United States District Court,E.D. California.

Richard REES, et al., Plaintiffs,

v.

SOUZA’S MILK TRANSPORTATION CO., et al., Defendants.

.

Jan. 30, 2008.

ORDER BIFURCATING LIABILITY ISSUE OF THE APPLICABILITY OF THE MOTOR CARRIERS SAFETY EXCEPTION

ORDER CONTINUING PLAINTIFFS’ MOTION FOR TERMINATING AND MONETARY SANCTIONS (DOC. 157) AND DEFENDANTS’ CROSS-MOTION FOR MODIFICATION OF DISCOVERY ORDER (DOC. 169) AND RESETTING HEARING, OR, ALTERNATIVELY, A TELEPHONIC STATUS CONFERENCE

ORDER SETTING INTERIM DEADLINE FOR COMPLETED PRODUCTION OF DOCUMENTS

ORDER SETTING SETTLEMENT CONFERENCE AND DIRECTING SUBMISSION OF SETTLEMENT CONFERENCE STATEMENT

ORDER VACATING PRETRIAL CONFERENCE AND TRIAL DATES

SANDRA M. SNYDER, United States Magistrate Judge.

Plaintiffs are proceeding with a civil action in this Court. The matter has been referred to the Magistrate Judge pursuant to 28 U.S.C. § 636(b) and Local Rules 72-302(c)(1) and 72-303. Pending before the Court are Plaintiffs’ motion for terminating sanctions and for monetary sanctions, and Defendants’ cross-motion for modification of the discovery order. The matters proceeded in the chambers of the undersigned Magistrate Judge and off the record at the time previously set for the hearing on the motions, January 25, 2008, at 9:30 a.m. Mr. Jerry Budin appeared and participated on behalf of Plaintiffs, and Mr. David A. Dixon appeared and participated on behalf of Defendants.

I. Bifurcation of the Proceedings

A court has inherent power to control its docket and the disposition of its cases with economy of time and effort for both the court and the parties.Landis v. North American Co., 299 U.S. 248, 254-255, 57 S.Ct. 163, 81 L.Ed. 153 (1936); Ferdik v. Bonzelet, 963 F.2d 1258, 1260 (9th Cir.1992).

The Court may order a separate trial of any claim, cross-claim, counterclaim, third-party claim, or of any issue in furtherance of convenience, to avoid prejudice, or when separate trials will be conducive to expedition and economy. Fed.R.Civ.P. 42(b). Determination of a motion for separate trials is within the Court’s sound discretion. Jinro America Inc. v. Secure Investments, Inc., 266 F.3d 993, 998 (9th Cir.2001). Factors customarily considered in the determination include convenience, prejudice, judicial economy, risk of confusion, and separability of issues. See Robert E. Jones, Gerald E. Rosen, William E. Wegner, & Jeffrey S. Jones, Federal Civil Trials and Evidence, 2003 ed., § 4:492.

Here, in view of the Court’s recent ruling of December 14, 2007, on Plaintiff’s motion for summary adjudication, and further considering the parties’ progress in meeting and conferring regarding the scope of document production relating to the motor carrier safety exemption that should be required in light of that ruling, the Court concludes that bifurcating liability issues, and specifically, the applicability of the motor carrier safety exemption, from the other issues in this action would be convenient. After an extended off-record conference, the Court discerns no objection to such bifurcation, and it is aware of no claim of prejudice other than the impossibility of readiness for the presently scheduled pretrial conference and court trial, a matter which is remedied by vacating those dates. The issues are severable, and the discovery related to each phase is to some extent discrete. Determination of the liability issue or issues may completely eliminate the need for adjudication of damages issues, and, more directly, is likely to facilitate a meaningful settlement discussion, which both parties desire. A settlement conference will be set pursuant to counsel’s request. Thus, bifurcation would further judicial economy and expedition. Some minimal lessening of confusion of issues might result, but in view of the nature of the action and the fact that the trial will be a bench trial, this is not a significant factor here.

After consideration of all these factors and after conferring with the District Judge, the Court determines that bifurcation is appropriate.

Accordingly, it IS ORDERED that the issue of liability, including the applicability of the motor carrier safety exemption, IS BIFURCATED from the other issues in the case, and will be tried by the Court before other issues relating to damages are tried.

