disclosures was harmless or
substantially justified before imposing sanctions. Instead, it
simply concluded that “I may exclude from trial any
evidence that is not within the scope of the Rule 26(a)
disclosures.”

    It seems very unlikely that Liberty was prejudiced or
surprised by Jerry Brodeur’s testimony about the family’s
ATV. Liberty filed the federal action for the sole purpose of
determining whether the Brodeurs were entitled to coverage
under the Liberty policy, and even identified the relevant
exception in its amended complaint. The exception applies
only if the ATV is (1) a vehicle that is not subject to motor
vehicle registration and (2) used to “service” the cabin. As
the owner of the cabin and ATV, as well as the only witness
called to testify at trial, it is entirely unsurprising that Jerry
Brodeur would testify on these subjects.

    Because the district court failed to consider whether any
defect in the Brodeur disclosures was harmless or
substantially justified, the district court abused its discretion
by imposing Rule 37(c)(1) sanctions.

III.    The District Court Abused its Discretion by
        Failing to Adequately Analyze Whether the
        Brodeurs’ Purported Noncompliance with Rule
        26(a)(1)(A)(i) Involved Willfulness or Fault.

   Finally, because the sanctions imposed by the district
court amounted to dismissal of the case, the court abused its
14             LIBERTY INS. CO. V. BRODEUR

discretion by relying on erroneous conclusions and failing to
adequately analyze whether the Brodeurs acted with
willfulness or fault. See R & R Sails, Inc., 673 F.3d at 1247
(explaining that even when a party clearly violates Rule
26(a)(1)(A), the district court is still required to consider
other factors before precluding evidence or witnesses as a
Rule 37(c)(1) sanction, particularly when that sanction
amounts to dismissal of claims); Meier v. Colvin, 727 F.3d
867, 869 (9th Cir. 2013) (“A district court abuses its
discretion when it fails to apply the correct legal rule or its
application of the correct legal rule is illogical, implausible
or without support in inferences that may be drawn from the
facts in the record.” (citing United States v. Hinkson,
585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc))). When
a district court imposes a sanction that amounts to dismissal,
it is required to consider whether the noncompliance
justifying the sanction “involved willfulness, fault, or bad
faith . . . and also to consider the availability of lesser
sanctions.” R & R Sails, Inc., 673 F.3d at 1247 (internal
citations omitted).

    Here, the court’s sanction was exclusion of Jerry
Brodeur’s testimony. After excluding the testimony, the
court explained that there was “insufficient evidence to show
the ATV was used to service the cabin at any time.” Whether
or not the ATV was used to service the cabin was one of two
pieces of evidence the Brodeurs needed to provide to be
entitled to coverage under the exception. Considering that
Jerry Brodeur was the only witness who testified at the trial,
and that the district court ultimately found there was
“insufficient evidence” to support the exception, the district
court’s sanction excluding relevant portions of his testimony
was “claim-dispositive.”
               LIBERTY INS. CO. V. BRODEUR                15

     Because the district court found that excluding Jerry’s
testimony was “claim-dispositive,” it offered a conclusory
R & R Sails analysis. The court did “not find the Brodeurs’
disclosures to be in bad faith.” But it concluded that the
deficiencies were both willful and the fault of the Brodeurs.
In the court’s view, the Brodeurs acted “willfully” and were
at “fault”—not because they acted disobediently,
deceitfully, knowingly, or otherwise dishonestly—but
because the disclosures “were within their control, they had
enough information to make appropriate disclosures, and
there was nothing accidental about them.” But see Henry v.
Gill Industries, Inc., 983 F.2d 943, 948 (9th Cir. 1993)
(citing Fjelstad v. Am. Honda Motor Co., Inc., 762 F. 2d
1334,1341 (9th Cir. 1985)) (explaining that the Ninth Circuit
“has stated that ‘disobedient conduct not shown to be outside
the control of the litigant’ is all that is required to
demonstrate willfulness, bad faith, or fault.”). In other
words, the district court found the Brodeurs were
disobedient because they complied with Rule 26 and served
disclosures, but did so improperly. Not only is the district
court’s view of willfulness and fault contrary to Henry, but
it would also render the R & R Sails willfulness and fault
analysis meaningless—every initial disclosure served by
every party in every case is nonaccidental and within the
serving party’s control. Such a view is plainly erroneous.

                     CONCLUSION

   For the foregoing reasons, we reverse the district court’s
order imposing sanctions and remand this case to the district
court for a new trial.

   REVERSED and REMANDED.