Krueger v. Grinnell Mut. Reinsurance Co.

#28555-r-DG
2018 S.D. 87

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

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STEVEN J. KRUEGER and
CORALEE A. KRUEGER, Plaintiffs and Appellees,

v.

GRINNELL MUTUAL
REINSURANCE COMPANY, Defendant and Appellant.

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APPEAL FROM THE CIRCUIT COURT OF
THE FIFTH JUDICIAL CIRCUIT
DAY COUNTY, SOUTH DAKOTA

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THE HONORABLE JON S. FLEMMER
Judge

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LEE SCHOENBECK
JOE ERICKSON of
Schoenbeck Law, P.C.
Watertown, South Dakota Attorneys for plaintiffs and
appellees.

MELANIE L. CARPENTER of
Woods, Fuller, Shultz
& Smith, P.C.
Sioux Falls, South Dakota Attorneys for defendant and
appellant.

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CONSIDERED ON BRIEFS
ON NOVEMBER 12, 2018
OPINION FILED 12/19/18
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GILBERTSON, Chief Justice

[¶1.] Steven and Coralee Krueger filed a complaint against Grinnell Mutual

Reinsurance Co. (Grinnell) alleging failure to pay underinsured motorist benefits.

The Kruegers served written discovery requests on Grinnell. Grinnell responded

but raised several objections. The Kruegers wrote a letter demanding answers to

certain discovery requests within a week. Grinnell did not respond, and the

Kruegers filed a motion to compel. The circuit court granted the Kruegers’ motion

in its entirety, finding that Grinnell had sufficient notice of the Kruegers’ bad faith

claim and thus had intentionally not responded to requests related to a bad faith

cause of action. The circuit court also granted the Kruegers’ request for attorney

fees. We granted Grinnell’s request for discretionary appeal. We reverse.

Facts and Procedural History

[¶2.] This case arises from an accident on March 14, 2015. The Kruegers

were rear-ended by a vehicle driven by William Akron. Akron’s insurance had

limits of $50,000 per person. The Kruegers’ policy with Grinnell included a $25,000

per person medical payment (med-pay) coverage and underinsured motorist

coverage of $250,000 per person or $500,000 per accident. Following the accident,

claims for med-pay coverage and vehicle damage were opened. The Kruegers’

medical bills were paid as they were incurred. Initially, there was no claim for

underinsured motorist coverage.

[¶3.] On January 17, 2017, Lee Schoenbeck informed Grinnell he would be

representing the Kruegers. On March 31, the Kruegers told Grinnell they reached a

settlement agreement against Akron to his policy’s limits. They also noted, “We

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now intend to pursue an underinsured motorist claim against your company.”

Grinnell continued to pay the Kruegers’ medical bills until Steven’s med-pay limits

were exhausted in May 2017. Coralee’s limits were exhausted after the filing of this

lawsuit.

[¶4.] On July 12, 2017, the Kruegers demanded payment of underinsured

motorist benefits, asking Grinnell, “[W]ould it be reasonable to expect that you

complete your investigation by August 1, 2017?” The adjuster who had been

working on the Kruegers’ med-pay file, Pat McCumber, replied on July 13. She

informed the Kruegers that Grinnell had opened an underinsured motorist benefits

file and that Sheryl Stepanek was the assigned adjuster to that file.

[¶5.] On July 27, Stepanek wrote the Kruegers a letter advising them that

she had received their demand for underinsured motorist coverage and that she was

assigned to the underinsured motorist file to avoid a conflict of interest while the

med-pay file was still open. She requested authorization from the Kruegers for

McCumber to release documents from the med-pay file to the underinsured motorist

file so that she could consider their claim. On August 3, the Kruegers replied,

providing the requested authorization. The same day, the Kruegers’ counsel signed

a summons and complaint against Grinnell.

[¶6.] The Kruegers’ complaint alleged in pertinent part:

14. Grinnell Mutual has refused to pay the underinsurance
benefits owing under the contract, and has not been
reasonable in dealing with the Plaintiffs.

15. Grinnell Mutual has breached its contract and duties with
respect to Plaintiffs.

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16. As a result of Grinnell Mutual’s actions, Plaintiffs have
been damaged.

17. Grinnell Mutual’s refusal to indemnify, particularly
because it was done without proper investigation, was
without reasonable cause.