II. Dates for Production of Discovery, and Hearing or, in the Alternative, Telephonic Status Conference

The hearing on the pending motions did not proceed. Instead, counsel engaged in a lengthy, off-record session of meeting and conferring in chambers with the Court concerning the pending motions, a discovery plan, a settlement conference, and the scope of discovery in this action. Because the recent ruling on the motion for summary adjudication clarified legal issues concerning the motor carriers safety exemption from liability, the scope of discovery was again addressed and discussed. In an effort to facilitate timely production of documents pertinent to the applicability of the exemption and the Defendants’ liability, and further in order to promote the sharing of data sufficient to permit intelligent assessment of the risk of application or non-application of the exemption, and ultimately potential settlement and/or trial of the case, counsel agreed to defer seeking an immediate ruling on the pending motions for terminating sanctions and modification of discovery orders. Counsel agreed to continue to meet and confer concerning outstanding discovery consisting principally of production of documents (requests 4 and 10 concerning the exemption, and request 3 concerning payroll records throughout the potential period of liability).

Specifically, counsel for Defendant agreed to produce documents pertinent to the exemption issue and a determination of the character of Defendant’s trucking as interstate or intrastate commerce and, specifically the percentages thereof, in order to facilitate assessment of the relative merits of the parties’ cases insofar as they involve the application of the motor carriers safety exemption. Counsel discussed production of general and specific documents, including some substantial and sufficient sampling of specific, supporting documents such as, but not limited to, bills of lading, in order to reflect fairly the character of Defendant’s trucking; counsel discussed production of documents concerning the total volume of business (hauls and dollars), the percentage of business of some major customers, and within those broader categories, the routes, character of goods, destinations, and hauls. Counsel anticipated a rolling course of production as part of a continuing effort to meet and confer on the nature and extent of the production required in order for the parties to be in a position to engage in meaningful settlement discussions and thereafter, in the absence of settlement, to proceed in an orderly course to trial of all issues. The Court remains ready to assist the parties with informal telephonic discovery conferences if needed.

Therefore, the parties ARE DIRECTED to continue to meet and confer, and Defendants ARE DIRECTED TO COMPLETE PRODUCTION of all documents responsive to requests 4 and 10 concerning the applicability of the motor carrier safety exemption NO LATER THAN APRIL 4, 2008.

Further, based on the consent of counsel, and in the exercise of its discretion to control its docket and to conserve the resources of the Court and the parties, the Court CONTINUES the hearing on Plaintiff’s motion for terminating sanctions and monetary sanctions, as well as Defendant’s cross-motion for modification of discovery orders, until April 24, 2008. It is not anticipated that the Court will have a formal hearing on the motions on that date; rather, a telephonic discovery status conference will be held regarding the status of the discovery at that time.

At the discovery conference held in chambers, Plaintiffs’ counsel stated that his immediate goal was the completion of discovery, as distinct from the termination of the case for discovery noncompliance, and he expressed a willingness to defer the consideration and determination of the issue of terminating sanctions in the interest of obtaining adequate discovery to permit intelligent assessment of the liability aspects of the case. Therefore, the Court has directed the continuance of the full hearing on the motion for terminating and monetary sanctions, and on the Defendants’ motion for modification of the discovery orders; further, the Court has agreed to additional time for the discovery process.

However, the Court has serious concerns with the delay caused to the Plaintiffs by the Defendants’ failure to meet and confer regarding ongoing discovery issues, participate in the preparation of joint statements regarding discovery disputes, and object responsibly to the reasonable discovery requests of Plaintiff. The Court also is deeply concerned about the Defendants’ repeated and apparently unjustified failure to comply with the Court’s previous discovery orders. The Court notes that separate and apart from failing to produce requested discovery, Defendants and/or their counsel have failed to comply with the Court’s previous order of payment of $500.00 by Defendants and Defendants’ counsel by November 2, 2007.

Therefore, the Court has determined to continue the matter of monetary sanctions only because of the continuing willingness of the parties and counsel to proceed in good faith to expedite discovery and work efficiently, cooperatively, and in good faith as officers of the Court to explore settlement and ultimate preparation of the case for trial.

