Bits & Pieces

In re Lizza Equipment Leasing, LLC

2020 WL 2465284

United States Bankruptcy Court, D. New Jersey.
Azzil Granite Materials, LLC, Plaintiff,
Canadian Pacific Railway Corporation, Delaware & Hudson Railway Company, and New York & Atlantic Railway, Defendants.
Case No. 19-21763 (MBK) (Jointly Administered)
Adv. Pro. No. 19-02285 (MBK)
Entered 4/23/2020
Signed May 12, 2020
Attorneys and Law Firms
Kate Roggio Buck, Esq., McCarter & English, LLP, Renaissance Centre, 405 N. King Street, 8th Floor, Wilmington, DE 19801, Counsel for Canadian Pacific Railway Company and Delaware and Hudson Railway Company
Kyle George Kunst, Esq., Gallet, Dreyer Berkey, LLP, 845 Third Avenue, 5th Floor, New York, NY 10022, Counsel for New York & Atlantic Railway Company
David Rifkind, Esq., Stinson, LLP, 1775 Pennsylvania Ave. NW, Suite 800, Washington, D.C. 20006, Counsel for Canadian Pacific Railway Company and Delaware and Hudson Railway Company
William A. Mullins, Esq., Baker & Miller, PLLC, 2401 Pennsylvania Ave. NW, Suite 300, Washington, D.C. 20037, Counsel for New York & Atlantic Railway Company

MEMORANDUM OPINION GRANTING Defendants’ Joint Motion to Dismiss Counts I, II, and III of the Complaint and GRANTING Defendant New York & Atlantic Railway’s Motion to Dismiss Count IV of the Complaint
*1 This matter comes before the Court on two motions to dismiss—the first filed by Defendant New York & Atlantic Railway Company (“NYA”) to dismiss Count IV of the Complaint (ECF No. 23), and the second filed jointly by Defendants NYA, Canadian Pacific Railway Company (“CP”), and Delaware & Hudson Railway Company (“D&H”) (collectively, “Defendants”) seeking dismissal of Counts I, II, and III of the Complaint (ECF No. 24) (hereinafter “Motions”). Plaintiff Azzil Granite Materials, LLC (“Plaintiff” or “Azzil”) submitted an Omnibus Opposition (ECF No. 28) to both Motions to Dismiss. The Defendants submitted a Reply (ECF No. 31) in further support of their Joint Motion to Dismiss Counts I, II, and III, and Defendant NYA filed a Reply (ECF No. 32) in support of its Motion to Dismiss Count IV. The Court has reviewed the parties’ submissions and has considered fully the arguments presented during oral argument on April 23, 2020. For the reasons set forth below, the Defendants’ Motions will be GRANTED and the Complaint will be dismissed without prejudice.1

I. Background
The factual background and procedural history of this matter are well known to the parties and will not be repeated in detail here. In relevant part, Azzil Granite Materials, LLC is a New York limited liability company that supplies material to customers throughout the tri-state area.2 On or about July 6, 2016, Azzil and Defendant CP entered into a contract (the “Contract”). Pursuant to the Contract, CP and its agent/subsidiary, Defendant D&H, agreed to transport shipments of Azzil’s stone products and return the empty railcars to Azzil. The Contract requires Azzil’s commitment to ship a minimum volume of 1,500 railcars of product. The Contract also provides that CP would move the shipments from the point of origin to Fresh Pond Junction, and then Defendant NYA would carry Azzil’s cars to their final destination. The contract expired by its own terms in January, 2019 and on June 19, 2019, Azzil filed a petition for relief under chapter 11.

*2 On November 27, 2019, Azzil commenced the instant adversary proceeding and filed an Amended Complaint (ECF No. 19) on January 30, 2020. In the Amended Complaint, Azzil alleges that the Defendants “failed to transport and delayed transporting railcars carrying Azzil products … over the last two and half years,” resulting in substantial losses to Azzil. Am. Compl. ¶ 17, 20, ECF No. 19. Azzil seeks relief against all Defendants for alleged violations of the Carmack Amendment and seeks relief against NYA for fraud.

On March 3, 2020, the two separate Motions were filed in this case. In one motion, all Defendants jointly seek dismissal of the claims premised on the Carmack Amendment. In the other, Defendant NYA seeks dismissal of the fraud claim against it. The Court will address the Motions in turn.

II. Defendants’ Joint Motion to Dismiss (ECF No. 24)
As set forth above, the Defendants have filed a joint motion seeking dismissal of Counts I, II, and III of the Complaint. Specifically, they seek dismissal of these claims based on improper venue under Rule 12(b)(3)3 and based on Plaintiff’s failure to state a claim under Rule 12(b)(6). The Defendants also allege that the Complaint should be dismissed because Plaintiff’s claims fail as a matter of law. The Court addresses these arguments separately.

A. Venue
In the Third Circuit, defendants “bear the burden of showing improper venue in connection with a motion to dismiss.” Myers v. Am. Dental Ass’n, 695 F.2d 716, 725 (3d Cir. 1982) (citing 1 J. MOORE, MOORE’S FEDERAL PRACTICE ¶ 0.140[1], at 1319–20 (2d ed. 1982))); see also Bockman v. First Am. Mktg. Corp., 459 F. App’x 157, 160 (3d Cir. 2012), Simon v. Ward, 80 F. Supp. 2d 464, 466-68 (E.D. Pa. 2000) (providing a thorough discussion on which party carries the burden of establishing or challenging venue in the Third Circuit). Thus, to succeed in their motion, the Defendants must satisfy this burden by demonstrating that venue is improper in this Court. In evaluating a motion to dismiss under Rule 12(b)(3), courts generally accept the well-pleaded allegations of the complaint as true. See, e.g., Bockman, 459 F. App’x at 158 (collecting cases that accept as true the allegations of the complaint unless those allegations are contradicted by the defendants’ affidavits); In re PermaLife Prod., LLC, 432 B.R. 503, 509 (Bankr. D.N.J. 2010).

The Defendants argue that the appropriate venue for claims under the Carmack Amendment is dictated by the statute, 49 U.S.C. § 11706, which contains special venue provisions and restricts where a civil action may be brought. Defendants acknowledge that venue in this Court is permitted under 28 U.S.C. §§ 1409 and 1391; however, they assert that the special venue provision in 49 U.S.C. § 11706 supersedes the more general venue statutes. See Def’s’ Mem. of Law 6-7, ECF No. 24-1. In approaching this issue, the Court first examines the Carmack Amendment’s special venue provision to determine if supports venue for the claims in this judicial district. As explained below, the Court concludes that it does not and proceeds to analyze whether the Carmack Amendment’s special venue provision is restrictive or simply permissive. The Court resolves that, indeed, the provision is restrictive and, thus, controls the question of venue. Accordingly, venue is inappropriate in this Court for claims brought under the Carmack Amendment.

1. The Carmack Amendment’s Special Venue Provision
*3 Pursuant to Section (d)(2) of the Carmack Amendment,

A civil action under this section may only be brought–
(i) against the originating rail carrier, in the judicial district in which the point of origin is located;
(ii) against the delivering rail carrier, in the judicial district in which the principal place of business of the person bringing the action is located if the delivering carrier operates a railroad or a route through such judicial district, or in the judicial district in which the point of destination is located; and
(iii) against the carrier alleged to have caused the loss or damage, in the judicial district in which such loss or damage is alleged to have occurred.
49 U.S.C. § 11706(d)(2)(A).

In this case, the Defendants have shown that the facts do not satisfy any of these subsections to establish proper venue in this Court. First, under subsection (i), any Carmack claims against Defendants CP and D&H, as “originating rail carriers,”4 must be brought “in the judicial district in which the point of origin is located.” 49 U.S.C. § 11706(d)(2)(A)(i). It is undisputed that the shipments in question originated in New York. Thus, under subsection (i), venue for Carmack claims against CP or D&H are proper only in a judicial district corresponding to the points of origin in New York.

Subsection (ii) of the special venue provision of the Carmack Amendment is applicable to the claims against Defendant NYA, which is a “delivering rail carrier” under the statute. Under this section, venue may be proper against NYA in “the judicial district in which the point of destination is located” or “in the judicial district in which [Azzil’s] principal place of business … is located if the delivering carrier operates a railroad or a route through such judicial district.” 49 U.S.C. § 11706(d)(2)(A)(ii). It is undisputed that the point of destination for the shipments in this case was in New York. Further, the Defendants assert, and the allegations of the Amended Complaint confirm, that Defendant NYA provided service to Plaintiff over rail lines located in New York. The Amended Complaint does not allege that NYA operates a railroad or route through this judicial district. Thus, even if this Court were to find that Azzil’s principal place of business is in New Jersey—which it does not—the Defendants have shown that venue for Carmack Amendment claims against NYA is not proper in this Court pursuant to § 11706(d)(2)(A)(ii).

*4 Pointedly, Azzil’s Counsel conceded during oral argument that subsections (i) and (ii) do not support venue in this Court. Rather, Counsel reiterated and clarified its argument that venue is proper in this Court bottomed on the third and final subsection of the special venue provision of the Carmack Amendment. Specifically, this section states that Carmack claims “against the carrier alleged to have caused the loss or damage,” may be brought “in the judicial district in which such loss or damage is alleged to have occurred.” 49 U.S.C. § 11706(d)(2)(A)(iii). Azzil contends that it “performs its administrative functions out of its New Jersey office, even though it is organized in New York.” April 29, 2020 Letter, Adv. No. 19-02285, ECF No. 33). Azzil proceeds to argue that economic losses under the alleged breach of contract have been sustained in New Jersey, sufficient to establish venue in this judicial district under the special venue provision of the Carmack Amendment. This Court disagrees. Instructed by the purpose, history, and text of the Carmack Amendment, the Court determines that the “loss or damage” referenced by the special venue provision of the Carmack Amendment correlates to the loss or damage to the shipment or goods, with venue placed properly where those shipment losses allegedly occurred—in New York.

As an initial matter, it is widely accepted that the principal purpose of “the Carmack Amendment [was to] establish[ ] a uniform federal standard to govern a railroad carrier’s liability for ‘loss, damage, or injury’ to goods while in interstate transit.” AMG Res. Corp. v. Wooster Motor Ways, Inc., 796 F. App’x 96, 98 (3d Cir. 2020); see also, e.g., Rini v. United Van Lines, Inc., 104 F.3d 502 (1st Cir. 1997) (noting that the primary purpose of the Carmack Amendment is to achieve national uniformity in liability assigned to carriers for lost or damaged goods); Glass v. Crimmins Transfer Co., 299 F. Supp. 2d 878, 884 (C.D. Ill. 2004); Usinor Steel Corp. v. Norfolk S. Corp., 308 F. Supp. 2d 510, 517 (D.N.J. 2004) (stating that the purpose of Carmack Amendment is to achieve uniformity in addressing lost or damaged property). Thus, it flows that the “loss or damage” referenced in 49 U.S.C. § 11706(d)(2)(A)(iii) is “loss or damage” with regard to the goods being shipped. Plaintiff has not provided support for its position that consequential financial damages caused by delayed shipments are the type of losses that can trigger venue under § 11706(d)(2)(A)(iii).