18. Grinnell Mutual should be required to pay a sum to
Plaintiffs as reasonable attorney’s fees for the cost of
Plaintiffs pursuing and recovering the amounts owed to
them under the Auto Policy.

The prayer for relief requested “a reasonable amount to be determined by a jury,

including attorney’s fees.”

[¶7.] The Kruegers served Grinnell discovery requests on September 22,

2017. Grinnell answered on November 22, following an extension. Grinnell

objected to many of the Kruegers’ requests on the basis that the information sought

was “beyond the permissible scope of discovery as provided by SDCL 15-6-26(b)(1),

it [was] unduly burdensome and overly broad and vague, and it [was] not

reasonably calculated to lead to the discovery of admissible evidence.” Grinnell

made additional objections based on attorney-client privilege and the work-product

doctrine.

[¶8.] On January 17, 2018, the Kruegers sent a letter to Grinnell’s counsel

demanding answers to certain interrogatories and requests for production. The

Kruegers demanded that Grinnell “make a good faith effort to answer each of these

questions by January 24, 2018.” They stated that if Grinnell did not respond by

January 24, they would “schedule a motion to compel.”

[¶9.] There was no further contact between the parties until the Kruegers

filed a motion to compel on January 25, 2018. The following day, Grinnell sent a

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letter to the Kruegers and explained it had objected because the discovery requests

were relevant “only in situations where bad faith has been alleged.” Additionally,

Grinnell pointed out that it did not believe the Kruegers had satisfied the statutory

requirement to meet and confer in good faith to resolve a discovery dispute without

court action. Counsel for the Kruegers responded, claiming that bad faith had been

sufficiently pleaded.

[¶10.] On February 14, 2018, the circuit court held a hearing on the

Kruegers’ motion to compel. In its oral argument to the court, Grinnell argued that

“Grinnell just really needed to know what it’s responding to. . . . [T]he objections as

they were stated and as they were made were substantially justified at the time.

The questions [weren’t] relevant to a breach of contract case[.]” Grinnell also

submitted that the single letter sent by Kruegers’ counsel did not fulfill the meet

and confer requirement. The Kruegers argued that Grinnell was on sufficient

notice of the bad faith claim because pleadings only require factual allegations and

“we alleged that [Grinnell] refused to pay without proper investigation. That’s not

an element of breach of contract.”

[¶11.] The circuit court granted the Kruegers’ motion and signed its order on

February 28, 2018. It based its ruling on finding “[t]hat the Complaint put the

Defendant on notice that the Plaintiffs are alleging what is commonly referred to as

a ‘bad faith’ cause of action, particularly in Paragraphs 14 and 17 of the Complaint.”

The court determined “[t]hat with notice of the bad faith claim, Defendant Grinnell

Mutual intentionally refused to answer the discovery requests related to that

claim.” The court ordered that Grinnell respond to all of the requests cited in the

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Kruegers’ demand letter, with the caveat that “personnel files . . . shall be produced

pursuant to this protection order that the materials shall be maintained as

confidential in this litigation[.]” The court further ordered that Grinnell pay the

Kruegers’ counsel $2,200.00 in attorney fees. Grinnell filed a petition for

permission to take discretionary appeal that we granted on April 3, 2018 and stayed

further proceedings. Grinnell raises two issues in this appeal, which we have

rephrased and address in the following order:

1. What level of specificity is a party required to plead to
allow the proper scope of discovery to be determined by
the litigants and the court?

2. Whether one letter from plaintiff stating that defendant
must answer written discovery requests satisfies the
requirements of SDCL 15-6-37(a)(2) that a party must
confer in good faith before filing a motion to compel.

Standard of Review

[¶12.] “A circuit court discovery sanction under SDCL 15-6-37 is reviewed

under an abuse of discretion standard.” Pearson v. O’Neal-Letcher, 2007 S.D. 92,

¶ 10, 738 N.W.2d 914, 917. Abuse of discretion “is a fundamental error of judgment,

a choice outside the range of permissible choices, a decision, which, on full

consideration, is arbitrary or unreasonable.” Thurman v. CUNA Mut. Ins. Soc’y,

2013 S.D. 63, ¶ 11, 836 N.W.2d 611, 616 (quoting State v. Lemler, 2009 S.D. 86,

¶ 40, 774 N.W.2d 272, 286). “SDCL 15-6-37 gives the trial judge broad latitude in

penalizing the party who has failed to comply with discovery orders, however such

latitude is not limitless.” Pearson, 2007 S.D. 92, ¶ 10, 738 N.W.2d at 917 (quoting

Haberer v. Radio Shack, 1996 S.D. 130, ¶ 16, 555 N.W.2d 606, 610).

