Modern Auto. Network, LLC v. E. Alliance Ins. Co., 1:17CV152

Decision Date23 September 2019
Docket Number1:17CV152
CourtU.S. District Court — Middle District of North Carolina
Parties MODERN AUTOMOTIVE NETWORK, LLC, Plaintiff, v. EASTERN ALLIANCE INSURANCE COMPANY d/b/a Eastern Alliance Insurance Group, Eastern Advantage Assurance Company, d/b/a Eastern Alliance Insurance Group, and Allied Eastern Indemnity Company d/b/a Eastern Alliance Insurance Group, Defendants.

Andrew L. Fitzgerald, Douglas Stuart Punger, Jr., Fitzgerald Litigation, Winston-Salem, NC, for Plaintiff.

Reid Calwell Adams, Jr., Brian F. Castro, Jonathan Reid Reich, Womble Bond Dickinson (US) LLP, Winston-Salem, NC, Thomas A. French, William C. Boak, Rhoads & Sinon LLP, Harrisburg, PA, for Defendantss.


Loretta C. Biggs, United States District Judge

Before the Court are Defendants' Motion for Summary Judgment, (ECF No. 32), Plaintiff's Motion to Strike, (ECF No. 35), and Defendants' Motion in Limine, (ECF No. 49). For the reasons stated below, the Court will grant Defendants' motion for summary judgment and motion in limine; and will grant in part and deny in part Plaintiff's motion to strike.


This action arises out of an insurance dispute between Plaintiff, Modern Automotive Network, LLC ("Modern") and Defendants, Eastern Alliance Insurance Company ("EAIC"), Eastern Advantage Assurance Company ("EAAC"), and Allied Eastern Indemnity Company ("AEIC"), each individually and collectively d/b/a Eastern Alliance Insurance Group ("Eastern"). Modern obtained a workers' compensation insurance policy (the "Policy") from EAIC for the period from January 1, 2015 to January 1, 2016. (ECF No. 4-1 at 2.) Under the Policy, EAIC had the "right and duty to defend" any claim against Modern that is covered by the Policy. (Id. at 8.) EAIC also had "the right to investigate and settle these claims, proceedings or suits." (Id. ) The Policy had a $250,000 deductible for each claim, and a yearly aggregate deductible of $425,000. (Id. at 24.) The parties also entered into a Deductible Reimbursement and Security Agreement ("Deductible Agreement"), which set out the terms by which Eastern would pay for the claims and Modern would reimburse Eastern for the deductible amount. (See ECF No. 4-2.) Modern's claims in this lawsuit arise out of Eastern's handling of three workers' compensation claims: "Mr. G," "Mr. H," and "Mr. S." (See ECF No. 4.)

Because all final settlements of any workers' compensation claims must be approved by the North Carolina Industrial Commission,1 Eastern hired a North Carolina law firm, McAngus Goudelock & Courie ("McAngus"), to draft the settlement agreement for Mr. H's claim and to obtain approval from the Industrial Commission for the settlement of that claim.

(See ECF No. 33-2 ¶ 3.) Eastern also engaged McAngus to handle some portion of Mr. S's claim.2 (See ECF No. 39-3 at 17, 24.) After the settlements for these claims had been finalized, Modern, on September 30, 2016, asked McAngus to provide it copies of the file for Mr. H's claim, (ECF No. 39-4 at 20), and later requested copies of Mr. S's file, (ECF No. 39 at 20–21; ECF No. 39-4 at 5). Modern also requested that Eastern provide its files on all three claims. (ECF No. 39-4 at 21.) The files appear to have been provided to Modern sometime between January 12, 2017 and March 3, 2017. (See id. (Modern requesting all three files) and id. at 22 (McAngus providing Mr. H's file to Modern pursuant to a subpoena).)

Defendants now move for summary judgment on all of Plaintiff's claims which include state law claims of breach of contract, negligent claims handling, and unfair and deceptive trade practices. (See ECF No. 32 at 1–2.) Because Plaintiff has moved to strike certain evidence from consideration by this Court in resolving the summary judgment motions, the Court will first address Plaintiff's motion to strike. See Jarrell-Henderson v. Liberty Mut. Fire Ins. Co. , No. 2:07cv432, 2009 WL 347801, at *6 (E.D. Va. Feb. 10, 2009) ("Preliminarily, the court must decide Plaintiff's motion to strike the affidavit of [a witness], offered in support of [Defendant's] response to Plaintiff's motion for summary judgment.").


Plaintiff's motion to strike seeks to have this Court strike the declarations of Thomas A. French, (ECF No. 33-1), and Jack S. Holmes, (ECF No. 33-2). (ECF No. 35.)