The history of the Carmack Amendment further supports the Court’s conclusion. As several courts have noted, prior to 1980, plaintiffs were able to bring Carmack claims against rail carriers in any judicial district where the carrier operated. See, e.g., Starr Indem. & Liab. Co. v. Luckey Logistics, Inc., Case No. 16-01377, 2017 WL 2466505 at *3; Sompo Japan Ins. Co. of Am. v. Yang Ming Marine Transp. Corp., 578 F. Supp. 2d 584, 595 (S.D.N.Y. 2008), abrogated on other grounds by Sompo Japan Ins. Co. of Am. v. Yang Ming Marine Transp. Corp., 578 F. Supp. 2d 584 (S.D.N.Y. 2008). However, “Congress narrowed Carmack in 1980 to prevent venue that was ‘virtually uncontrollable and frequently inconvenient’ for defendants.” Sompo Japan Ins. Co. of Am., 578 F. Supp. 2d at 595 (citing H.R. Rep. No. 96–1430 at 102 (1980); reprinted in 1980 U.S.C.C.A.N. 4110). “In most instances, the purpose of statutorily specified venue is to protect the defendant against the risk that a plaintiff will select an unfair or inconvenient place of trial.” Leroy v. Great W. United Corp., 443 U.S. 173, 183–84, 99 S. Ct. 2710, 2716, 61 L. Ed. 2d 464 (1979) (emphasis in original) (discussing proper venue under § 1391). To adopt Azzil’s suggested interpretation—that venue is proper in this judicial district simply because the company suffered an economic loss at an administrative office located in this judicial district—would undermine Congress’s amendment and mark a return to litigation in “virtually uncontrollable and frequently inconvenient” venues. Sompo, 578 F. Supp. 2d at 595.

The plain language of the statute also compels rejection of Azzil’s suggested interpretation of the special venue provision. The statute reads, in relevant part, that a civil action may be brought “against the carrier alleged to have caused the loss or damage, in the judicial district in which such loss or damage is alleged to have occurred.” 49 U.S.C. § 11706(d)(2)(A)(iii). In determining what encompasses the “loss or damage” referenced in this subsection, the Court looks to the remainder of the statute. Notably, subsection (a) of the Carmack Amendment explains that “[t]he liability imposed under this subsection is for the actual loss or injury to the property.” 49 U.S.C. § 11706(a) (emphasis added). Likewise, subsection (b) of the statute discusses a receiving carrier’s ability to seek reimbursement from a delivering carrier who is at fault and provides that the rail carrier “is entitled to recover from the rail carrier over whose line or route the loss or injury occurred.” 49 U.S.C. § 11706(b) (emphasis added). Accordingly, in other sections of the statute, the reference to “loss or damage” or “loss or injury” is tied to the goods being shipped and the location along the route where the goods in fact were lost or damaged. Azzil has not provided any sound argument as to why the “loss or damage” referenced in the special venue provision portion of the statute should be read differently.

*5 Moreover, the absence of language in subsection (iii) is equally instructive as to the limited nature of the term “loss and damage” in that provision. For example, subsection (ii) of the special venue provision allows a plaintiff to bring an action against a delivering carrier “in the judicial district in which the principal place of business of the person bringing the action is located if” certain criteria are met. 49 U.S.C. § 11706(d)(2)(A)(ii). Thus, had Congress intended to include a plaintiff’s principal place of business—or the location of an administrative office5—as an appropriate venue under subsection (iii), it could have done so. The omission of “principal place of business” from the third subsection indicates an intent to exclude the location of a plaintiff’s operations as a factor for determining proper venue under that subsection of the statute. See Russello v. United States, 464 U.S. 16, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983) (“Where Congress includes particular language in one section of statute but omits it in another section of same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”) (citations and quotations omitted).

For the foregoing reasons, this Court holds that the “loss or damage” referenced in subsection (iii) of the special venue provision of the Carmack Amendment refers to loss or damage of the goods being shipped. The Court declines to extend to the definition of loss or damage in this section to the resulting alleged economic losses sustained at the Debtor’s administrative office. Accordingly, venue for a claim under subsection (iii) of the special venue provision of the Carmack is improper in this district.

2. Carmack Amendment’s Special Venue Provision is Restrictive and Controlling as to Venue
As general rule, “venue for any civil litigation brought by or against the debtor or bankruptcy estate is proper in primary district, i.e., the bankruptcy court where case is pending.” In re Tribune Co., 418 B.R. 116 (Bankr. D. Del. 2009) (citing 28 U.S.C. § 1409(a)). Indeed, the Plaintiff asserts that venue is appropriate in this Court pursuant to 28 U.S.C. §§ 1409 and 1391. See Am. Compl. ¶15, ECF No. 19. However, Congress has established both “general venue” statutes and “special venue” statutes, which explicitly cover venue for particular types of actions. Compare, e.g., 28 U.S.C. § 1391 and § 1406 with 49 U.S.C. § 11706(d)(2). Where claims are premised on a statute that contains a special venue provision, a court may be confronted with competing statutory venue charges.

It is well settled that a special venue statute, like the one at issue in this case, will control over the general venue statutes. See Fourco Glass Co. v. Transmirra Corp., 353 U.S. 222, 228–229, 77 S. Ct. 787, 791–792, 1 L.Ed.2d 786 (1957) (citations omitted). However, where the special venue provisions are merely permissive, the general statutes are often read as supplementing the special statute. Pure Oil Co. v. Suarez, 384 U.S. 202, 205, 86 S. Ct. 1394, 1396, 16 L.Ed.2d 474 (1966), 15 WRIGHT & MILLER, Federal Practice and Procedure, Ch. 8 § 3803. Alternatively, “[w]hen a special venue statute is restrictive, the action may only be brought in a district permitted by the special venue statute.” Starr Indem. & Liab. Co. v. Luckey Logistics, Inc., No. 16-01377, 2017 WL 2466505, at *3 (C.D. Ill. June 7, 2017). The Court notes that “[s]ituations in which courts find that Congress intended to restrict venue under a special provision so as to preclude the application of the general venue statute are rare.” Halliburton Energy Servs., Inc. v. NL Indus., Inc., No. 05-4160, 2006 WL 3949170, at *7 (S.D. Tex. July 25, 2006); see also 1 BANKRUPTCY LAW MANUAL § 2:33 Limitations on the jurisdiction of the bankruptcy courts—Statutory limitations to jurisdiction n.1 (5th ed.); Starr Indem. & Liab. Co. v. Luckey Logistics, Inc., No. 16-01377, 2017 WL 2466505, at *3. Nevertheless, this Court is faced with such a rare circumstance. The special venue provisions of the Carmack Amendment are restrictive, so as to preclude application of the general venue provision. See, e.g., Basic, Inc. v. Norfolk S., 684 F. Supp. 123, 124–25 (E.D. Pa. 1988) (finding the special venue provision of the Carmack Amendment to be restrictive).6 In reaching this determination, the Court again looks to the text and history of the statute.

*6 First, the language of the special venue provision evidences an intent to restrict venue for actions arising under the Carmack Amendment. The statute provides that “a civil action under this section may only be brought” in a venue as delineated in the statute. 49 U.S.C. § 11706 (d)(2)(A) (emphasis added). The term “only” indicates restriction or exclusivity. See, e.g., Starr Indem. & Liab. Co. v. Luckey Logistics, Inc., 2017 WL 2466505, at *3. Likewise, as discussed above, the legislative intent behind the 1980 amendment to the statute was to limit venue for actions against rail carriers. See H.R. Rep. No. 96–1430, at 102 (1980). Therefore, it is evident that Congress intended to restrict Carmack Amendment claims against railways to the venues designated in its specific venue provision. As a result, this Court finds that the specific venue provision of 49 U.S.C. § 11706(d)(2)(A) governs this action.

Having ruled that there is no basis for venue in this district under § 11706(d)(2)(A), this Court may dismiss the entire action or transfer the case to any district or division where it could have been brought. See 28 U.S.C. § 1406. The Court declines to transfer the claims and, instead, dismisses the entire action, without prejudice. In making its decision, this Court considers the other bases for dismissal of Azzil’s claims and, as a courtesy to the parties, the Court discusses below the issues which compel the Court to dismiss rather than transfer.

B. Rule 12(b)(6)
The Defendants also seek dismissal of Azzil’s Carmack Amendment claims under FED. R. CIV. P. 12(b)(6). “To survive a motion to dismiss, a complaint must contain sufficient factual allegations, taken as true, to ‘state a claim to relief that is plausible on its face.’ ” Fleisher v. Standard Ins., 679 F.3d 116, 120 (3d Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L.Ed.2d 929 (2007)). When reviewing a motion under 12(b)(6), a court must “view the facts alleged in the pleadings and the inferences to be drawn from those facts in the light most favorable to the plaintiff, and judgment should not [be] granted unless the moving party has established that there is no material issue of fact to resolve, and that it is entitled to judgment in its favor as a matter of law.” Leamer v. Fauver, 288 F.3d 532, 535 (3d Cir. 2002) (citation omitted); see also Davis v. Wells Fargo, 824 F.3d 333, 341 (3d Cir. 2016). A claim has “facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). Here, Defendants argue that Azzil fails to state a plausible claim for relief under the Carmack Amendment. Although the Court makes no determination as to the merits of the Amended Complaint, the Court has concerns as to whether there are sufficient factual allegations supporting a claim under the Carmack Amendment.

“To establish a prima facie case against a common carrier under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 11706, a plaintiff must prove the following three elements: (1) delivery of the goods to the initial carrier in good condition, (2) damage of the goods before delivery to their final destination, and (3) the amount of damages.” Beta Spawn, Inc. v. FFE Transportation Servs., Inc., 250 F.3d 218, 223 (3d Cir. 2001) (footnote and citations omitted). However, the Amended Complaint is devoid of any allegations regarding the condition of the goods upon delivery to the Defendants, suggesting that the first element of a claim under the Carmack Amendment is unsatisfied. Likewise, Azzil does not recite an amount for damages and, instead, only vaguely refers to “significant” or “substantial” losses. See e.g., Am. Compl. ¶ 19, 22, 50, 62-63, 67-68, 72-73, ECF No. 19. Thus, it is unclear whether the third and final element of a claim under the Carmack Amendment is satisfied. With respect to the second element, Azzil does not allege that the goods being shipped were damaged. Instead, Azzil asserts that it “suffered significant losses as a result of [the Defendant’s] delay or failure to timely deliver Azzil railcar shipments to end users and customers.” Id. at ¶ 62, 67, 72. Unquestionably, delays in shipping can satisfy the damage element of a claim under the Carmack Amendment. See, e.g., Paper Magic Grp., Inc. v. J.B. Hunt Transp., Inc., 318 F.3d 458, 461 (3d Cir. 2003); Am. Home Assur. Co. v. RAP Trucking, Inc., No. 09-80020-CIV, 2010 WL 547479, at *4 (S.D. Fla. Feb. 9, 2010); Am. Rock Salt Co., LLC v. Norfolk S. Corp., 387 F. Supp. 2d 197, 201 (W.D.N.Y. 2005).7 However, Azzil does not explain with any specificity the extent of the delays or how these delays resulted in losses. Although Azzil’s written submissions refer to a contract requirement that the Defendants complete each round trip with each railcar within 15 days, see e.g. Am. Compl. ¶ 27, the parties clarified during oral argument that this 15-day limitation is not a contractual provision. Rather, Azzil arrives at that figure based on the number of railcars it possessed and its own contractual obligation to operate a minimum volume of 1,500 cars per year.

*7 The Court acknowledges that FED. R. CIV. P. 8(a) does not require that a complaint contain detailed factual allegations. Nevertheless, to survive a motion to dismiss under Rule 12(b)(6), factual allegations must be capable to raise a plaintiff’s right to relief above the speculative level, such that it is “plausible on its face.” See Fleisher v. Standard Ins., 679 F.3d 116; George E. Warren Corp. v. Colonial Pipeline Co., No. 17-01205, 2017 WL 3038251, at *2 (D.N.J. July 17, 2017). A claim has “facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).

