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CX Reinsurance Company Limited v. City Homes, Inc.

United States District Court, D. Maryland

October 18, 2018

CX REINSURANCE COMPANY LIMITED, f/k/a CNA REINSURANCE COMPANY LIMITED, Plaintiff,
v.
CITY HOMES, INC., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          STEPHANIE A. GALLAGHER UNITED STATES MAGISTRATE JUDGE.

         Pursuant to Judge Bredar's May 22, 2018 Order, this matter has been referred to me for discovery disputes and related scheduling matters. [ECF No. 55]. Presently pending is Plaintiff CX Reinsurance Company Limited's (“CX Re”) Motion for Protective Order [ECF No. 61], Defendant City Homes, Inc., et al's Opposition [ECF No. 69], and CX Re's Reply [ECF No. 75]. Also pending are CX Re's Motion to Seal Plaintiff's Motion for Protective Order [ECF No. 62], City Homes's Motion to Seal Opposition to Plaintiff's Motion for Protective Order [ECF No. 71], and CX Re's Motion to Seal Reply in Support of Plaintiff's Motion for Protective Order [ECF No. 76]. I find that no hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, CX Re's Motion for Protective Order is DENIED and CX Re's Motion to Seal Plaintiff's Motion for Protective Order, City Homes's Motion to Seal Opposition, and CX Re's Motion to Seal Reply are all DENIED, though the parties are granted leave to file redacted versions of the documents in question, along with a new motion to seal the redacted portions.

         I. BACKGROUND

         In this action, CX Re seeks to rescind commercial general liability insurance policies (“Policies”) issued to City Homes, Inc. (“City Homes”), its principal Barry Mankowitz (“Mankowitz”), and other named insureds in 1997, 1998, 1999, and 2000. Compl. ¶¶ 1, 11-19, 63. The Policies provide insurance coverage for certain risks, including lead exposure, relating to specified residential rental properties in Baltimore, Maryland. See Policies, [ECF Nos. 1-1, 1-2, 1-3, 1-4].

         In particular, CX Re alleges that City Homes made misrepresentations of material fact in the Application upon which the Policies were issued. Compl. ¶ 1. CX Re avers that City Homes falsely answered “No” to Questions 12 and 14 of the Application, which ask, respectively, whether there is “lead paint on any interior or exterior surface of the building, ” and whether there is “any paint chipping or flaking, or otherwise peeling off any interior or exterior surface of the building[.]” Id. ¶¶ 20-27, 57-58. CX Re argues that, if Defendants had answered the question truthfully, CX Re either would not have issued the Policies, or would have issued the Policies subject to substantially different terms. Id. ¶¶ 59-60. CX Re asserts that it first learned of the alleged misrepresentations regarding Questions 12 and 14 of the Application in May, 2017, and filed this action shortly thereafter on May 30, 2017. Id. ¶¶ 61, 62.

         On September 10, 2013, well before CX Re filed this action, City Homes filed for bankruptcy relief. In re City Homes III, LLC, No. 13-25370-RAG (Bankr. D. Md. 2013). CX Re was an active participant in the Chapter 11 proceedings, as one of City Homes's lead paint insurers. On April 13, 2017, the Bankruptcy Court entered an order confirming the Third Amended Chapter 11 Plan, and on April 17, 2017, the Bankruptcy Court appointed Zvi Guttman (“Mr. Guttman”) as the Plan Trustee. In re City Homes, ECF Nos. 849, 853. When CX Re filed this lawsuit against City Homes, Mr. Guttman sought clarification from the Bankruptcy Court regarding his obligation to defend against CX Re's action. In re City Homes, ECF No. 899. On September 28, 2017, over CX Re's objections, Bankruptcy Judge Gordon issued an order approving City Homes's Term Sheet and authorizing City Homes to engage the law firm of Gallagher Evelius & Jones LLP (“the Gallagher firm”) as defense counsel in this action. In re City Homes, ECF No. 921. The law firm of Semmes Bowen & Semmes (“the Semmes firm”) has represented all of the Defendants in this action since July 3, 2017. [ECF Nos. 7, 8]. On September 25, 2017, the Gallagher firm entered its appearance as co-counsel on behalf of Defendant City Homes, but not Mankowitz. [ECF Nos. 28, 29, 30, 31].