A. Declaration of Thomas A. French

Thomas A. French is a Pennsylvania attorney who represented Eastern in connection with this matter. (ECF No. 36 at 3; ECF No. 33-1 ¶¶ 2, 5.) Modern argues that the Court should strike Mr. French's declaration which was submitted as part of Eastern's summary judgment filings because he was not listed on Eastern's initial disclosure of potential witnesses, pursuant to Federal Rule of Civil Procedure 26(a)(1), and because he was listed as one of Eastern's counsel of record at the time his declaration was filed. (ECF No. 36 at 3–6.) Eastern responds that the Court should consider French's declaration because Modern knew that French was "mentioned by name in its Complaint," and further knew that "he had information relevant and material to the lawsuit." (ECF No. 43-2 at 2.) In addition, Eastern also argues that French's tardy withdrawal as counsel of record was a "good faith mistake." (Id. at 3.)

When a party "fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence ... at a trial, unless the failure was substantially justified or is harmless." Fed. R. Civ. P. 37(c)(1). Rule 37(c)(1) provides trial courts wide discretion to remedy violations of Rule 26(a) or Rule 26(e). See id. In exercising its "broad discretion," a trial court may determine whether a party's violation of Rule 26(a) was "substantially justified or harmless" by considering:

(1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the non-disclosing party's explanation for its failure to disclose the evidence.

S. States Rack & Fixture, Inc. v. Sherwin-Williams Co. , 318 F.3d 592, 597 (4th Cir. 2003).

Considering the factors outlined by the Fourth Circuit, Eastern's failure to list Mr. French as a potential witness does not appear to be "substantially justified or harmless." See S. States , 318 F.3d at 597. Modern's claim that it was surprised when Mr. French's declaration was submitted as a part of Eastern's summary judgment filings, (ECF No. 36 at 4), was reasonable since French at the time of the filing remained counsel of record and as such could not, consistent with Rules of Professional Conduct, also serve as a witness in the case.3 See N.C. Rules of Prof'l Conduct 3.7(a) (attorneys are not allowed to serve as witnesses in a trial in which they are also an advocate). Further, when Modern reached out to Eastern's counsel in September 2018—weeks before Mr. French submitted his declaration—to determine whether Eastern intended to call French as a witness, Eastern failed to respond. (ECF No. 35-4 at 2, 5.) Modern has thus shown that it was substantially surprised when Eastern filed the French declaration while he remained counsel of record. In addition, Modern has shown that it was harmed by Eastern's failure to comply with Rule 26, which caused it to lose the opportunity to depose Mr. French. (See ECF No. 46 at 1–2.) Further, Eastern's "explanation for its failure to disclose" Mr. French as a potential witness in its Rule 26 disclosures is not persuasive. See S. States , 318 F.3d at 597 ; (see ECF No. 43 at 2–3). Nor can this Court conclude that Mr. French remaining as counsel of record until after the declaration was filed, was merely a "good faith mistake." (See ECF No. 43 at 3.)

This Court, having determined that Modern has demonstrated that Eastern's violation of Rule 26(a) in this instance was neither justified nor harmless will, in its discretion, strike the declaration of Thomas A. French, (ECF No. 33-1).

B. Declaration of Jack S. Holmes

Modern next argues that the Court should strike the declaration of Jack Holmes, (ECF No. 33-2). (ECF No. 35 at 1.) Mr. Holmes was an attorney at McAngus who handled Mr. H's claim before the Industrial Commission. (ECF No. 33-2 ¶¶ 2–3.) Although Mr. Holmes was listed in both parties' initial disclosures of potential witnesses, (ECF No. 35-3 at 4; ECF No. 43 at 3), Modern argues that Mr. Holmes, in his declaration, provided expert testimony, which was not disclosed. (ECF No. 36 at 10–11.) Eastern argues in response that Mr. Holmes's testimony was not expert testimony because it was "based on his personal experience and involvement with Mr. H's claim." (ECF No. 43 at 4.)

Federal Rule of Evidence 702 governs testimony by expert witnesses that is based on "scientific, technical, or other specialized knowledge." Fed. R. Evid. 702(a). Rule 701, however, allows a lay witness to give opinion testimony that is "rationally based on the witness's perception" and helpful to determining a fact in issue, so long as it is not based on the same "scientific, technical, or other specialized knowledge" covered by Rule 702. Fed. R. Evid. 701. "And while the line between the two ... can be ‘a fine one,’ the key to Rule 701 lay opinion testimony is that it must arise from the personal knowledge or firsthand perception of the witness."

Lord & Taylor, LLC v. White Flint, L.P. , 849 F.3d 567, 575 (4th Cir. 2017) (quoting United States v. Perkins , 470 F.3d 150, 155 (4th Cir. 2006) ). For example, in MCI Telecommunications Corp. v. Wanzer , the Fourth Circuit held that a bookkeeper should be allowed to testify regarding a projection of profits that she prepared "predicated on her personal knowledge and perception." 897 F.2d 703, 706 (4th Cir. 1990) ; see also Bluiett v. Pierre M. Sprey, Inc. , No. AW-05-1244, 2009 WL 10685350, at *4 (D. Md. Jan....

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