In this case, Azzil fails to provide even a formulaic recitation of the elements of a cause of action under the Carmack Amendment, let alone factual allegations which suggest entitlement to relief. Even accepting the allegations of the Amended Complaint as true, as courts must, see Davis, 824 F.3d at 341, Azzil offers only conclusory and vague allegations along with limited—and admittedly inaccurate—information.8 Accordingly, this Court questions whether a court addressing a motion to dismiss under Rule 12(b)(6) would be able to draw the reasonable inference that the Defendants are liable necessary to survive such a motion.

C. Written Notice Requirement
Finally, the Defendants posit that Azzil’s Carmack Amendment claims would fail due to Azzil’s failure to file a notice or claim for damages. Indeed, “[u]nder the implementing regulations of the Carmack Amendment, a claimant must file notice of loss or damage with the carrier within the time specified on the bill of lading, 49 C.F.R. § 1005.2(a), which may not be less than nine months, 49 U.S.C. § 14706(e)(1).” S & H Hardware & Supply Co. v. Yellow Transp., Inc., 432 F.3d 550, 554 (3d Cir. 2005); see also 49 U.S.C. § 11706(e); Usinor Steel Corp. v. Norfolk S. Corp., 308 F. Supp. 2d 510, 518–19 (D.N.J. 2004). Courts generally have required strict compliance with claim filing time limitation provisions. See Usinor Steel Corp., 308 F. Supp. 2d at 518–19 (collecting cases holding that a claim under the Carmack Amendment is barred unless the shipper complies with the nine-month filing requirement). “In addition to enforcing the time limitations, courts have also required compliance with written claim filing requirements as stated under the regulations.” Id. In this case, the Contract contained a provision which required Azzil to notify the Defendants of loss or damage within nine months. See Ex. A to Compl. 25, ECF No. 1. Azzil does not allege that it submitted any written claims or notices regarding the alleged delay or damage within this time period. The Defendants contend that Azzil filed “no claims whatsoever.” Defs.’ Mem. 20, ECF No. 24-1 (emphasis in original). Moreover, the Contract expired in January 2019; therefore, the time period for filing a claim has expired and Azzil can no longer satisfy this prerequisite.

*8 In response, Azzil asserts that it “did not have to file a claim with CP as a prerequisite to seeking redress in this Court because the Amended Complaint asserts a claim for a complete breach and full non-performance of the parties’ contract and, therefore, provisions in the contract pertaining to filing a claim for a single lost or damaged shipment do not apply.” Azzil’s Omnibus Opp’n 13, ECF No. 28. In support of this proposition, Azzil cites to cases interpreting state contract law which hold that one party’s complete breach of a contract discharges the other party’s obligations. Id. at 13 n.1. As an initial matter, it is unclear whether the factual allegations of the Amended Complaint demonstrate a “complete breach of contract.” Nevertheless, even assuming a “complete breach,” this argument would likely fail because the Carmack Amendment is specifically intended preempt state law remedies. See, e.g., Phoenix Ins. Co. v. Norfolk S. R.R. Corp., No. 11-00398, 2014 WL 2008958, at *16 (D.N.J. May 16, 2014) (“It is well settled that Carmack preempts all state law causes of action against rail-carriers.”); Usinor Steel Corp, 308 F. Supp. 2d at 517; see also Certain Underwriters at Interest at Lloyds of London v. United Parcel Serv. of Am., Inc., 762 F.3d 332, 335 (3d Cir. 2014) (addressing extension of Carmack Amendment applicable to motor carriers and holding that the Carmack Amendment preempts all state or common law remedies). As explained, a plaintiff must first file a written notice or claim with the carrier within the specified time period as a condition precedent to filing a lawsuit under the Carmack Amendment. The Amended Complaint does not allege that Azzil satisfied this notice requirement, nor does Azzil assert that an exception to this strict rule applies. See, e.g., Usinor Steel Corp., 308 F. Supp. 2d at 519 (“Exceptions to the strict compliance rule in both the time limits and the written claim requirements have been recognized.”).

Azzil further states that in May 2019 it, “in good faith, attempted to invoke the mediation clause” under the Contract to resolve these issues. Azzil’s Omnibus Opp’n 13 n.1, ECF No. 28. To the extent Azzil mentions this fact to imply that it satisfied the written notice requirement by invoking mediation, the Court remains unconvinced. First, the Amended Complaint does not specify when any specific delay or issue occurred; therefore, it is uncertain whether May 2019 is within the nine-month time period. Moreover, case law suggests that Azzil’s attempt to mediate is insufficient to satisfy the Carmack Amendment’s written notice requirement. The Third Circuit has observed that “[t]he purpose of the written claim requirement is to insure that the carrier may promptly investigate claims, and not to permit the carrier to escape liability.” Lewis v. Atlas Van Lines, Inc., 542 F.3d 403, 411 (3d Cir. 2008) (quoting S & H Hardware & Supply Co, 432 F.3d at 554)). “The crux of the notice is whether it apprises the carrier of the basis for the claim and that reimbursement will be sought.” S & H Hardware & Supply Co., 432 F.3d at 554. Even accepting as true Azzil’s assertion that it attempted to mediate issues, it is unclear whether there is sufficient information in the Amended Complaint from which a court could draw a reasonable inference that the notice requirement has been satisfied.

Pursuant to the regulations promulgated by the Carmack Amendment, a proper notice must “be communicated in writing or, where agreed to by the parties, electronically; contain facts sufficient to identify the damaged or lost shipment; assert liability for alleged loss, damage, injury, or delay; and demand payment of a specified or determinable amount of money.” Id. (citing 49 C.F.R. § 1005.2(b)). Further, the parties’ contract delineates specific documents and information that must be submitted with a notice of damage or loss. See Ex. A to Compl. 25, ECF No. 1. Although “[c]ourts in this circuit construe the written claim requirement liberally, and may require substantial performance rather than strict compliance with that requirement,” the allegations of the Amended Complaint—and the allegation that Azzil attempted mediation—are likely insufficient to satisfy the notice requirement. Raineri v. N. Am. Van Lines, Inc., 906 F. Supp. 2d 334, 341 (D.N.J. 2012). Accordingly, the Court has concerns that Azzil’s Carmack Amendment claims may be subject to dismissal for failure to satisfy a condition precedent to recovery.

III. NYA’s Motion to Dismiss
Count IV of the Amended Complaint alleges fraud against NYA. In its motion, NYA seeks dismissal of Count IV due to Azzil’s failure to plead the fraudulent inducement claim with the requisite level of particularity. NYA also asserts that any fraudulent inducement claim must fail because Azzil expressly agreed that it would not rely on statements made by NYA. Finally, NYA asserts that venue for the fraud claim is improper. The Court will first address the issue of venue.

*9 As discussed previously, a defendant seeking dismissal for improper venue under Rule 12(b)(3)9 bears the burden. See Myers v. Am. Dental Ass’n, 695 F.2d 716 (3d Cir. 1982); Bockman v. First Am. Mktg. Corp., 459 F. App’x 157 (3d Cir. 2012). Here, NYA contends that the fraudulent inducement claim is not properly brought in this Court because the parties’ contract contained a forum selection clause. Indeed, it is undisputed that the parties contractually agreed to venue in New York. However, whether venue is “wrong” or “improper” depends exclusively on whether the court in which case was brought satisfies requirements of federal venue laws, irrespective of any forum-selection clause that may apply. Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 134 S. Ct. 568, 187 L. Ed. 2d 487 (2013); see also Jumara v. State Farm Ins. Co., 55 F.3d 873, 877–79 (3d Cir. 1995) (holding that a forum-selection clause does not render venue improper in an otherwise proper forum).

In this case, Count IV of the Amended Complaint—Azzil’s claim for fraudulent inducement—is sufficiently related to the bankruptcy proceeding such that venue is proper in this judicial district. See 28 U.S.C. § 1409(a) (“[A] proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending.”). The forum selection provision, alone, does not render venue improper in this Court and does not warrant dismissal of Count IV under Rule 12(b)(3). See Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 61, 134 S. Ct. 568, 580, 187 L. Ed. 2d 487 (2013) (holding that Rule 12(b)(3) is not proper mechanism to enforce a forum-selection clause); TriState HVAC Equip., 752 F. Supp. 2d 517 (E.D. Pa. 2010) (denying movant’s motion to dismiss under Rule 12(b)(3) because movant relied only on the forum selection clause and failed to demonstrate that venue was improper).

Although NYA’s blanket assertions of improper venue fail, the forum selection clause is nevertheless entitled to great weight, and is considered presumptively valid. Wall St. Aubrey Golf, LLC v. Aubrey, 189 F. App’x 82, 85 (3d Cir. 2006); Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190, 202 (3d Cir. 1983) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 1916, 32 L. Ed. 2d 513 (1972)). “While courts normally defer to a plaintiff’s choice of forum, such deference is inappropriate where the plaintiff has already freely contractually chosen an appropriate venue, and in such a case the plaintiff bears the burden of demonstrating why it should not be bound by its contractual choice of forum.” TriState HVAC Equip., LLP v. Big Belly Solar, Inc., 752 F. Supp. 2d 517 (E.D. Pa. 2010), order amended on reconsideration, No. 10-1054, 2011 WL 204738 (E.D. Pa. Jan. 21, 2011). Thus, NYA having raised the issue of the forum selection clause, the burden now shifts to Azzil “to make strong showing that it should be set aside.” M/S Bremen, 407 U.S. at 15, 92 S.Ct. 1907.

During oral argument, Counsel for Azzil acknowledged the existence of the forum selection clause in its contract with NYA and argued simply that if this Court exercises venue over the Carmack Amendment claims, then this Court should exercise pendent venue over the fraud claim. See also Azzil’s Opp’n 8, 9-10, ECF No. 29. “Pendent venue” is an exception to the general rule that venue must be established for each cause of action and “allows a court to hear a claim that would otherwise not have proper venue, provided it is joined in a suit with a claim that is properly venued, and the claims arise out of a common nucleus of operative fact.” Atcom Support LP v. Maria, No. 15-28, 2016 WL 4118914, at *6 (D. Del. Aug. 1, 2016), report and recommendation adopted, No. 15-28, 2016 WL 5867407 (D. Del. Oct. 4, 2016); see also Dockery v. Heretick, No. 17-4114, 2019 WL 2122988, at *14 (E.D. Pa. May 14, 2019) (collecting cases). Having previously determined that venue for Azzil’s Carmack Amendment claims is improper in this judicial district, there is no properly venued claim to which pendent venue of Count IV could attach. Moreover, as explained, proper venue does not negate the existence of a forum selection clause. Rather, to sidestep the presumptively valid forum selection clause in this case, Azzil must demonstrate why it should be set aside. See M/S Bremen, 407 U.S. at 15, 92 S.Ct. 1907. Here, Azzil has failed to make a strong showing that not be bound by its contractual agreement. See, e.g., TriState HVAC Equip., LLP, 752 F. Supp. 2d 517. Thus, the forum selection provision of the parties’ agreement controls.

*10 Further, the Third Circuit has made clear that dismissal under Rule 12(b)(6) is a permissible means of enforcing a forum selection clause that allows suit to be filed in another federal forum. Salovaara v. Jackson Nat. Life Ins. Co., 246 F.3d 289, 298 (3d Cir. 2001) (citing Crescent Int’l, Inc. v. Avatar Communities, Inc., 857 F.2d 943, 944 (3d Cir. 1988)); see also Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 61, 134 S. Ct. 568, 580, 187 L. Ed. 2d 487 (2013) (noting, without deciding, the possibility that defendants could use Rule 12(b)(6) to enforce a forum-selection clause).10 The present case involves precisely the type of forum selection clause addressed by the Third Circuit in Salovaara.11 This Court acknowledges that “as a general matter, it makes better sense, when venue is proper but the parties have agreed upon a not-unreasonable forum selection clause that points to another federal venue, to transfer rather than dismiss.” Salovaara, 246 F.3d at 299. Nevertheless, “when a defendant moves under Rule 12, a district court retains the judicial power to dismiss.” Id.. For the reasons that follow, this Court decides to exercise that power and dismiss Count IV rather than direct a transfer.