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Analysis and Decision

1. What level of specificity is a party required to plead to allow the
proper scope of discovery to be determined by the litigants and
the court?

[¶13.] We assume without deciding for purposes of this appeal that the

allegation of bad faith was adequately raised and decline to address Issue 1 further,

finding Issue 2 to be dispositive of the outcome of this case.

2. Whether one letter from plaintiff stating that defendant must
answer written discovery requests satisfies the requirements of
SDCL 15-6-37(a)(2) that a party must confer in good faith before
filing a motion to compel.

[¶14.] Under SDCL 15-6-37(a), also referred to as Rule 37(a), “the discovering

party may move for an order compelling an answer” if a party fails to respond to a

discovery request. “The motion must include a certification that the movant has in

good faith conferred or attempted to confer with the person or party failing to make

the discovery in an effort to secure the information or material without court

action.” SDCL 15-6-37(a)(2) (emphasis added). If the court grants the motion, the

court shall order the party resisting discovery pay “the reasonable expenses

incurred in obtaining the order, including attorneys’ fees, unless the court finds that

the motion was filed without the movant’s first making a good faith effort to obtain

the disclosure or discovery without court action, or that the party’s nondisclosure,

response or objection was substantially justified[.]” SDCL 15-6-37(a)(4)(A)

(emphasis added).

[¶15.] Grinnell argues that by merely sending one letter, “[t]he Kruegers’

counsel failed to meet and confer in good faith as required by the rule, which is

justification for both outright denial of the motion to compel as well as a denial of

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attorney’s fees.” In response, the Kruegers cite the circuit court’s discretion in such

matters. The Kruegers argue that the circuit court properly considered the facts

before it, including their letter asking Grinnell to respond to discovery requests.

They cite the circuit court’s finding that Grinnell “intentionally refused to answer

discovery requests” as evidence that it “appreciate[ed] that all good faith attempts

to confer with Grinnell had been and would be futile.”

[¶16.] We have not yet addressed what communication is required to satisfy

the meet and confer requirement of SDCL 15-6-37(a)(2) or the ramifications for

failing to meet and confer in good faith. Other courts, in addressing this issue,

emphasize the need for “genuine efforts to resolve the dispute” without judicial

involvement. Cotracom Commodity Trading Co. v. Seaboard Corp., 189 F.R.D. 456,

459 (D. Kan. 1999). The rule is designed to “lessen the burden on the court and

reduce the unnecessary expenditure of resources by litigants through promotion of

informal, extrajudicial resolution of discovery disputes.” Clement v. Alegre, 99 Cal.

Rptr. 3d 791, 803 (Cal. Ct. App. 2009). Courts view Rule 37(a) as requiring “counsel

to ‘converse, confer, compare views, consult and deliberate.’” Cotracom, 189 F.R.D.

at 459 (quoting VNA Plus, Inc. v. Apria Healthcare Grp., Inc., No. Civ. A. 98-2138-

KHV, 1999 WL 386949, at *2 (D. Kan. June 8, 1999)). Therefore “parties do not

satisfy the conference requirements simply by requesting or demanding compliance

with the requests for discovery.” Id. The rule mandates that “a moving party must

personally engage in two-way communication” with “freedom from intention to

defraud or abuse the discovery process[.]” Shuffle Master, Inc. v. Progressive

Games, Inc., 170 F.R.D. 166, 171 (D. Nev. 1996).

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[¶17.] Courts addressing this issue have found that in instances where there

is a genuine dispute about the discoverability of the information sought or the

adequacy of the answers, one letter does not fulfill the meet and confer

requirement. “A single letter between counsel which addresses the discovery

dispute . . . does not satisfy the duty to confer.” Williams v. Bd. of Cty. Comm’rs of

Unified Gov’t of Wyandotte Cty., 192 F.R.D. 698, 700 (D. Kan. 2000). This is

because mailing a letter to opposing counsel does not meet the requirement that

counsel converse and deliberate. Id. See also Hays v. Adam, 512 F. Supp. 2d 1330,

1334 (N.D. Ga. 2007) (“This single letter does not constitute a sufficient effort to

resolve the issue outside of court pursuant to Rule 37(a)[.]”).