III. Settlement Conference

On July 24, 2007, the Court vacated a settlement conference dates after Plaintiffs’ counsel advised the Court that it would not be productive; the parties were to contact the Court for a new settlement conference if they felt it could be productive. A letter to the Court from Plaintiff’s counsel dated July 13, 2007, and filed thereafter, requested vacating the conference but rescheduling it after defense counsel responded to Plaintiff’s counsel’s request for new dates. There is no further entry in the minutes concerning a settlement conference.

It presently appears that a settlement conference, set for a time after production of documents has been completed, could be productive.

Therefore, counsel and the parties ARE DIRECTED TO APPEAR at a settlement conference on June 5, 2008, at 10:00 a.m.

Counsel ARE FURTHER INFORMED that a Confidential Settlement Conference Statement IS MANDATORY, and must be submitted to Judge Snyder’s chambers, at least five (5) court days prior to the Settlement Conference, by e-mail to SMSOrders@caed.uscourts.gov. Failure to so comply may result in the imposition of monetary and/or other sanctions.

Further, counsel ARE DIRECTED to comply with all pertinent directions concerning the settlement conference and the settlement conference statement as set forth in the Court’s scheduling conference order of June 12, 2007.

IV. Vacating Pretrial Conference and Trial Dates

After a full discussion with counsel in chambers, the Court concludes that adherence to the presently set trial date of March 24, 2008, would result in prejudice to the parties, and that there is no realistic possibility of readiness for a pretrial conference presently set for February 8, 2008. Because the parties are meeting and conferring in good faith in a continuing effort to complete discovery efficiently in light of the recent rulings of the Court, the Court has determined that a change in the trial and pretrial conference dates is in the interest of justice.

Accordingly, the Court VACATES the presently set pretrial conference date of February 8, 2008, and the presently set trial date of March 24, 2008. The Court anticipates re-setting these dates at the telephonic status conference of April 24, 2008.

IT IS SO ORDERED.

E.D.Cal.,2008.

Rees v. Souza’s Milk Transp. Co.

Court of Appeals of New York.

PANASIA ESTATES, INC., Respondent,

v.

HUDSON INSURANCE COMPANY, Appellant.

Feb. 19, 2008.

PIGOTT, J.

Panasia Estates is the owner of commercial rental property located at 33 West 19th Street in Manhattan. Panasia had a commercial property insurance policy with Hudson Insurance Company, which included “Builders Risk Coverage,” covering damage to its property while undergoing renovation. During the policy period, the roof of its building was opened in order to perform construction work. Inclement weather caused rain to enter the building through the roof opening, resulting in extensive damage to the property.

Shortly after the occurrence, Panasia claimed it promptly notified Hudson of the loss. According to Panasia, however, Hudson failed to investigate or adjust the claim until several weeks later. Hudson then denied the claim three months after that, stating that Panasia’s loss was the result of repeated water infiltration over time and wear and tear rather than from a risk covered under the builders risk policy provision.

Panasia commenced this action against Hudson, alleging that it breached the insurance contract by failing to properly investigate the loss and denying the loss as not covered under the policy. Panasia sought both direct and consequential damages that it claimed stemmed from Hudson’s breach.

Hudson moved for partial summary judgment “dismissing all of Panasia’s bad faith allegations and all prayers for consequential, extra contractual, or incidental damages or attorneys [sic] fees.”Hudson argued, among other things, that a contractual exclusion for “[a]ny other consequential loss” precluded Panasia’s request for consequential damages.

As pertinent here, Supreme Court denied that part of Hudson’s motion to dismiss Panasia’s claims for consequential damages. The Appellate Division affirmed, stating that “[a]n insured may recover foreseeable damages, beyond the limits of its policy, for breach of a duty to investigate, bargain for and settle claims in good faith” (39 AD3d 343, 343,citing Acquista v. New York Life Ins. Co., 285 A.D.2d 73, 730 N.Y.S.2d 272 [1st Dept 2001] ). In addition, the court concluded that Hudson failed to show that the contractual exclusion for “ ‘consequential loss’ applied to Panasia’s claim, rejecting Hudson’s argument that “consequential loss” and “consequential damages” were synonymous (id.).

The Appellate Division granted Hudson leave to appeal to this Court, certifying the question: “Was the order of the Supreme Court as affirmed by this Court, properly made?”We conclude that it was.