At the outset, the Court notes that a claim under state law for fraud is not a core proceeding. Thus, if this Court were to keep Count IV, it would be unable to make a final ruling and, instead, would have to submit findings of fact and conclusions of law to the district court for its review. See, e.g., Exec. Benefits Ins. Agency v. Arkison, 573 U.S. 25, 34, 134 S. Ct. 2165, 2172, 189 L. Ed. 2d 83 (2014) (“If a matter is non-core, and the parties have not consented to final adjudication by the bankruptcy court, the bankruptcy judge must propose findings of fact and conclusions of law. Then, the district court must review the proceeding de novo and enter final judgment.”). These judicial economy considerations provide further support for dismissal or transfer. As with the Carmack Amendment claims, however, transfer is not a viable option given this Court’s serious concerns regarding the sufficiency of Azzil’s fraud claim, as pleaded.

As NYA points out, “[a] fraudulent inducement claim is subject to the heightened pleading standards of Rule 9(b) of the Federal Rules of Civil Procedure, which require a plaintiff to ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’ ” Senior Health Ins. Co. of Pennsylvania v. Beechwood Re Ltd., 345 F. Supp. 3d 515, 525 (S.D.N.Y. 2018) (quoting Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006)). The allegations in the Amended Complaint with respect to the fraud claim are vague and conclusory. This Court doubts that they establish the facial plausibility necessary to survive a motion to dismiss under 12(b)(6), see Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868, let alone satisfy the heightened pleading standards under Rule 9(b).

*11 Finally, this Court has dismissed Counts I through III of the Amended Complaint and instructed that these claims will have to proceed in another judicial district. Given that all Azzil’s claims arise out of the same set of operative facts, as Azzil alleges, it makes practical sense to likewise dismiss Count IV so that Azzil may bring these claims together.

IV. Conclusion
For the reasons set forth above, the Court determines that venue for Counts I, II and III of the Amended Complaint is improper in this judicial district and the Defendants’ Joint Motion to Dismiss (ECF No. 24) will be granted. Additionally, the Court determines that the parties’ forum selection clause controls and NYA’s Motion to Dismiss Count IV (ECF No. 23) will be granted. Given the deficiencies of the Amended Complaint, and for reasons of judicial economy, the Court is not inclined to transfer these causes of action. All claims of the Amended Complaint are hereby dismissed without prejudice. The Court will enter a form of Order consistent with this Opinion.

All Citations
— B.R. —-, 2020 WL 2465284


The Court is not required to provide findings of fact and conclusions of law for motions premised on FED. R. CIV. P. 12(b). See FED. R. BANKR. P. 7052 (incorporating FED. R. CIV. P. 52).

The state in which Azzil was formed was a source of confusion. Azzil’s bankruptcy petition reports that its principal place of business is in Hackettstown, NJ. Azzil’s Bankr. Pet. 1, Case No. 19-21764 (MBK), ECF No. 1. However, a section of the petition titled “Written Resolution by Unanimous Written Consent of the Managing Members” indicates that Azzil is a company formed pursuant to the laws of the state of New York. See Id. at 8. During oral argument on these Motions, Counsel for Azzil represented that Azzil is a limited liability company formed in the state of New Jersey. At the Court’s request, Counsel for Azzil submitted a post-hearing submission which brings finality to this issue and clarifies that “Azzil Granite Materials, LLC was formed under the laws of the State of New York, not New Jersey.” April 29, 2020 Letter, Adv. No. 19-02285, ECF No. 33.

In their motion, Defendants do not specifically reference FED. R. CIV. P. 12(b)(3) and, instead, request dismissal under Rule 12(b)(6), which addresses failure to state a claim. Although the latter part of their motion is premised on Plaintiff’s failure to state a claim, the initial portion of the Defendants’ motion alleges improper venue and, thus, implicates Rule 12(b)(3).

The Court notes that the Amended Complaint alleges that all Defendants are all “delivering rail carriers” as defined by the Carmack Amendment. Am. Compl. ¶ 30, ECF No. 19. However, Counsel for Azzil clarified on the record during oral argument that Defendants CP and D&H were, in fact, “originating” or “receiving” rail carriers. See also, e.g., Am. Home Assur. v. A.P. Moller-Maersk, 13 F. Supp. 3d 277 (S.D.N.Y. 2014), aff’d sub nom. Am. Home Assurance Co. v. A.P. MollerMaersk A/S, 609 F. App’x 662 (2d Cir. 2015) (“Under the Carmack Amendment, a receiving rail carrier is the initial carrier, which ‘receives’ the property for domestic rail transportation at the journey’s point of origin.”).

For purposes of this decision, the Court need not, and does not, rule on whether Azzil’s principal place of business is New York or New Jersey. The restrictive Carmack Amendment’s venue provisions dictate the result herein.

Although the court in Basic, Inc. v. Norfolk S., 684 F. Supp. 123, 124 (E.D. Pa. 1988) analyzed the text of § 11707(d)(2)(A), that statute was the predecessor to the statute at issue in this case, § 11706(d)(2)(A), and contains identical language. See Pub.L. 104-88 § 102(a) (generally amending prior section 11707 and reincorporating into 11706, 14706, and 15906 of title 49).

The Court’s observation that a delay in shipping can constitute “damage” in the second element of a prima facie claim under the Carmack Amendment and that the “amount of damages” in the third element can be satisfied by economic damages caused by a delay in shipping is not inconsistent with this Court’s holding that the “damages” referenced in the special venue provision of the statute cannot be satisfied by economic damages felt by the company at a specific office or location. See 49 U.S.C. § 11706(d)(2)(A)(iii). As discussed supra, the latter reference to “damage” is a special venue provision that is tied to the location of the injury or loss and is specifically intended to restrict venue. The inquiry as to where the “damage” occurred for purposes of establishing venue does not change where, as here, the “damage” alleged is “delay.” In contrast, consequential economic damages caused by the “damage” or “delay” may be considered for purposes of calculating the amount damages to which a plaintiff is entitled. See, e.g., Paper Magic Grp., Inc. v. J.B. Hunt Transp., Inc., 318 F.3d 458, 461 (3d Cir. 2003) (collecting cases and discussing proper measure of damages in the event that goods are damaged or delivery is delayed).

Azzil pleaded in the Amended Complaint that it is a New Jersey limited liability company, see Am. Compl. ¶ 8, ECF No. 19; however Azzil later clarified that it is a limited liability company under the laws of the state of New York, see ECF No. 33. Azzil also pleaded in the Amended Complaint that all Defendants are “delivering rail carriers as defined by the Carmack Amendment.” Am. Compl. ¶ 30. However, Azzil acknowledged during oral argument that Defendants CP and D&H are actually “receiving” or “originating” carriers. Finally, Azzil alleged in the Amended Complaint that the parties’ contract required the Defendants to complete each round trip with each railcar within 15 days, see id. ¶ 27. Azzil later clarified that the 15-day limitation was not a contractual provision and, instead, was calculated based on extrapolation of its own minimum-volume commitment and the number of rail cars it operated.

The Court notes that NYA did not directly cite Rule 12(b)(3) in its motion. Nevertheless, NYA expressly seeks dismissal based on improper venue in its moving papers. See NYA’s Mem. in Support of Mot. to Dismiss 11, ECF No. 23-1. Further, the case cited by NYA analyzes a motion to dismiss under Rule 12(b)(3). Id. (citing Nat’l Micrographics Sys., Inc. v. Canon U.S.A., Inc., 825 F. Supp. 671, 678 (D.N.J. 1993) (addressing motion dismiss for lack of venue pursuant to FED. R. CIV. P. 12(b)(3) based upon the forum selection clauses)).

To the extent a forum selection clause specifies a non-federal forum, “dismissal is the sole option.” Wall St. Aubrey Golf, LLC v. Aubrey, 189 F. App’x 82, 87 (3d Cir. 2006).

Pursuant to Section 29 (k) and (l) of the Licensing Agreement between NYA and Azzil, any matter related to “the interpretation, construction, validity or enforcement of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York” and the parties submit themselves “to the jurisdiction of the courts of the State of New York and, to the extent applicable, the federal courts of the United States of America located in the State of New York.” Ex. B to the Cert. of Kylg G. Kunst 22, ECF No. 23-4 (emphasis added). Similarly, the forum selection clause in Salovaara “specified that suit could be brought either in state courts located within New York County or in the United States District Court for the Southern District of New York.” Salovaara, 246 F.3d at 298 (3d Cir. 2001).


2020 WL 2111349

United States District Court, D. Minnesota.
Case No. 18-cv-2945 (PJS/HB)
Signed 05/04/2020
Attorneys and Law Firms
Kent M. Williams, Williams Law Firm, Long Lake, MN, Kevin E. Giebel, Koch Companies, Minneapolis, MN, for Plaintiff.
Ryan M. Sugden, Stephen E. Schemenauer, Stinson Leonard Street LLP, Mpls, MN, for Defendant.

HILDY BOWBEER, United States Magistrate Judge
*1 Defendant American Interstate Insurance Company (“AIIC”) moves to compel Plaintiff Stan Koch and Sons Trucking, Inc. (“Koch”) to more fully respond to several discovery requests and for sanctions. For the reasons set forth below, the motion is granted in part and denied in part.

I. Background

A. Factual Background
Koch, a national trucking company, purchased a workers’ compensation insurance policy from AIIC for the period of May 1, 2013 to May 1, 2014. (Compl. ¶ 5 [Doc. No. 1-1]; Williams Decl. Ex. A [Doc. No. 70-1].) The policy was terminated early, so Koch was only insured by AIIC from May 1, 2013 through February 1, 2014. (Williams Decl. Ex. A [Doc. No. 70].) Koch alleges that AIIC overcharged Koch for its policy by improperly applying debits to Koch’s premium in violation of the agreed-upon policy terms. Since the outcome of this motion will turn in large part on what evidence may be relevant to that claim and/or the defenses thereto, the Court will briefly summarize the process of calculating workers’ compensation insurance rates and premiums.1

Because the actual number of employees covered by a workers compensation insurance plan can fluctuate, sometimes significantly, during the covered period, the premium for that period is estimated up front and finalized later. Before an employer enters into a workers’ compensation insurance policy, it is offered an “estimated premium” based on its estimated number of employees for the policy term. (Compl. ¶¶ 8, 10.) In order to determine the estimated premium, the insurance provider’s underwriters will conduct an assessment in which they forecast the number of expected claims and employees, taking into account the number of employees in each job category (since some job categories are more susceptible to workplace injuries than others), and calculate the premium needed to cover them. One key aspect of this determination is the calculation of a “schedule rating,” which is a method of adjusting the premium calculation with “debits” or “credits” based on readily-identifiable factors, such “safety devices,” “employee selection,” and “training and supervision.” (Id. ¶¶ 20, 26.) “Debits” would result in the premium going up; “credits” would result in the premium going down. This calculation is done on a state-by-state basis, depending on the places where the employer operates. The insurance provider uses this information to fix an overall rate which it can offer to the purchaser. If the parties agree, the rate, but not the total dollar amount of the policy, gets locked in.2 The “final premium” amount will be calculated retrospectively at the end of the contractual period, based on the number of employees who were actually employed during that period and therefore covered under the plan. (Id. ¶ 11.)