[¶18.] Even if more than one letter is sent, courts still examine the quality of

the efforts to confer put forth by the moving party. Wilson v. Aargon Agency, Inc.,

262 F.R.D. 561, 564 (D. Nev. 2010). In Wilson, the court observed:

Two back to back letters stating merely that Wilson’s responses
were ‘wholly inadequate’ do not stand in as a ‘personal
consultation and sincere effort . . . to resolve the matter without
court action’ . . . . The meet and confer requirement is not
merely a formalistic prerequisite to discovery disputes and
cannot be met by simply showing that the discovery in question
was requested more than once.

Id. (internal citations omitted). The court emphasized that parties at an informal

conference “must present to each other the merits of their respective positions with

the same specificity with which they would brief the discovery dispute.” Id.

[¶19.] The amount of effort a moving party must expend to meet and confer

“is different in different circumstances, and may vary with the prospects for

success.” Clement, 99 Cal. Rptr. 3d at 804. A court, through its broad discretion

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regarding discovery matters, is entitled to consider all the relevant circumstances in

ruling on whether the meet and confer requirement was met. Id. “An appropriate

circumstance for excusing non-compliance with rules is when compliance would

have been an exercise in otiosity.” In re Sulfuric Acid Antitrust Litig., 231 F.R.D.

351, 356 (N.D. Ill. 2005). In determining whether the meet and confer requirement

would have been futile, a court should look to specific events in the record

demonstrating futility. See id. (pointing to events in the record revealing “the

polarity and intractability of the parties’ positions”).

[¶20.] A failure to fulfill the meet and confer requirement in good faith often

serves as a basis for denying the motion to compel. See, e.g., Layne Christensen Co.

v. Purolite Co., 271 F.R.D. 240, 245 (D. Kan. 2010); Regions Bank v. Legal Outsource

PA, No. 2:14-cv-476-FtM-29MRM, 2016 WL 7228738, at *2 (M.D. Fla. Mar. 10,

2016); Brown v. Bridges, No. 12-CV-4947-P, 2015 WL 11121361, at *3 (N.D. Tex.

Jan. 30, 2015). Courts may also decline to award sanctions or attorney fees when

the requirement has not been met, yet grant the motion to compel. See, e.g.,

Scottsdale Ins. Co. v. Physicians Grp., LLC, No. 8:15-cv-1129-T-23AAS, 2016 WL

3425675, at *1 (M.D. Fla. June 22, 2016); Forest River, Inc. v. Heartland

Recreational Vehicles, LLC, No. 3:09-CV-302 JVB, 2010 WL 11579072, at *2 (N.D.

Ind. Dec. 1, 2010). Here, SDCL 15-6-37(a)(4)(A) provides that if a party seeking a

motion to compel prevails, a court may not award expenses and sanctions if the

movant did not make a “good faith effort to obtain the disclosure or discovery

without court action.”

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[¶21.] We hold that the circuit court abused its discretion in granting the

Kruegers’ motion to compel. The record shows that this is not a situation where a

party wholly failed to answer any of the requested discovery. Instead, there was a

genuine dispute between counsel for the parties concerning the breadth of the

claims alleged by the Kruegers’ and the appropriate scope of discovery for those

claims. In such circumstances, the Kruegers, by sending one letter stating, “Please

make a good faith effort to answer each of these questions by January 24, 2018[]”

did not meet the requirements of SDCL 15-6-37(a)(2) to “confer[] or attempt[] to

confer with the person or party failing to make the discovery in an effort to secure

the information or material without court action[]” in good faith.

[¶22.] In granting the motion to compel, the circuit court merely relied on the

Kruegers’ assertion that Grinnell was on sufficient notice of the bad faith claims

and “the discovery requests Defendant Grinnell Mutual refused to answer [were]

reasonable and appropriate for the claims in this litigation.” It failed to consider

Grinnell’s arguments that the Kruegers had not attempted to meet and confer in

good faith regarding the scope of discovery, as required by statute. There is no

indication that the court examined the quality of the communication between the

parties or the extent of their efforts to resolve their dispute without judicial

intervention.