The courts below properly rejected Hudson’s contention that it was entitled to judgment as a matter of law because consequential damages are not recoverable in a claim for breach of an insurance contract. As we explained in Bi-Economy Market v. Harleysville Ins. Co.[decided today], consequential damages resulting from a breach of the covenant of good faith and fair dealing may be asserted in an insurance contract context, so long as the damages were “ ‘within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting’ “ (majority opn, at 5, quoting Kenford Co. v. County of Erie (73 N.Y.2d 312, 319 [1989] ). Here, the courts below failed to consider whether the specific damages sought by Panasia were foreseeable damages as the result of Hudson’s breach. Because the record before us is not fully developed on that issue, such claim must be considered by Supreme Court.

Lastly, as the Appellate Division correctly concluded, the contractual exclusion for consequential loss does not bar the recovery of consequential damages (see Bi-Economy, at 10-11).

Accordingly, the order of the Appellate Division should be affirmed, with costs, and certified question answered in the affirmative.

SMITH, J. (dissenting):

Bi-Economy Market, Inc. v. Harleysville Insurance Company of New York, et al.

In Rocanova v. Equitable Life Assur. Socy. of U.S. (83 N.Y.2d 603 [1994] ) and New York Univ. v. Continental Ins. Co. (87 N.Y.2d 308 [1995] ), we rejected the argument that a bad faith failure by an insurer to pay a claim could, without more, justify a punitive damages award. We held that punitive damages are not available for breach of an insurance contract unless the plaintiff shows both “egregious tortious conduct” directed at the insured claimant and “a pattern of similar conduct directed at the public generally” (Rocanova, 83 N.Y.2d at 613, 612 N.Y.S.2d 339, 634 N.E.2d 940; see NYU, 87 N.Y.2d at 316, 639 N.Y.S.2d 283, 662 N.E.2d 763). Today, the majority abandons this rule, without discussing it and without acknowledging that it has done so. The majority achieves this simply by changing labels: Punitive damages are now called “consequential” damages, and a bad faith failure to pay a claim is called a “breach of the covenant of good faith and fair dealing.”

I think that Rocanova and NYU were correctly decided, and that the majority makes a mistake in largely nullifying their holdings.

Underlying our refusal in Rocanova and NYU to open the door to awards of punitive damages was a recognition of the serious harm such awards can do. Punitive damages will sometimes serve to deter insurer wrongdoing and thus protect insureds from injustice, but they will do so at too great a cost. Insurers will fear that juries will view even legitimate claim denials unsympathetically, and that insurers will thus be exposed to damages without any predictable limit. This fear will inevitably lead insurers to increase their premiums-and so will inflict a burden on every New Yorker who buys insurance.

This policy judgment was implicit in Rocanova and NYU. Not everyone agreed with it. The Appellate Division majority in Acquista v. New York Life Ins. Co. (285 A.D.2d 73, 78, 730 N.Y.S.2d 272 [1st Dept 2001] ) hardly concealed its disagreement: “It is correct that, to date, this State has maintained the traditional view … [citing Rocanova and NYU]. Yet, for some time, courts and commentators around the country have increasingly acknowledged that a fundamental injustice may result….” The Acquista court found a way to avoid what it thought an injustice: award “consequential,” not punitive damages. Acquista adopted the rule of some sister-state decisions, notably Beck v. Farmers Ins. Exch. (701 P.2d 795 [Utah 1985] ), that an insurer that denies a claim in bad faith becomes liable for consequential damages beyond the policy limits (285 A.2d at 80-81). With less frankness than the Acquista court-indeed, without even citing either Rocanova or Acquista-the majority here reaches the same result.

The “consequential” damages authorized by the majority, though remedial in form, are obviously punitive in fact. They are not triggered, as true consequential damages are, simply by a breach of contract, but only by a breach committed in bad faith. The majority never explains why this should be true, but the explanation is self-evident: the purpose of the damages the majority authorizes can only be to punish wrongdoers and deter future wrongdoing. They have nothing to do with consequential damages, or with the covenant of good faith and fair dealing, as those terms are ordinarily understood.

