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Kehle v. USAA Casualty Insurance Co.

United States District Court, S.D. Florida

December 28, 2017

NELIDA KEHLE, as Guardian of ANTHONY KEHLE, III, Plaintiff,
v.
USAA CASUALTY INSURANCE COMPANY, Defendant.

          ORDER ON PLAINTIFF'S MOTION FOR PROTECTIVE ORDER [DE 251

          WILLIAM MATTHEWMAN, UNITED STATES MAGISTRATE JUDGE.

         THIS CAUSE is before the Court upon Plaintiff, Nelida Kehle's, as Guardian of Anthony Kehle, III ("Plaintiff) Motion for Protective Order. [DE 25]. These matters were referred to the undersigned by United States District Judge Kenneth A. Marra upon an Order referring all discovery to the undersigned for final disposition. See DE 13. Defendant, USAA Casualty Insurance Company ("Defendant") filed a Response to the Motion [DE 28] and Plaintiff filed a Reply [DE 29]. After the Reply was filed, Defendant filed a Notice of Supplemental Authority [DE 31]. The Court held a hearing on the Motion on November 7, 2017. Subsequent to the hearing, Plaintiff filed a Notice of Supplemental Authority. [DE 37]. The matter is now ripe for review.

         I. Introductory Statement as to Issue of First Impression

         This novel discovery dispute arises from a coverage action in which Plaintiff Kehle seeks to enforce a Settlement Agreement against Defendant USAA in the amount of $8, 818, 804. This dispute requires the Court to resolve an issue of first impression, that is, what discovery, if any, Defendant USAA is permitted to undertake into the reasonableness and good faith of the underlying Settlement Agreement where that agreement is a hybrid Coblentz Agreement/Arbitration Award.

         Plaintiff Kehle argues that even though the Settlement Agreement she seeks to enforce against Defendant USAA is a Coblentz-style agreement as to liability, that agreement contemplated and utilized binding arbitration before a single arbitrator to determine damages. Plaintiff argues that this addition of binding arbitration on damages to a Coblentz-style agreement on liability completely alters the discovery landscape. According to Plaintiff, even though Florida law permits a defendant such as USAA to conduct discovery into the good faith and reasonableness of a typical Coblentz agreement, the unique type of agreement at issue in this case precludes Defendant USAA from conducting discovery into the good faith or reasonableness of the agreement, as the use of an arbitrator to determine damages renders issues of good faith or reasonableness irrelevant, and because of the operation of Florida's arbitral immunity statute, Fla. Stat. § 682.051(4).

         Defendant USAA argues that Plaintiff is, in fact, proceeding under a Coblentz agreement as she seeks to hold USAA responsible for damages in excess of the policy limits pursuant to the Settlement Agreement. Therefore, USAA submits that it is entitled to broad discovery into the reasonableness of the agreement, whether it was made in good or bad faith, or whether it was a sham. Defendant USAA argues that Plaintiff Kehle and USAA's insured, Mr. Gerald A. Henderson, entered into a Coblentz agreement whereby Henderson consented to liability and effectively "lied down, " the parties agreed to submit the matter of damages to a single arbitrator, the parties agreed that the amount of damages found by the arbitrator would be reduced to a final judgment against Henderson, and, that the judgment against Henderson would not be recorded or enforced against Henderson and Henderson would not be personally liable so long as he complied with the terms of the Settlement Agreement. USAA argues that the mere addition to a typical Coblentz agreement of a provision requiring the use of a "handpicked" arbitrator to determine damages does not preclude it from engaging in the broad discovery it seeks.

         Although the undersigned prefers to be brief when dealing with discovery disputes, the novel and first impression nature of this specific dispute requires the Court to consider and analyze Coblentz agreements, appropriate discovery in relation to Coblentz agreements, the nature and scope of arbitral immunity, and ultimately here, the appropriate scope of discovery by an insurer-defendant into a hybrid Coblentz agreement/Arbitration award. Thus, in this Order, brevity must yield to a thorough, albeit lengthy, analysis of the issues relevant to this dispute.

         II. Background

         This case arises from a 2013 boating accident which resulted in severe bodily injury to Anthony G. Kehle, III. The driver or operator of the boat during the accident was Gerald A. Henderson ("the insured" or "Henderson") who was insured by USAA. In February of 2014, Nelida Kehle, as Guardian of Mr. Kehle, enlisted an attorney to contact USAA in order to settle his client's claims against Henderson. USAA claimed that the accident in which Mr. Kehle was injured was not covered by the policy, and denied the claim. [DE 1-2, pg. 7].