[¶23.] The Kruegers argue that the circuit court appropriately considered the

futility of requiring the parties to meet and confer in good faith when it stated that

Grinnell “intentionally refused to answer the discovery requests.” While Grinnell

did not answer certain questions and did not respond to the Kruegers’ demand

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letter, there is no evidence suggesting that Grinnell was intractable to the point of

rendering the meet and confer requirement futile. See In re Sulfuric Acid,

231 F.R.D. at 359 (pointing to a series of letters between the parties that “reveal not

a meeting of the minds . . . but an expression of irreconcilable positions and a clash

of wills”). Rather, it appears that Grinnell’s objections were substantially justified

due to concerns about the proper scope of discovery. “A party’s discovery conduct is

found to be ‘substantially justified’ under Rule 37 if it is a response to a ‘genuine

dispute, or if reasonable people could differ as to the appropriateness of the

contested action.’” Samsung Elecs. Am., Inc., v. Yang Kun Chung, 321 F.R.D. 250,

278 (N.D. Tex. 2017) (quoting S.E.C. v. Kiselak Capital Grp., LLC, No. 4:09-cv-256-

A, 2012 WL 369450, at *5 (N.D. Tex. Feb. 3, 2012)).

[¶24.] SDCL 15-6-37(a)(2) requires that the motion to compel must include a

certification of the moving party’s good faith efforts. We hold such a certification

requires the moving party to convey to the court “essential facts sufficient to enable

the court to make a preliminary judgment on the adequacy and sincerity of the

conferment.” See 7 James Wm. Moore, Moore’s Federal Practice § 37.05[4], at 37-31

(3d ed. 2018) (citing Shuffle Master, Inc. 170 F.R.D. at 171). “A cursory recitation

that counsel were ‘unable to resolve the matter’ is insufficient.” Id. The

certification should include: “(1) the names of the parties who conferred or

attempted to confer, (2) the manner by which they communicated, (3) the date and

time of that communication, (4) specific discovery disputes discussed, and (5) the

results of the discussion or an explanation as to why meaningful discussions were

not had.” See id. A court should consider such facts to determine whether the

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movant truly attempted to “converse, confer, compare views, consult and

deliberate.” See Cotracom, 189 F.R.D. at 459.

[¶25.] Furthermore, in determining whether the efforts were undertaken in

good faith, the court should consider whether the moving party has attempted to

confer with “freedom from intention to defraud or abuse the discovery process, and

faithfulness to one’s obligation to secure information without court action.” See

Shuffle Master, Inc. 170 F.R.D. at 171. When a moving party argues that an

attempt to meet and confer would have been futile, the party should still

demonstrate facts indicating good faith efforts at communication were met with

uncooperative and intractable resistance. Ultimately, it is not the quantity, but the

quality, of the communication a court should consider when addressing a motion to

compel.

[¶26.] We also note that the award of attorney fees in this matter was

unsupported by the record and the requirements of SDCL 15-6-37(a)(4)(A). Under

SDCL 15-6-37(a)(4)(A), a court cannot award attorney fees to a moving party who

was granted a motion to compel if the party did not first make a “good faith effort to

obtain the disclosure or discovery without court action.” The court, having failed to

consider whether the Kruegers made a good faith effort to meet and confer when

Grinnell asserted as such, abused its discretion in awarding attorney fees.

[¶27.] We clarify that a court retains its broad discretion to grant or deny

discovery sanctions. See Pearson, 2007 S.D. 92, ¶ 10, 738 N.W.2d at 917. But that

decision is not unlimited given the text of SDCL 15-6-37(a)(2). See Thurman,

2013 S.D. 63, ¶ 11, 836 N.W.2d at 616. In considering a motion to compel, the court

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should consider the requirements listed above for the movant’s certification of good

faith efforts to resolve the dispute without judicial intervention. If the court finds

that the moving party has failed to meet and confer in good faith, that finding

serves as a basis for denying the motion to compel. Alternatively, there may be

other grounds for granting the motion to compel despite a lack of good faith efforts,

such as “temporal exigencies requir[ing] speedy action” or “when the goal of

encouraging compromise is unlikely to be achieved.” See Moore, supra § 37.05[4], at

37-29. In these cases, the court should look to the provisions of SDCL 15-6-

37(a)(4)(A) and not grant attorney fees if “the court finds that the motion was filed

without the movant’s first making a good faith effort to obtain the disclosure . . . or

that the opposing party’s nondisclosure . . . was substantially justified or that other

circumstances make an award of expenses unjust.”

Conclusion

[¶28.] We reverse because the circuit court abused its discretion when it

granted the Kruegers’ motion to compel and awarded the Kruegers’ attorney fees.

[¶29.] KERN, JENSEN and SALTER, Justices, concur.

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