The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
RONALD J. HOF IN HIS CAPACITY AS * CIVIL ACTION NO. 19-10696
CHAPTER 7 TRUSTEE OF THE *
BANKRUPTCY ESTATE OF * SECTION: “D”(1)
FOODSERVICEWAREHOUSE.COM *
* JUDGE WENDY B. VITTER
VERSUS *
* MAGISTRATE JUDGE
LAPORTE, A PROFESSIONAL * JANIS VAN MEERVELD
ACCOUNTING CORPORATION, ET *
AL. *
*********************************** *
ORDER AND REASONS
Before the Court is the Motion to Compel filed by plaintiff Ronald Hof (the “Trustee”), in
his capacity as Chapter 7 Trustee of the bankruptcy estate of Foodservicewarehouse.com (“FSW”).
(Rec. Doc. 60). The Trustee seeks disclosure of the defense costs that have eroded the insurance
policy covering the claims he asserts in this litigation. For the following reasons, the Motion is
DENIED. Oral argument set for September 23, 2020, is CANCELLED.
Background
In this lawsuit, the Trustee, in his capacity as trustee of the Chapter 7 Bankruptcy Estate of
FSW alleges that LaPorte, APAC (“Laporte”) is liable for professional negligence arising out of
LaPorte’s performance of audit services for FSW for the 2013 and 2014 fiscal years. The Trustee
contends that the board of FSW relied on the 2013 audit in recommending and obtaining the
approval of FSW’s membership to explore the possibility of a public or private offering. To
achieve that goal, FSW began expanding and taking on debt. It sought $75,000,000 in financing
from JP Morgan Chase Bank, N.A. (“Chase”) in June 2015. Chase began its field examination
around the time that LaPorte was completing its field work in connection with its 2014 audit of
FSW. According to the Trustee, Chase identified “numerous accounting deficiencies and
misstatements that LaPorte was required, but failed, to identify and disclose in its audit opinions.”
(Rec. Doc. 1-2, at 5). FSW was unable to remedy the issues identified and Chase declined to
advance funds to FSW in January 2016. FSW alleges that it brought in an experienced CPA/auditor
and a restructuring advisor in February and March of 2016, but it was determined that restructuring
would not be possible.
On May 20, 2016, FSW filed a bankruptcy petition. The Trustee filed this adversary
proceeding against LaPorte and its insurers, Continental Casualty Company (“Continental”) and
Ironshore Specialty Insurance Company (“Ironshore”) in bankruptcy court on May 13, 2019. The
Trustee alleges damages of at least $50,000,000 in debt that FSW incurred in the expansion, but
which it was unable to repay. On May 28, 2019, the Trustee filed a motion in this court to withdraw
the bankruptcy reference. Trial is presently set to begin on January 11, 2021. The deadline to
complete discovery is September 25, 2020.
The Trustee seeks to compel Continental to disclose defense costs that serve to reduce
insurance coverage limits in this matter. The Trustee argues that because unredacted insurance
policies must be disclosed under Federal Rule of Civil Procedure 26(a)(1)(iv), he is entitled to
discover both the policy limits and the amounts the limits have been reduced as a result of defense
costs. Defendants respond that the relevant insurance policies have been produced with only the
premium information redacted. They argue that the policy limits have thereby been disclosed, but
there is no basis for disclosing defense costs expended.
Law and Analysis
The Federal Rules of Civil Procedure provide that “parties may obtain discovery regarding
any nonprivileged matter that is relevant to any party's claim or defense and proportional to the
needs of the case.” Fed. R. Civ. Proc. 26(b)(1). “Information within this scope of discovery need
not be admissible in evidence to be discoverable.” Id. The Rule requires consideration of the
following factors in assessing proportionality: “the importance of the issues at stake in the action,
the amount in controversy, the parties' relative access to relevant information, the parties’
resources, the importance of the discovery in resolving the issues, and whether the burden or
expense of the proposed discovery outweighs its likely benefit.” Id.
Rule 26 also requires the parties make initial disclosures of certain discoverable
information to one another. This obligation includes the requirement that each party must provide
“for inspection and copying . . . any insurance agreement under which an insurance business may
be liable to satisfy all or part of a possible judgment in the action or to indemnify or reimburse for
payments made to satisfy the judgment.” Fed. R. Civ. Proc. 26(a)(1)(iv). In Robin v. Weeks
Marine, Inc., the defendant produced the insurance policy, but redacted the policy limits. No. CV
17-1539, 2017 WL 3311243, at *1 (E.D. La. Aug. 3, 2017). This court held that policy limits were
relevant and required disclosure of the unredacted insurance policy. Id. at *3.
The Trustee relies on the Robin case to argue that defendants must disclose defense costs
expended.1 The Trustee argues that he cannot know the policy limits unless he knows the amount
the actual policy limits have been eroded by defense costs. But as the defendants point out, the
Robin case did not involve disclosure of defense costs—only the actual policy limit. There is no
dispute that defendants here have produced the policies without redaction of the policy limits. The
Trustee provides no legal authority or policy reason supporting disclosure of defense costs under
Rule 26(a)(1)(iv).2 Nor has the Trustee explained the relevance or importance of LaPorte’s defense
costs to the present case. The court has no basis to find LaPorte’s defense costs discoverable.
1 The Trustee seeks to compel a response to Interrogatory No. 3, which asks Continental to list all claimants and the
status of claims against LaPorte’s Continental professional liability insurance policy, including all amounts paid in
defense costs incurred by Continental.
2 No reply memo was filed.
Conclusion
Because plaintiff has provided no basis on which to find the amounts paid in defense
costs are discoverable, the Trustee’s Motion to Compel is DENIED. Oral argument set for
September 23, 2020, is CANCELLED.
New Orleans, Louisiana, this 22nd day of September, 2020.
Janis van Meerveld
United States Magistrate Judge