         On March 20, 2014, Mrs. Kehle, as Guardian of Mr. Kehle, filed a lawsuit against Gerald Henderson, the driver of the boat; Nuncio Investing Limited, the owner of the boat; and Courtney J. Munson, the president and sole officer, director, and shareholder of Nuncio Investing Limited since its inception, in the Circuit Court of the Fifteenth Judicial Circuit, in and for Palm Beach County, seeking damages for bodily injuries Mr. Kehle suffered in the accident. [DE 1-2, pg. 8, 96-97]. According to Plaintiff, in 2016, Henderson's counsel sent a letter to USAA requesting USAA to withdraw its denial of coverage and provide a defense and indemnity to Henderson in the underlying lawsuit, pursuant to Henderson's insurance policy.[1] Id. USAA again denied coverage and declined to defend Henderson in the state lawsuit. Id. USAA claimed that the bodily injury suffered by Mr. Kehle did not arise out of or in connection with a "business engaged in by an insured, " and therefore the incident would not be covered by Henderson's policy. [DE 1-2, pg. 9].

         In October of 2016, Plaintiff entered into a settlement agreement with Henderson under which: (1) the parties agreed to submit the issue of the amount of damages sustained as a result of Henderson's negligence to binding arbitration before a neutral arbitrator, whose determination would be reduced to a consent Final Judgment in favor of Kehle and against Henderson in the lawsuit; (2) Plaintiff agreed to execute the Final Judgment against USAA in the event that the Court determined that USAA's denial of coverage was legally improper, rather than against Henderson; and (3) Henderson agreed to assign to Plaintiff all claims and causes of action which Henderson possessed against USAA, arising out of USAA's denial of coverage for, and its refusal to defend against, the underlying lawsuit. [DE 1-2, pgs. 10, 122-25].

         On October 13, 2016, a binding arbitration on damages was conducted by the parties before James Munsey, Esq. of Matrix Mediation in West Palm Beach, Florida, who served as arbitrator in the proceeding. Id. The arbitrator did not consider the issue of liability, as Henderson had already consented that he was liable for the accident. Two weeks later, on October 27, 2016, the arbitrator determined that the total amount of damages sustained by Plaintiff was $8, 818, 804. Id. The state court then entered an order approving the settlement, and the court entered Final Judgment against Henderson in the same amount. [DE 1-2, pg. 11].

         On March 21, 2017, Plaintiff filed suit against Defendant USAA in the Circuit Court of the Fifteenth Judicial Circuit, in and for Palm Beach County, Florida. [DE 1, pg. 1]. In this case, Plaintiff, asserting the rights of Henderson, alleged two counts of breach of contract, based on Defendant's denial of coverage and breach of its alleged duty to defend and to indemnify. [DE 1-2, pgs. 11, 13]. Defendant removed the case from state court to this Court on April 7, 2017. [DE 1].

         III. Motion for Protective Order, Response and Reply

         On August 28, 2017, USAA served its notice of intent to issue a subpoena duces tecum without deposition to the records custodian of Matrix Mediation, and on August 31, 2017, USAA served its notice of intent to issue four additional subpoenas duces tecum without deposition to Mr. Gerald Henderson, the driver or operator of the boat, Mr. Courtney Munson, the owner of the boat, and their respective attorneys. These five subpoenas have not yet been served upon those five non-parties to this action as Plaintiff has objected to the subpoenas. On September 26, 2017, Plaintiff filed a Motion for Protective Order from the subpoenas duces tecum issued by USAA and directed to:

(1) The Corporate Records Custodian of Matrix Mediation, the entity who employed the arbitrator and facilitated the arbitration proceedings. The Matrix subpoena seeks "all materials and/or documents reviewed and/or received which were submitted to the arbitrator by any counsel with regard to the arbitration which took place on October 13, 2016, in the matter of Nelida Kehle, as Guardian of Anthony G. Kehle, III v. Nuncio Investing Limited, Courtney J. Munson and Gerald A. Henderson, filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 502014CA003422XXXXMB, including, but not limited to: Information related to Anthony Kehle, including medical records, medical reports, medical bills, assisted living facility information, mortality tables, business records; and all additional information provided for arbitrator's review, including but not limited to: jury verdict reports, deposition transcripts, transcripts of the arbitration proceedings (including transcripts of witness testimony during the arbitration), expert reports and invoices, any and all documents reviewed or received tending to support or negate the Defendant's negligence - including Mr. Henderson; any and all documents reviewed or received relating to damages, including documents relied upon to form the arbitration award and any notes of the arbitrator." [DE 35-2, pg. 2].
(2) The records custodian of Michael Knecht, Esq., Henderson's attorney in the underlying lawsuit. The Knecht subpoena seeks "Your entire file in the matter of Nelida Kehle, as Guardian of Anthony G. Kehle, III v. Nuncio Investing, Limited, Courtney J. Munson and Gerald A. Henderson, filed in the Circuit Court of the 15thJudicial Circuit in and for Palm Beach County, Florida, Case No. 502014CA003422XXXXMB, including but not limited to:
i. All correspondence and or/attorney notes.
ii. All documents received, documents produced, and any discovery responses of any party.
iii. All transcripts of any witness. iv. Transcript(s) of the arbitration proceedings.
v. All medical records, medical reports, medical bills, assisted living facility information, mortality tables, business records of Plaintiff, Anthony Kehle.
vi. All information provided for arbitrator's review, including but not limited to: jury verdict reports, deposition transcripts, transcripts of the arbitration proceedings (including transcripts of witness testimony during the arbitration), expert reports and invoices, any and all documents reviewed or received tending to support or negate the Defendant's negligence, including Mr. Henderson.
vii. All documents sent to the arbitrator relating to damages or negligence, including the documents relied upon by the arbitrator to form arbitration award and any notes of the arbitrator." [DE 25-2, pg. 7].
(3) The records custodian of Tomberg, Hanson, and Halper, LLC, Munson's attorney in the underlying lawsuit.[2] The Tomberg subpoena seeks: "Your entire file in the matter of Nelida Kehle, as Guardian of Anthony G. Kehle, III v. Nuncio Investing, Limited, Courtney J. Munson and Gerald A. Henderson, filed in the Circuit Court of the 15thJudicial Circuit in and for Palm Beach County, Florida, Case No. 502014CA003422XXXXMB, including but not limited to:
i. All correspondence and or/attorney notes.
ii. All documents received, documents produced, and any discovery responses of any party.
iii. All transcripts of any witness.
iv. Transcript(s) of the arbitration proceedings.
v. All medical records, medical reports, medical bills, assisted living facility information, mortality tables, business records of Plaintiff, Anthony Kehle.
vi. All information provided for arbitrator's review, including but not limited to: jury verdict reports, deposition transcripts, transcripts of the arbitration proceedings (including transcripts of witness testimony during the arbitration), expert reports and invoices, any and all documents reviewed or received tending to support or negate the Defendant's negligence, including Mr. Henderson.
vii. All documents sent to the arbitrator relating to damages or negligence, including the documents relied upon by the arbitrator to form arbitration award and any notes of the arbitrator." [DE 25-2, pg. 11].
(4) Courtney Munson, the owner of the boat on which Mr. Kehle was injured. The Munson subpoena seeks "any and all documents and/or materials relating to the civil action titled Nelida Kehle, as Guardian of Anthony G. Kehle, III v. Nuncio Investing, Limited, Courtney J. Munson and Gerald A. Henderson, filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 502014CA003422XXXXMB, including but not limited to: any communications with your counsel regarding assignment of rights to Plaintiff (Kehle), settlement negotiations, all information and/or documentation provided to the arbitrator (including but not limited to correspondence, records, email communications, and any other information provided), correspondence received and/or sent to your counsel regarding the underlying civil litigation and any other documents and/or communications regarding the underlying civil action." [DE 25-2, pg. 15].
(5) Gerald A. Henderson, the USAA insured and driver of the boat. The Henderson subpoena seeks "any and all documents and/or materials relating to the civil action titled Nelida Kehle, as Guardian of Anthony G. Kehle, III v. Nuncio Investing, Limited, Courtney J. Munson and Gerald A. Henderson, filed in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. 502014CA003422XXXXMB, including but not limited to: any communications with your counsel regarding assignment of rights to Plaintiff (Kehle), settlement negotiations, all information and/or documentation provided to the arbitrator (including but not limited to correspondence, records, email communications, and any other information provided), correspondence received and/or sent to your counsel regarding the underlying civil litigation and any other documents and/or communications regarding the underlying civil action." [DE 25-2, pg. 19].

         A. Plaintiff's Position as Stated in Her Motion

         As set forth in her Motion [DE 25], Plaintiff argues that any information requested in the subpoenas which relate to the "reasonableness" and "good faith requirements" of a consent judgment or Coblentz agreement is not relevant in the instant case because the issue and amount of damages was determined by a neutral arbitrator rather than a consent judgment negotiated by the two parties. [DE 25, pg. 3]. Plaintiff argues that any documents pertaining to arbitration proceedings are protected from discovery under both Florida Statutes and Florida case law. [DE 25, pgs. 4-5]. Plaintiff argues that all five subpoenas should be quashed and a protective order should be entered preventing the subpoenas from being served upon the non-parties.

         B. Defendant's Position as Stated ...


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