*2 The parties agree the initial process is discretionary and competitive, although just how discretionary is the subject of this lawsuit. The calculation of the final premium is a non-discretionary mathematical determination and is not the subject of Koch’s complaint.3 Rather, Koch alleges that AIIC improperly determined its schedule rating in the pre-contractual underwriting process by applying debits without the necessary justification, and by misinterpreting some of the schedule rating factors or relying on a violation in one state to increase the premium calculation for another state, thereby increasing the overall rate and resulting in an overcharge of $445,000. (Id. ¶¶ 29–36, 40.)

Koch did not challenge AIIC’s rate calculation before deciding to go with the AIIC policy. Rather, after considering competing offers by other insurers, it entered into the policy with AIIC and paid the estimated premium. But in 2016 Koch’s Director of Risk Management, William Sullivan, was approached by a rival insurance provider who recommended that Koch contact a consultant, Patrick Charais of Synergetic Solutions, and retain Charais to audit Koch’s workers’ compensation policies to determine if Koch had been overcharged. (Sullivan Dep. (Def. Ex. A) at 247–48 [Doc. No. 60-1].) Koch retained Charais on a contingency basis in February 2016. (Def. Ex. C ¶ 2 [Doc. No. 60-3].)

In the fall of 2017 Koch sent three letters to AIIC requesting certain documents to aid Charais in his audit. (See Def. Exs. D, E, F [Doc Nos. 60-4, 60-5, 60-6].) In the last of those letters, dated October 23, 2017, Koch’s General Counsel threatened legal action if AIIC did not provide the documentation. (Def. Ex. F.) AIIC eventually provided some of the requested information. (Def. Mem. Supp. at 59; Pl. Mem. Opp’n at 4.)

On June 18, 2018, Charais completed his report for Koch in which he identified the alleged errors in AIIC’s rate calculation. (Def. Ex. G [Doc. No. 60-7].) Koch forwarded a copy of the report to AIIC on June 29, 2018, and requested a refund of approximately $450,000. AIIC rejected the demand and Koch commenced this lawsuit in state court on October 10, 2018. AIIC subsequently removed it to federal court.

II. Discussion
AIIC filed the instant motion seeking to compel production of documents falling into two categories:4 (1) documents relating to Koch’s enforcement of its safety policies, and (2) communications relating to Charais’s analysis and report prepared for Koch. AIIC also asks the Court to order sanctions against Koch.

A. Discovery Relating to Koch’s Enforcement of its Safety Policies
AIIC’s Request for Production No. 12 seeks copies of all employee handbooks, workplace safety manuals, and driver policies in use from May 1, 2012 to present. (Def. Ex. I at 6 [Doc. No. 60-9].) Koch represented at oral argument that it has responded fully to Request No. 12 by producing its employee safety manual, and it does not have any other documents responsive to that request. AIIC has not challenged that representation. The Court therefore denies AIIC’s motion pertaining to Request No. 12 as moot.

*3 Request No. 13 seeks documents reflecting “all incidents, traffic violations, and traffic accident reports involving [Koch’s] employees from May 1, 2012 to present.” (Id.) In response to Request No. 13 (and virtually every other document request), Koch directed AIIC to its “General Objections”—two pages of boilerplate objections interposed at the beginning of the responses, declaring some or all of the requests to be vague, overbroad, duplicative, seeking privileged or work product information, overly burdensome, irrelevant or otherwise objectionable. (Id. at 2–3.) Koch’s specific response to Request No. 13 said only, “Subject to the above [general] objections and without waiver of same, see link in response to this Request, if any. Discovery continues.” (Id. at 6.) The “link” referred to a previously provided hyperlink to purportedly responsive documents.

AIIC argues Request No. 13 seeks documents that it needs to refute Koch’s claim that AIIC failed to take appropriate account of its safety policies during the underwriting process. AIIC reasons that the efficacy of safety policies in mitigating the risk of workplace injury would depend not only on their existence, but also on the extent to which Koch enforced them. In particular, AIIC wants “driver disciplinary files” in response to Request No. 13, arguing that such files would contain evidence of how effectively Koch enforced its safety policies. AIIC offered, however, to limit the time period encompassed by the request to the dates of insurance coverage: May 1, 2013 – February 1, 2014.

Koch argues that even with the more limited time parameter, the request seeks irrelevant information because it post-dates the determination of the rate, and therefore could not have been a factor in AIIC’s premium calculation. Koch also argues the request, even as limited, is unduly burdensome because it would require a search of “thousands of individual employee files” in order to identify responsive documents. (Pl. Mem. Opp’n at 9 [Doc. No. 66].) AIIC responds that such specific objections are untimely and therefore waived, since Koch’s only objections at the time of its initial responses were both general and boilerplate.

The Court begins by observing that Rule 34 requires that all responses to requests for information must “state with specificity the grounds for objecting to the request, including the reasons,” and must reveal “whether any responsive materials are being withheld on the basis of that objection.” Fed. R. Civ. P. 34(b)(2)(B)–(C). Routine, “[b]oilerplate objections, without more specific explanations for any refusal to provide information, are not consistent with the Federal Rules of Civil Procedure.” Lubrication Techs., Inc. v. Lee’s Oil Serv., LLC, Case No. 11-cv-2226 (DSD/LIB), 2012 WL 1633259, at *5 n.5 (D. Minn. Apr. 10, 2012) (citation omitted). There is no question that Koch’s objections were boilerplate and non-specific and therefore ineffective.

But although Koch’s boilerplate objections were inconsistent with the requirements of the Federal Rules, so also was AIIC’s Request No. 13. “[T]he Court may still find that a request on its face is not proportional to the needs of the case, given the relevance of the requested discovery.” Klein v. Affiliated Grp., Inc., Case No. 18-cv-949 DWF/ECW, 2019 WL 1307884, at *7 n.9 (D. Minn. Mar. 22, 2019). Here, AIIC’s request showed little, if any, more thought about relevance and proportionality than did Koch’s objections, and even the subsequent attempts to limit it failed to bring it within the realm of relevance to the issues in this case. And when AIIC finally got specific about what it really wanted and how it related to an actual issue in the case, it became clear that Request No. 13 simply does not ask for the material AIIC sought. AIIC argues it needs the information sought by Request No. 13 to refute Koch’s claim that AIIC overstated its premium because it under-considered Koch’s safety policies. (Def. Mem. Supp. at 16 (“If Koch is going to offer lay and expert witness testimony that Koch is a safe company entitled to a lower insurance premium because of its safety policies, AIIC is entitled to discovery on (and offer evidence at trial of) Koch’s safety policies and whether Koch actually enforced them.”).) As noted above, the question of the existence of safety policies was the subject of Request No. 12, and Koch has represented that all such policies were produced, so there is nothing for this Court to compel.

*4 The remaining dispute concerns Request No. 13, which is purportedly directed to the enforcement of those policies. But even assuming, without deciding, that the enforcement of the policies is relevant to the resolution of the issues raised by Koch’s Complaint, AIIC’s request goes too far. The request for “all incidents, traffic violations, and traffic accident reports involving [Koch’s] employees from May 1, 2012 to present” goes far beyond anything that could remotely be described as relevant to the narrow question of whether Koch enforced the safety policies it claims AIIC should have but failed to consider, let alone during a time period relevant to the case. In an effort to narrow Request No. 13, AIIC offered to restrict the time frame to the period of the policy itself. Then, at oral argument, AIIC further elaborated in response to questioning by the Court that what it really wanted were driver disciplinary files, because such files would presumably contain information about the extent to which Koch had or had not disciplined drivers for violations of its safety policies.

Neither proposed limitation saves Request No. 13. As to the proposed temporal limitation, the relevance of events that occurred after AIIC established the schedule rating and calculated the policy premium eludes the Court. And even if that time period were relevant, or the Court identified a different time period, the text of Request No. 13 cannot reasonably be read to call for “driver disciplinary files.” AIIC speculates that such files would contain reports of “incidents, traffic violations, and traffic accident reports,” and therefore a request for the latter requires production of the former. The Court declines to accept that tortured interpretation of Request No. 13. A request for production of documents “must describe with reasonable particularity each item or category of items to be inspected.” Fed. R. Civ. P. 34(b)(1)(A). If AIIC wanted “driver disciplinary files” within a time period arguably relevant to this case, it could and should have made a specific request for them. If it had, the Court might well have deemed Koch’s objections waived because of Koch’s failure to comply with Rule 34(b)(2). In the circumstances presented here, however, and without in any way intending to signal approval of Koch’s use of boilerplate objections, the Court will not order Koch to produce what is clearly not relevant or proportionate, nor to produce what has not been requested. Accordingly, the Court will deny AIIC’s motion to compel a further response to Request No. 13.5

B. Communications Between Koch and its Consultant
Koch’s consultant, Patrick Charais of Synergetic Solutions, issued a Finding Report on June 18, 2018, based on his audit of AIIC’s schedule rating calculation. (Def. Ex. G.) Koch turned over that report to AIIC in “pre-litigation settlement negotiations.” (Pl. Suppl. Br. at 2 [Doc. No. 89].) AIIC now seeks to discover the communications relating to the production of that report, including both communications between Koch and Charais and Koch’s internal communications about the report.6

As in its other discovery responses, Koch responded to AIIC’s requests for communications relating to Charais’s work by invoking its boilerplate objections, which included a boilerplate objection to the production of privileged and work product communications. (Def. Ex. I at 2, 4–5.) And even though the Pretrial Scheduling Order in this case required privilege logs to be produced within 30 days of any production from which documents were withheld on grounds of privilege [Doc. No. 24 at 4], Koch did not produce a privilege log identifying documents withheld on the basis of privilege or work product protection until October 7, 2019, more than five months after it first produced documents and only after the Court ordered it to do so. (Sugden Decl. ¶ 12 [Doc. No. 60-14].) AIIC estimates there are approximately 80 responsive documents dating between October 21, 2017 and June 18, 2018, that were withheld, ostensibly on the basis of both attorney-client privilege and work product protection. (Def. Suppl. Br. at 2 [Doc. No. 85], referring to Def. Ex. L at 4-9 [Doc. No. 60-12]; see also Pl. Mem. Opp’n at 10 [Doc. No. 66] ).7

*5 AIIC argues that Koch waived any claim of privilege or work-product protection by failing to make a timely, specific objection and by failing to serve a timely privilege log. It also argues that even if the objection and the log had been timely, the documents are neither privileged nor work product. Finally, it argues that Koch waived any protection for communications relating to the subject matter of the report when it produced the report itself to AIIC.