         On February 2, 2018, Judge Bredar issued a Stipulated Protective Order in this case, allowing the parties to designate as confidential any documents they believe, in good faith, contain “information or items that are entitled to confidential treatment under applicable legal principles.” [ECF No. 51 ¶ 1]. Pursuant to the Stipulated Protective Order, documents designated as confidential may be disclosed only to the limited group of authorized persons identified in paragraph 5.2 of the Order. [ECF No. 51 ¶ 5.2]. The Stipulated Protective Order specifically excludes from the group of authorized persons “outside counsel in any other litigation (unless those same attorneys are also counsel of record in this litigation), including, without limitation, counsel in any case alleging lead paint liability to which this litigation may relate.” Id. ¶ 5.2(a).

         CX Re now seeks a protective order to prevent the Gallagher firm from accessing, and disseminating to anyone outside of the Gallagher firm, litigation files from the Semmes firm and documents produced by CX Re in this case. [ECF No. 61]. CX Re also seeks to prevent the use of Defendants' interrogatory answers from this case in any other lead paint liability lawsuit, and to prevent the Gallagher firm from providing advice to any lead paint plaintiffs' attorneys who have sued, or may later sue, any person insured by CX Re. Id.

         II. LEGAL STANDARD

         Parties 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). Under Federal Rule of Civil Procedure 26(b), relevance, rather than admissibility, governs whether information is discoverable. See id.; Herchenroeder v. Johns Hopkins Univ. Applied Physics Lab, 171 F.R.D. 179, 181 (D. Md. 1997). Information sought need only “appear[] [to be] reasonably calculated to lead to the discovery of admissible evidence” to pass muster. See Innovative Therapies, Inc. v. Meents, 302 F.R.D. 364, 377 (D. Md. 2014). However, even in the case of relevant information, “the simple fact that requested information is discoverable under Rule 26(a) does not mean that discovery must be had.” Nicholas v. Wyndham Int'l Inc., 373 F.3d 537, 543 (4th Cir. 2004). Instead, Rule 26(b) inserts a proportionality requirement into the amount and content of the discovery sought, and requires courts to consider “the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed.R.Civ.P. 26(b)(1). Significantly, Rule 26(c)(1) permits courts to, “for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense.” Fed.R.Civ.P. 26(c)(1).

         Where a protective order is sought, the moving party bears the burden of establishing good cause. Webb v. Green Tree Servicing, LLC, 283 F.R.D. 276, 278 (D. Md. 2012). To determine whether the movant has met his burden, the court must balance the “interest of a party in obtaining the information versus the interest of his opponent in keeping the information confidential or in not requiring its production.” UAI Tech, Inc. v. Valutech, Inc., 122 F.R.D. 188, 181 (M.D. N.C. 1988). In other words, “the Court must weigh the need for the information versus the harm in producing it.” A Helping Hand, LLC v. Baltimore Cnty., Md., 295 F.Supp.2d 585, 592 (D. Md. 2003) (internal quotation marks omitted). Despite the broad discretion conferred on trial courts to “decide when a protective order is appropriate and what degree of protection is required, ” see Seattle Times Co. v. Rinehart, 467 U.S. 20, 36 (1984), the standard for issuance of a protective order is high. Minter v. Wells Fargo Bank, N.A., 258 F.R.D. 118, 125 (D. Md. 2009); id. at 121 (“Although the Fourth Circuit . . . has not explicitly held that a First Amendment right of access exists with regard to non-dispositive civil motions and hearings, the precedent strongly favors that view, with the higher burden for sealing.”).

         III. ANALYSIS

         A. CX Re's Motion for Protective Order

         CX Re argues that a protective order is required in this case based on “the Gallagher Firm's conflict of interest and the prejudicial impact that the disclosure of sensitive information to the Lead Paint Plaintiffs' Firms may have on the underlying lead paint litigation.” [ECF No. ...


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