The whole idea of “consequential damages” is out of place in a suit against an insurer that has failed to pay a claim-or, indeed, in any case where the obligation breached is merely one to pay money. Consequential damages are a means of measuring the harm done when a party fails in some non-monetary performance-say, the transportation of a broken mill shaft (Hadley v. Baxendale, 9 Ex 341 [1854] ) or the construction of a football stadium (Kenford Co. v. County of Erie, 73 N.Y.2d 312 [1989] ). In such cases, where there is no agreement on what money will be paid in the event of a breach, a court must try to decide what damages the parties contemplated-what damages they would have agreed to had they considered the question when the contract was signed (Kenford, 73 N.Y.2d at 320, 540 N.Y.S.2d 1, 537 N.E.2d 176). But in insurance contracts or other contracts for the payment of money, the parties have already told us what damages they contemplated; in the case of insurance, it is payment equal to the losses covered by the policy, up to the policy limits. There is no occasion for a Kenford analysis.

Nor could such an analysis, done in the way Kenford requires, support the results the majority reaches in these two cases. Under Kenford, the premise of consequential damages awards is that they effectuate the parties’ presumed intentions at the time of contracting: “the commonsense rule to apply is to consider what the parties would have concluded had they considered the subject” (Kenford, 73 N.Y.2d at 320, 540 N.Y.S.2d 1, 537 N.E.2d 176 [emphasis in original] ). Can anyone seriously believe that the parties in these cases would, if they had “considered the subject,” have contracted for the results reached here? Imagine the dialogue. Applicant for insurance: “Suppose you refuse, in bad faith, to pay a claim. Will you agree to be liable for the consequences, including lost business, without regard to the policy limits?”Insurance company: “Oh, sure. Sorry, we forgot to put that in the policy.”

The majority also departs from the established understanding of the “covenant of good faith and fair dealing”-thus obscuring the fact that the predicate for “consequential” damages here is exactly the same conduct, bad faith failure to pay claims, that we refused to make a predicate for punitive damages in Rocanova and NYU. Ordinarily, the covenant of good faith and fair dealing is breached where a party has complied with the literal terms of the contract, but has done so in a way that undermines the purpose of the contract and deprives the other party of the benefit of the bargain (e.g., 511 West 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144 [2002] ). Here, plaintiffs allege that defendants breached, in bad faith, the express terms of the policies, by refusing to pay for the losses the policies covered. There is no need for resort to the implied covenant of good faith, and this is the first time, as far as I know, that we have relied on that implied covenant to condemn the bad faith breach of an express promise.

These two conceptual errors-the misuse of the terms “consequential damages” and “covenant of good faith”-are not the only ones in the majority opinions. The Bi-Economy opinion seems fundamentally to misunderstand the purpose of business interruption insurance-which is to compensate the insured for a business interruption that has already occurred, not to prevent one from occurring (see Bi-Economy majority op at 8-9). If the insured’s business is never interrupted, there can be no claim under a business interruption policy. This error seems unimportant, however, for the majority’s discussion of business interruption insurance is apparently extraneous to its holding. The Panasia case involves no business interruption coverage-yet the majority upholds the legal sufficiency of Panasia’s claim for consequential damages on the basis of a simple citation to Bi-Economy (Panasia majority op at 3-4).

The majority’s bad policy choice is more important than the flaws in its reasoning. This attempt to punish unscrupulous insurers will undoubtedly lead to the punishment of many honest ones. Under today’s opinions, juries will decide whether claims should have been paid more promptly, or in larger amounts; whether an insurer who failed to pay a claim did so to put pressure on the insured, or from legitimate motives, or from simple inefficiency; and whether, and to what extent, the insurer’s slowness and stinginess had consequences harmful to the insured. All these very difficult, often nearly unanswerable, questions will be put to jurors who will usually know little of the realities of either the insured’s or the insurer’s business. The jurors will no doubt do their best, but it is not hard to predict where their sympathies will lie.

The result of the uncertainty and error that the majority’s opinions will generate can only be an increase in insurance premiums. That is the real “consequential damage” flowing from today’s holdings.

Order affirmed, with costs, and certified question answered in the affirmative.

Chief Judge KAYE and Judges CIPARICK, GRAFFEO and JONES concur. Judge SMITH dissents in an opinion in which Judge READ concurs.

As this is an appeal from a summary judgment motion, we view the facts in the light most favorable to Panasia, the non-moving party.