1. Whether the Communications Relating to Charais are Protected by the Attorney-Client Privilege
In a case such as this, which arises under state law and for which state law will supply the rule of decision under Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), state law also governs privilege. Fed. R. Evid. 501. In Minnesota, the attorney client privilege is codified in Minn. Stat. § 595.02, subd. 1(b), which provides: “An attorney cannot, without the consent of the attorney’s client, be examined as to any communication made by the client to the attorney or the attorney’s advice given thereon in the course of professional duty; nor can any employee of the attorney be examined as to the communication or advice, without the client’s consent.” The Minnesota Supreme Court has held:
(1) Where legal advice of any kind is sought (2) from a professional legal advisor in his capacity as such, (3) the communications relating to that purpose, (4) made by the client, (6) are at his instance permanently protected (7) from disclosure by himself or by the legal adviser, (8) except the privilege be waived.
Kobluk v. Univ. of Minn., 574 N.W.2d 436, 440 (1998) (citing 8 John Henry Wigmore, Evidence § 2292, at 554 (John T. McNaughton ed., 1961). See also State v. Taylor, 869 N.W.2d 1, 22 (Minn. 2015) (“The attorney-client privilege protects from disclosure communications that seek to elicit legal advice from an attorney acting in that capacity, that relate to that purpose, and that are made in confidence by the client unless the privilege is waived.”) (internal quotes and ellipses omitted). “ ‘The purpose of the privilege is to encourage the client to confide openly and fully in his attorney without fear that the communications will be divulged and to enable the attorney to act more effectively on behalf of his client.’ ” Kobluk, 574 N.W.2d at 440, quoting National Texture Corp. v. Hymes, 282 N.W.2d 890, 896 (Minn.1979). Courts typically have interpreted the privilege also to extend to communications from counsel in response to the request for advice, i.e., “communications relating to the purpose of seeking or rendering legal advice.” Kobluk, 574 N.W.2d at 441. However, the privilege attaches only to the communications, not to the facts underlying the communications. Id. Furthermore, if the communications are not for the purpose of seeking or rendering legal advice, such as, for example, when an attorney is acting as a “mere scrivener,” no privilege attaches. Id. at 440. Finally, the privilege protects against discovery only if it has not been waived. State ex rel. Schuler v. Tahash, 278 Minn. 302, 307–08 (1967). The privilege is to be “strictly construed,” and the burden is on the party resisting disclosure to present facts to establish the privilege’s existence. Kobluk at 440.

In the corporate setting, the Eighth Circuit has observed that privileged communications can include communications not only between counsel and management who will make decisions based upon the advice, but also communications to company counsel by employees who, at the direction of their superiors, communicate with counsel on matters within the scope of their duties so that the company can secure legal advice, so long as the communications are not disseminated beyond those who need to know their contents. Diversified Indus., Inc. v. Meredith, 572 F.2d 596, 609 (8th Cir. 1977). It has also held that in certain circumstances, the privilege can extend to an independent contractor who is acting as “a representative of the client for purposes of applying the attorney-client privilege.” In re Bieter Co., 16 F.3d 929, 936 (8th Cir. 1994). In Bieter, the court held that communications from a longtime independent consultant to company counsel were privileged when the consultant was the “functional equivalent” of an employee and, as such, “possess[ed] the very sort of information that the privilege envisions flowing most freely” due to his “significant relationship to the client and the client’s involvement in the transaction that is the subject of legal services.” Id. at 938 (internal quotes omitted). The consultant in Bieter had been the client’s sole representative at a number of key meetings and “likely possess[ed] information that [was] possessed by no other,” making him “precisely the sort of person with whom a lawyer would wish to confer confidentially in order to understand [the client’s] reasons for seeking representation.” Id. The court accordingly held there was “no principled basis to distinguish [the consultant’s] role from that of an employee” for purposes of the privilege. Id.

*6 In addition, courts have held that the privilege can also extend to an expert consultant such as an accountant or a foreign language interpreter retained by an attorney to assist him or her in understanding information on which the attorney has been asked to render legal advice. E.g., United States v. Cote, 456 F.2d 142, 144 (8th Cir. 1972).

The Minnesota Supreme Court has not adopted any particular test for the application of the privilege in the corporate setting. See Leer v. Chicago, M., St. P. & P. Ry. Co., 308 N.W.2d 305, 308–09 (Minn. 1981) (describing the various tests applied by other courts, including the Eighth Circuit in Diversified, and concluding the communications at issue were not privileged regardless of the test applied). Accordingly, courts in this District have frequently looked to Eighth Circuit precedent such as Diversified and In re Bieter to fill that gap. See, e.g., Inline Packaging, LLC v. Graphic Packaging International, Inc., Case No. 15-cv-3183 (ADM/LIB), 2017 WL 9325027, at *4 (D. Minn. May 5, 2017); Hudock v. LG Electronics U.S.A., Inc., Case No. 0:16-cv-1220-JRT-KMM, 2019 WL 5692290, at *4–*5 (D. Minn. Nov. 4, 2019).

Turning to the instant case, all but one of the communications Koch seeks to protect from discovery on grounds of attorney-client privilege included Giebel, who was Koch’s in-house counsel.8 Furthermore, although Koch has offered no declarations to support a claim that the purpose of the allegedly privileged communications was to seek or render legal advice, the Minnesota Supreme Court has held that if a matter is “committed to a professional legal adviser,” it is “prima facie so committed for the sake of the legal advice … and is therefore within the privilege unless it clearly appears to be lacking in aspects requiring legal advice.” Kobluk, 574 N.W.2d at 442, quoting 8 Wigmore § 2296 at 567 (emphasis in original). The more difficult questions are whether the communications were in all instances with the client, and whether the privilege was waived by including individuals who did not need to receive the communications in order to fulfill the purpose of seeking or receiving the advice of counsel. Here, Koch asserts that the privilege applies not only to internal Koch communications between Giebel and others within the company, but also to external communications that included Charais himself, who was not a Koch employee at all but an independent consultant.

With regard to the communications that included Charais, Koch’s argument in support of the assertion that they are covered by the attorney-client privilege is cursory at best. The argument seems to boil down to the following: (1) Charais “worked primarily with Koch’s General Counsel, Kevin Giebel” (Pl. Mem. Opp’n at 3), and Koch’s Rule 30(b)(6) deponent William Sullivan testified that Giebel supervised Charais’s work (Sullivan Dep. (Def. Ex. A) at 251–52); (2) the attorney-client privilege is “based upon the principle ‘that sound legal advice or advocacy … depends upon the lawyer’s being fully informed by the client’ ” (Pl. Mem. Opp’n at 10–11); and (3) Giebel was necessarily acting as an attorney when he worked with Charais because auditing schedule rating debits to workers compensation premiums is not an ordinary business practice. (Pl. Mem. Opp’n at 11–12.)

*7 The Court observes at the outset that Giebel did not retain Charais, let alone retain him to assist Giebel in rendering legal advice to Koch. On the contrary, it was Sullivan who first learned of Charais and retained him to audit the premiums paid to AIIC. (Sullivan Dep. (Def. Ex. A) at 247–49; Pl. Mem. Opp’n at 20.) Indeed, Giebel’s October 23, 2017, letter to AIIC states that “Bill Sullivan, [Koch’s] Director of Risk Management, is overseeing the project.” (Def. Ex. F at 1.) It was only later that supervision of Charais’s work was turned over to Giebel. (Sullivan Dep. (Def. Ex. A) at 251–52.) Nor does Koch argue that Charais was the “functional equivalent” of an employee as described in Bieter or Hudock, and the Court finds no basis in the record to conclude as much. While Koch submitted four declarations with its response to the instant motion, all four address Koch’s efforts to respond to AIIC’s discovery; not one speaks to the basis on which Koch asserts privilege (or work product protection, for that matter) as to the challenged communications. (Doc. Nos. 67–70.)

Koch implies that the Court should find the communications privileged because auditing workers compensation premiums was not an “ordinary business practice.” Aside from the fact that it introduced no evidence to that effect, the argument misses the point. The question is not whether auditing workers compensation premiums was ordinary, but whether Giebel retained Charais to assist him in rendering legal rather than business advice. In U.S. Postal Service v. Phelps Dodge Refining Corp., the court found that communications between the defendants’ in-house counsel and outside consultants who were retained to formulate a remediation plan and to oversee remedial work were not privileged. “Their function was not to put information gained from defendants into usable form for their attorneys to render legal advice, but rather, to collect information not obtainable directly from defendants.” 852 F. Supp. 156, 161 (E.D.N.Y 1994) (citing United States v. Kovel, 296 F.2d 918 (2nd Cir. 1961) and Federal Trade Comm’n v. TRW, Inc., 628 F.2d 207, 212 (D.C. Cir. 1980)). The facts here offer even less support than in U.S. Postal Service for a finding that Giebel’s communications with Charais were privileged, because it was Sullivan, not Giebel, who retained Charais, and the retention was for the business purpose of determining whether Koch had been overcharged for its workers compensation premiums.

Accordingly, the Court concludes that Koch has not carried its burden of proof that the withheld communications with Charais were covered by the attorney-client privilege, notwithstanding Giebel’s involvement in them.

This does not mean, however, that internal Koch communications between Giebel and other Koch employees about Charais’s work might not be privileged. Such internal communications might still have related to the seeking and providing of legal advice in light of Charais’s findings. Unfortunately, the information currently before the Court is insufficient to establish that was the case. True, Minnesota law presumes that when a matter was “committed to a professional legal adviser” (i.e., Giebel) it was “prima facie so committed for the sake of the legal advice.” Kobluk, 574 N.W.2d at 442. But questions remain, including whether Giebel’s role in the communications was that of the company’s legal counsel or that of a businessman,9 and if so, whether the communications were disseminated only to those who needed to know their contents. Nothing in Koch’s response to the motion to compel sheds light on these questions. Neither the privilege log nor the declarations identify the roles of the individuals who communicated with Giebel or Charais by title, job responsibility, or the particular reason each was included or how that reason related to the seeking or providing of legal advice. Nor can that information necessarily be inferred from the vague description of the communications themselves.

*8 AIIC argues, not without justification, that Koch waived its claim of privilege when it failed to timely produce a privilege log as required by Federal Rule of Civil Procedure 26(b)(5) and the Pretrial Scheduling Order, and because it failed to adequately support its claim of privilege in connection with this motion.10 It is tempting to resolve this motion on that basis, to find claims of privilege waived, and to order the documents produced. However, because of the importance of the attorney-client privilege in our system of justice and the resulting reticence of courts to find that it has been waived, and because, although insufficient, it was perhaps not wholly unreasonable for Koch to believe that the presence of its General Counsel on internal communications on which a relatively small number of people were copied would suffice to demonstrate their privileged nature, the Court will exercise its discretion to allow Koch an opportunity to submit for in camera review the internal communications on its privilege log between October 21, 2017, and June 18, 2018. Simultaneously, it must file detailed declarations supporting its claim that those internal communications were properly withheld as attorney-client privileged communications.11 The declarations must state, as to each such communication sought to be withheld on the basis of attorney-client privilege, whether the communication was made for the purpose of seeking legal advice or for the purpose of providing legal advice. The declarations must identify each individual who authored or received the communication by name, title, and his or her job responsibilities insofar as they were pertinent to the communication, and must state specifically why each was included in the communication about Charais’s work, specifically addressing how that related to the seeking or providing of legal advice. To the extent the declarations must include privileged information in order to make a sufficient showing, Koch may file the declarations under seal, with a public version redacted only to the extent necessary to protect privileged information, filed contemporaneously.

The Court will conduct a conference call with counsel for the parties on May 8, 2020, to set a deadline by which the declarations must be filed and the documents submitted to chambers, as well as the means by which the documents will be submitted. No later than one week after the declarations are filed, AIIC may file a short letter brief setting forth its challenges, if any, to the adequacy of Koch’s showing. The Court will issue a final ruling regarding the result of its in camera review within three business days after receiving Koch’s response.

2. Whether the Communications With and About Charais are Protected as Work Product
The Court’s determination as to attorney-client privilege, both as to the communications with Charais and the internal Koch communications about him, only resolves the first of Plaintiff’s two grounds for withholding the documents. Koch also argues that the communications with and about Charais were properly withheld from production because they were generated in anticipation of litigation and therefore are protected as work product. Unlike attorney-client privilege, the scope of work product protection in the federal courts is a matter of federal law. Federal Rule of Civil Procedure 26(b)(3) delineates the scope of work product protection in the federal courts:
Ordinarily, a party “may not discover documents and tangible things that are prepared in anticipation of litigation or for trial by or for another party or its representative (including the other party’s attorney, consultant, surety, indemnitor, insurer, or agent).
*9 Fed. R. Civ. P. 26(b)(3)(A). While work product is often that of an attorney, the work product doctrine is not confined to information or materials gathered or assembled by a lawyer, nor need it have been requested by an attorney or communicated by or to a client of an attorney. Diversified Indus., Inc., 572 F.2d at 603.

Moreover, work product protection may, and often does, begin before a lawsuit is filed. As Wright and Miller have said,
Prudent parties anticipate litigation, and begin preparation prior to the time suit is formally commenced. Thus the test should be whether, in light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation…. But the converse of this is that even though litigation is already in prospect, there is no work-product immunity for documents prepared in the regular course of business rather than for purposes of the litigation.
8 Fed. Prac. & Pro. Civ. § 2024 (3d ed.); see also Diversified Indus., 572 F.2d at 603.

The dispute raised by the present motion turns on whether “in light of the nature of the document and the factual situation in the particular case,” the communications withheld “can fairly be said to have been prepared or obtained because of the prospect of litigation,” rather than solely for an ordinary business purpose. Simon v. G.D. Searle & Co., 816 F.2d 397, 401 (8th Cir. 1987) (cert. denied, 484 U.S. 917 (1987)); Banks v. Wilson, 151 F.R.D. 109, 112 (D. Minn. 1993).

Courts in this District analyze work product protection in two steps. First, the Court must assess whether “litigation is already in prospect.” Second, the Court must determine whether each specific document was prepared because of the prospect of litigation, rather than in the regular course of business. Just because litigation is on the horizon does not mean there is a blanket protection for all documents generated thereafter. See, e.g., Diversified Indus. Inc., 572 F.2d at 604; Simon, 816 F.2d at 401; Ispat Inland, Inc. v. Kemper Envtl., Ltd., Case No. 06-civ-60 PAM/JSM, 2007 WL 737786, at *3 (D. Minn. Mar. 8, 2007). The work product analysis is a fact-specific determination, and the burden of proof is on the party asserting the protection—here, Koch. Banks, 151 F.R.D. at 112.

As to the first step, Koch points to two documents in the record to support its claim that litigation was anticipated as of October 21, 2017. (Pl. Mem. Opp’n at 12.) First, Koch notes that the subject of the October 21, 2017, communication, identified as #55 on the privilege log, is described as “Possible Lawsuit Against Amerisafe.” (Def. Ex. L at 4.) Second, Koch points out that on October 23, 2017, Giebel wrote AIIC’s Deputy General Counsel demanding that AIIC provide information that had been requested by Charais and threatening “more formal legal action” if the information was not provided. (Def. Ex. F at 2.)

But even assuming, without deciding, that this was sufficient to show that Koch might have anticipated litigation to compel the disclosure of information to which Koch felt it was entitled, Koch has offered no evidence to prove a specific date by which it reasonably anticipated litigation with AIIC to recoup excessive premiums based on an improperly calculated schedule rating, the subject on which Charais was retained to conduct an audit and prepare a report, and to which the alleged work product communications presumably pertained.12

*10 In Selective Ins. Co. of S.C. v. Sela, Case No. 16-cv-4077 (PJS/SER), 2017 WL 8315885, at *3–5 (D. Minn. October 10, 2017), Magistrate Judge Rau rejected the plaintiff’s argument that certain documents were protected work product when there was only “its counsel’s assertions” and “no information from [the plaintiff] itself in support of the fact that it anticipated litigation” at any particular time. Id. at *3, *5. Judge Rau acknowledged that the plaintiff “must have anticipated litigation at some point before this lawsuit was filed,” id. at *6, but nothing in the record established that date. Here, as in Selective, Koch failed to provide specific evidence to support its claim that it anticipated litigation at a particular time, and that the challenged communications were prepared because of that anticipated litigation.

Nor is the anticipation of litigation inherent in the nature of Charais’s analysis. On the contrary, for all Koch and Charais knew, the analysis might well have revealed no basis for a claim against AIIC, let alone a basis on which to anticipate litigation. “[I]t is important to distinguish between an investigative report developed in the ordinary course of business as a precaution for the remote prospect of litigation and materials prepared because some articulable claim, likely to lead to litigation, … [has] arisen.” Workman v. Cincinnati Ins. Co., Case No. 2:17-cv-036 PLC, 2017 WL 6025999, at *4 (E.D. Mo. Dec. 5, 2017) (finding that reports generated in course of insurance investigation were developed in the ordinary course of business) (cleaned up) (emphasis in original). As Magistrate Judge Rau found in Selective, the fact of an investigation alone established nothing more than an “inchoate” or “remote” possibility of litigation. Id. at *5. Charais’s report was not completed until June 18, 2018, and not even sent to AIIC to gauge their reaction until June 29, 2018, 11 days after the latest date of the communications that are the subject of this motion.

Accordingly, the Court finds that Koch has failed to show that any of the withheld communications between October 21, 2017, and June 18, 2018, relating to Charais’s work were immune from discovery as work product. Therefore, Koch is ordered to produce to AIIC within ten days of the date of this Order all such communications with the sole exception of the potentially attorney-client privileged communications discussed in the preceding section that will be submitted for review in camera, i.e., the communications on the privilege log that were internal to Koch.13 To be clear, however, if any such internal communication was subsequently forwarded or copied to someone outside of Koch, (such as to Charais or a member of his firm), it must be produced as well, since any possible claim of privilege would have been waived as a result.

C. AIIC’s Request for Sanctions
AIIC argues that Koch should be sanctioned for its discovery conduct for two reasons: (1) Koch was untimely and inadequate in its document production, including but not limited to the matters raised by this motion, and (2) Koch’s corporate representative, William Sullivan, was not adequately prepared for his Rule 30(b)(6) deposition.

*11 Pursuant to the Court’s Pretrial Scheduling Order, the parties’ initial disclosures under Rule 26(a)(1) were due on February 27, 2019. (Pretrial Scheduling Order at 3 [Doc. No. 24].) According to AIIC, Koch submitted its written initial disclosures on February 28, 2019—one day late—but did not include any documents. (Sugden Decl. ¶ 2.) Koch contends this was because it “possesses little relevant information other than the facts regarding the formation of a contract between the parties, and few relevant documents other than the Policy itself.” (Williams Decl. ¶ 3.) Koch produced the documents identified in the disclosures on March 21, 2019, but the form of production was not compliant with the ESI Protocol agreed to by the parties and incorporated into the Pretrial Scheduling Order. (Pretrial Scheduling Order Ex. A [Doc. No. 24-1]; Sugden Decl. ¶ 2.)

AIIC served written discovery on Koch on March 22, 2019 and Koch responded on April 22, 2019. (Sugden Decl. ¶ 3; Giebel Decl. ¶ 5 [Doc. No. 69].) Koch produced its first tranche of 178 responsive documents on April 26, 2019. (Sugden Decl. ¶ 3; Giebel Decl. ¶ 5.) Declarations from Koch’s IT Manager and Corporate Paralegal reveal that the 178 documents came from an email search that initially produced 606 potentially responsive documents. (Gammon Decl. ¶ 7 [Doc. No. 67]; Miller Decl. ¶ 3 [Doc. No. 68].) Koch’s IT Manager attests that the first search took approximately 15 hours to complete because the relevant emails were stored on an old archive system whose data cannot be migrated to a more modern system and which requires that each email be manually and individually exported. (Gammon Decl. ¶¶ 3–7.)

In early May, AIIC sent Koch a six-page conferral letter that identified deficiencies in Koch’s written responses and document production. (Sugden Decl. ¶ 4; Giebel Decl. ¶ 7.) Koch did not respond to the letter until nearly a month later, on June 5, 2019. (Williams Decl. ¶ 6; Sugden Decl. ¶ 4.) Koch explains this delay by indicating there was “overlap” between the discovery concerns and issues with scheduling depositions, so Koch chose to “not respond in writing until after the issues with the upcoming depositions were resolved.” (Williams Decl. ¶ 6.)

The Pretrial Scheduling Order provided that document production was to be “substantially complete” by May 31, 2019, in order to facilitate taking depositions. (Pretrial Scheduling Order at 3.) AIIC estimates that it had received only 20% of the documents Koch should have produced by the May 31 deadline. (Sugden Decl. ¶ 9.)

On June 28, 2019, Koch agreed to conduct additional searches for responsive emails. (Williams Decl. ¶ 7; Sugden Decl. ¶ 5.) Koch went on to produce hundreds more documents on August 23, 2019, September 13, 2019, and September 19, 2019. (Sugden Decl. ¶ 9; Williams Decl. ¶ 9.) Two of these three productions did not comply with the ESI Protocol (Sugden Decl. ¶ 9), two came after the close of fact discovery on August 27, 2019 (Pretrial Scheduling Order at 3), and all three came after AIIC completed its depositions of Koch’s witnesses on August 22, 2019 (Sugden Decl. ¶ 8). After the parties agreed on search terms to locate a manageable number of documents pertaining to Koch’s “due diligence” in selecting the subject policy, Koch produced additional documents on October 24, 2019. (Williams Decl. ¶ 10.) AIIC argues that because Koch failed to timely produce most documents and failed to comply with the Pretrial Scheduling Order, AIIC should be awarded its costs and fees incurred in engaging in the discovery conferrals and in bringing this motion.14

*12 Additionally, pursuant to the parties’ agreement, AIIC filed and served its Amended Answer and Counterclaim on August 5, 2019 [Doc. No. 47]. Under Federal Rule of Civil Procedure 15(a)(3), Koch had 14 days to respond—until August 19, 2019. But Koch did not file an answer to the counterclaim until August 28, 2019 [Doc. No. 49], after AIIC had taken Rule 30(b)(6) and fact depositions of Koch on August 21 and 22, 2019. (Sugden Decl. ¶ 8.)

AIIC also contends that Sullivan, Koch’s corporate representative, was not adequately prepared for his Rule 30(b)(6) deposition. Sullivan testified that he prepared for the deposition by meeting with counsel twice, for a total of about three to four hours, and reviewing Koch’s discovery responses and Charais’s report. (Sullivan Dep. (Def. Ex. A) at 10–11.) AIIC contends Sullivan was inadequately prepared because his preparation had not included discussions with other individuals within the company and review of emails and other documents that might have provided additional content beyond Sullivan’s own knowledge, and as a result, “[h]e could not answer many questions under topics that were clearly disclosed.” (Def. Mem. Supp. at 31, 33–34.)

Specifically, AIIC complains Sullivan was unable to answer questions about Koch’s document preservation and retention policies (Topic No. 1), efforts to obtain quotes from competitor insurance agencies and interactions with AIIC before entering into the policy (Topic Nos. 8 and 10), Koch’s purchase of replacement insurance after it terminated the AIIC policy in February 2014 (Topic No. 21), Koch’s retention of Charais (Topic No. 22), and Koch’s affirmative defenses to AIIC’s counterclaim (Topic No. 25). (Id. at 31–38.) AIIC also argues that Koch’s counsel impermissibly instructed Sullivan not to answer some questions about Koch’s work with Charais based on counsel’s erroneous invocation of the attorney-client privilege. (Id. at 36–37.) AIIC contends the inability or refusal to answer AIIC’s questions, combined with Koch’s delays in document production and in responding to AIIC’s Amended Answer and Counterclaim, have made it necessary for AIIC to take a second 30(b)(6) deposition of Koch, and that Koch should bear the costs of that deposition, including AIIC’s counsel’s preparation and travel, and the court reporter fees.

Although Koch has agreed to let AIIC reconvene Sullivan’s Rule 30(b)(6) deposition, it does not agree that it should pay the costs associated with that continued deposition. (Williams Decl. ¶ 8; Sugden Decl. ¶ 11.) Koch argues that Sullivan was “extremely well-prepared,” and was able to provide “extensive, detailed testimony in response to the majority of counsel’s questions.” (Pl. Mem. Opp’n at 19.) The questions that he could not answer, Koch maintains, were largely irrelevant, called for speculation, or exceeded the scope of the proposed topic. (Id. at 20–21.) Koch also points out that AIIC proceeded with Sullivan’s deposition knowing that Koch was still searching for and would be producing additional documents and that Koch had not yet answered AIIC’s Amended Answer and Counterclaim. (Id. at 21.) Finally, Koch contends the additional information AIIC seeks could be more efficiently obtained through other discovery means, such as interrogatories.

Federal Rule of Civil Procedure 16 provides that “on motion or on its own, the court may issue any just [sanction] orders … if a party or its attorney … fails to obey a scheduling or other pretrial order.” Fed. R. Civ. P. 16(f)(1)(C). Furthermore, under Federal Rule of Civil Procedure 37, upon granting a motion to compel a Court is required to order the party “whose conduct necessitated the motion … to pay the movant’s reasonable expenses incurred in making the motion, including attorney’s fees.” Fed. R. Civ. P. 37(a)(5). A court must not order this payment, however, if the movant failed to confer in good faith prior to filing the motion. Fed. R. Civ. P. 37(a)(5)(A)(i). Similarly, if the party opposing the motion had a substantial justification for failing to respond or if “other circumstances make an award of expenses unjust,” the court must not order the payment of expenses. Fed. R. Civ. P. 37(a)(5)(A)(ii)–(iii).

*13 Additionally, Rule 37(d) provides that a court may order sanctions if a person designated under Rule 30(b)(6) fails to appear for a deposition. Fed. R. Civ. P. 37(d)(1)(A)(i). “Failure to appear” includes not simply a wholesale failure to show up for the deposition, but also the failure to produce a witness who is adequately prepared for one or more topics in the Rule 30(b)(6) notice. See Prairie River Home Care, Inc. v. Procura, LLC, Case No. 17-cv-5121, July 19, 2019 Order at 38–41 [Doc. No. 444]. Furthermore, that the discovery sought by the topic was objectionable is not an excuse for failing to be prepared to testify on that topic unless the party being deposed had filed a motion for a protective order prior to the deposition. Fed. R. Civ. P. 37(d)(2), See id. at 40.

While the Court understands AIIC’s frustration with the protracted and inefficient process of obtaining documents from Koch, AIIC’s demand—to be reimbursed for all of its time spent meeting and conferring with Koch throughout the discovery process and for all of its time spent in preparing this motion—goes too far. The Court declines to sanction Koch retrospectively on the basis of complaints about its conduct that accumulated over the course of six months before AIIC brought a motion to compel, particularly given that, if the requests for production at issue in this motion are any indication, it is far from clear that AIIC’s requests were consistently tailored to information that was relevant and proportional to the issues in the case.

The Court does find, however, that AIIC is entitled to have Koch bear the cost of re-producing its Rule 30(b)(6) witness for a continuation of his deposition, for several reasons. First, Sullivan was clearly inadequately prepared to testify about some of the noticed topics, including at least Koch’s document retention policy and its efforts to preserve and collect documents for this litigation, and Koch’s defenses to AIIC’s counterclaim. As to other topics, it is unclear whether further preparation would have yielded further information because Koch’s belated production of the documents meant that Sullivan did not have a chance to review them before the deposition. If, as Koch contends, some of those topics were irrelevant, Koch should have raised those objections prior to the deposition, first through a meet and confer process with counsel and then, if necessary, by a motion for a protective order. It apparently did not do the former; it certainly did not do the latter.

Second, Koch’s belated production of a significant number of additional documents after the deposition thwarted the purpose of the Pretrial Scheduling Order, which was specifically formulated to require that document discovery be substantially complete before depositions were taken. Not only did the delay potentially affect Sullivan’s preparation on certain topics, but it precluded AIIC’s counsel from asking Sullivan questions about those documents. Koch’s argument that AIIC knew when it took the deposition that it did not yet have all the documents is no excuse. In light of the impending fact discovery deadline, AIIC was not required to wait any longer to take Sullivan’s deposition.

That being said, AIIC is not entitled to a complete do-over of Sullivan’s deposition at Koch’s expense. Koch represents that Sullivan’s deposition went a full seven hours. (Sullivan Dep. (Def. Ex. A).) That is all that is permitted under Rule 30(d)(1). The Court is willing to assume that some of that time might have been used differently or more efficiently if Sullivan had been adequately prepared and if documents had been timely produced prior to the deposition, but AIIC is not entitled to an unbounded second deposition.

*14 Instead, the Court will order Koch to make Sullivan available for a further 30(b)(6) deposition for no more than two (2) hours. Koch must take the necessary steps to assure that Sullivan is prepared for Topics 1 and 25, including by reviewing relevant documents and talking with knowledgeable individuals. As to the other topics (Nos. 8, 10, 21, and 22) that were the subject of AIIC’s complaints in this motion, it appears Sullivan had significant personal knowledge on those topics, but he must review the documents Koch produced (including documents produced pursuant to this Order) insofar as they pertain to those topics. Furthermore, he must follow up with knowledgeable individuals in the company if his review of the documents reasonably indicates that others have additional substantive information responsive to those topics that goes beyond Sullivan’s own knowledge. To the extent documents were produced after the prior deposition that do not pertain to the above-referenced Rule 30(b)(6) topics, nothing precludes AIIC’s counsel from questioning Sullivan about them in his individual capacity, just as he could have done during the prior deposition, but Sullivan will not be required to prepare for such questions as a Rule 30(b)(6) witness.15

As for the costs and logistics of the deposition, in light of the current COVID-19 crisis, the Court strongly encourages the parties to pursue remote technology alternatives for that deposition if, at the time of the deposition, travel and in-person proceedings remain risky. In any event, any out-of-pocket expenses associated with the deposition, such as court reporting fees and travel (if any) by the witness or by AIIC’s counsel, will be borne by Koch. In addition, Koch shall pay the fees of one AIIC attorney for the time spent in the deposition, plus the fees for three hours of preparation by that AIIC attorney. While the Court understands that the AIIC attorney, and perhaps law firm staff, may spend additional time in preparation, it is also cognizant of the fact that much of that time would have had to have been spent in any event, at AIIC’s expense, if the documents had been produced prior to the deposition.

Finally, as for the fees associated with AIIC’s counsel’s preparation of those portions of this motion on which the Court is granting AIIC relief, the Court will issue a separate order after it completes the in camera review of Koch’s documents.

Accordingly, IT IS HEREBY ORDERED that Defendant’s Motion to Compel Discovery [Doc. No. 57] is GRANTED IN PART AND DENIED IN PART, as set forth fully herein.

All Citations
Slip Copy, 2020 WL 2111349


This summary is based in large part on the allegations in the Complaint and on the representations of counsel at the hearing held on December 4, 2019.

The purchaser’s payments are made according to the estimated premium. If the final calculated premium is higher than the estimated amount, the purchaser will owe additional money; if lower, the purchaser will be refunded. (Compl. ¶ 13.)

AIIC has, however, asserted a counterclaim that Koch breached the contract by failing to pay all premiums due as a result of Koch’s early termination of the policy, and that AIIC is entitled to $133,220.00 in damages. (Am. Answer & Counterclaim at 24 [Doc. No. 47].)

AIIC initially sought to discover documents in a third category—those concerning Koch’s “due diligence and analysis” before it purchased the insurance policy from AIIC. (Def. Mem. Supp. at 6 [Doc. No. 59].) At oral argument AIIC represented that this issue is no longer in dispute, as the parties have agreed on a resolution. However, AIIC maintains the issue still has bearing on the appropriateness of awarding sanctions.

The Court emphasizes, however, that nothing in this decision prevents AIIC from moving for appropriate relief if Koch seeks to introduce, or if Koch’s testifying experts have reviewed, information from “driver disciplinary files” or from any documents that would have been responsive to Request No. 13 or any other request, but that Koch failed to produce.

AIIC’s Request for Production No. 2 asks for “[a]ll communications between [Koch] and Synergetic Solutions or Patrick Charais.” Request No. 7 asks for “[a]ll internal and external correspondence between [Koch], AIIC, and any third-party regarding the Policy’s schedule rating factors or debits.” (Def. Ex. I at 4–5.)

Koch did not contend the Charais report itself was immune from discovery, since Koch voluntarily produced it to AIIC in support of its demand for a refund even before the lawsuit was commenced.

Entry # 20 on the privilege log [Doc. No. 60-12 at 7], is an email sent by Breanna Enerson to Sue Norris, Bill Sullivan and Dennis Hylan on March 30, 2018. Giebel does not appear as a recipient. The subject of the email is described as “Conference call with Pat Charais.” (Id.) Enerson appears to be a member of Koch’s legal team, so the Court infers that Koch invokes the privilege based on her presence on the email.

AIIC points out that Giebel’s title was that of Executive Vice President and not simply General Counsel. Among the various points not addressed in Koch’s declarations is whether Giebel had a business role in the company in addition to his role as its counsel and, if so, whether it was in his business capacity or his legal capacity that he communicated with others within the company about Charais’s work.

AIIC also urges the Court to find that there was a subject matter waiver requiring production of the privileged communications because Charais’s final report was disclosed to AIIC during the attempted negotiations before the litigation began and because it was also disclosed in discovery in response to a specific request by AIIC, as well as to Koch’s expert. Koch has steadfastly taken the position that neither it nor its testifying expert intend to rely on the report, nor does Koch intend to introduce it at trial. Additionally, the Court’s review of the case law on the subject of implied waivers indicates that the Minnesota state courts have tended to take a restrictive view of the circumstances under which a waiver of the privilege will be extended beyond the specific privileged communication already disclosed. See generally, State v. Walen, 563 N.W.2d 742, 752 (Minn. 1997); In re Truscott, Case No. A15-1767, 2016 WL 2946218, at *5 (Minn. Ct. App. May 23, 2016). The Court has found no Minnesota cases, nor has AIIC cited any, to suggest that the Minnesota Supreme Court would adopt the doctrine of subject matter waiver to require the production of privileged communications between an attorney and his client in the circumstances presented here.

This “second chance” does not, however, extend to communications that were sent, forwarded, or copied to individuals outside the company, including Charais.

As already noted, Koch’s declarations in response to AIIC’s motion did not provide any factual support for its position on privilege or work product.

After oral argument the Court requested supplemental briefing on “whether the disclosure by Koch of the Charais report constituted a waiver of any claim of work product immunity with regard to documents relating to the preparation of that report and/or documents relating to or discussing the report itself. (December 9, 2019 Minute Entry [Doc. No. 77].) Because the Court has concluded Koch failed to demonstrate that the communications were protected work product, it does not reach the issue of waiver.

As previously noted, AIIC argues that although the parties had resolved the dispute concerning AIIC’s request for “due diligence” documents prior to the hearing, Koch’s initial failure to produce that information should still be considered by the Court in ruling on AIIC’s request for sanctions.

In that regard, the Court agrees with Koch that Topic No. 22, on its face, pertained only to the retention of Charais and Synergetic Solutions. While that topic could reasonably be read to include the scope, goals, circumstances, reasons for, and terms of that retention, it did not encompass the substantive work done by Charais and his firm or the communications about that work.

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