Pincheira v. Allstate Insurance Co., 26,044.

Decision Date13 June 2007
Docket NumberNo. 26,044.,26,044.
Citation164 P.3d 982,2007 NMCA 094
PartiesJose PINCHEIRA and Olivia Pincheira, Plaintiffs-Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant.
CourtCourt of Appeals of New Mexico

Berardinelli Law Firm, David J. Berardinelli, LLC, Santa Fe, NM, for Appellees.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, Steptoe & Johnson LLP, Bennett Evan Cooper, Jon T. Neumann, Phoenix, AZ, for Appellant.



{1} In this case, we are presented with a question of first impression: What is the procedure to be followed by a New Mexico trial court in evaluating the protection, if any, to be given to an alleged trade secret during discovery? This question comes to us on the entry of a default judgment on liability against Defendant, Allstate Insurance Company, which holds Defendant in contempt for failure to comply with the trial court's orders requiring full production of documents requested by Plaintiffs, Jose and Olivia Pincheira, (McKinsey documents). Defendant challenges the entry of the default judgment as a contempt sanction and raises the following issues on appeal: (1) whether the trial court abused its discretion in requiring Defendant to produce the McKinsey documents without a protective order or without an evidentiary hearing and (2) whether the trial court abused its discretion in entering a default judgment as a sanction for Defendant's technical contempt. We reverse and remand on the first issue. For that reason, we do not reach the merits of the second issue in this case.


{2} Although the question on appeal is limited to the disposition of a discovery request, we provide context for our analysis by first setting out a detailed history of the events leading up to the appeal.

A. Preliminary Case

{3} This case began almost ten years ago, when Plaintiffs were injured by an uninsured motorist in an accident that occurred on December 2, 1997. Plaintiffs made a claim for uninsured motorist (UM) coverage, but based on Plaintiffs' written rejection of UM coverage when they purchased their insurance policy, Defendant denied the claim. Plaintiffs filed a declaratory relief action against Defendant and its agent, the Yount Agency. Trial was held on the question of coverage. The trial court determined that the rejection of UM coverage was invalid because it had been based on poor and erroneous agent information and, further, because the rejection had occurred in a manner that violated public policy, applicable case law, and the insurance statutes, rules, and regulations of New Mexico. Based on this determination, the trial court concluded that the Plaintiffs had UM coverage, and the court therefore granted declaratory judgment against Defendant and the Yount Agency. Ultimately, Plaintiffs recovered $30,000 in UM coverage for the accident, plus attorney fees.

B. Case on Appeal

{4} We now turn to the case on appeal. Following the declaratory judgment, a complaint (Complaint) was filed by Plaintiffs and other parties, who have since been dismissed from the case and are not part of this appeal. The Complaint named Defendant and members of the Yount Agency as defendants and sought damages for fraud, constructive fraud, civil conspiracy to defraud or violate statute, violation of fiduciary duty, professional negligence by an insurance agent, failure of the agent to procure insurance, insurance bad faith, bad faith claims practices, violations of insurance code, and unfair trade practices. Plaintiffs' basic position is that Defendant and its agents, as directed through their training process, routinely provide false or misleading information concerning the benefits and advantages of UM coverage in order to induce retirees like Plaintiffs to reject UM coverage when purchasing their automobile insurance.

{5} The record in this appeal consists of several volumes related to the vigorous litigation of Plaintiffs' claims. Plaintiffs and Defendant filed discovery requests, objections, and motions to compel and requested hearings on their motions. Orders were entered. The parties also filed numerous non-discovery-related motions that were acted upon by the trial court. The issues on appeal are limited to Plaintiffs' second request for production of documents, specifically the McKinsey documents. Because the request was made to Defendant only, there are no further references in this opinion to the members of the Yount Agency who are the remaining defendants in the case. We turn to the discovery process related to the McKinsey documents.

C. Request for Production of the McKinsey Documents

{6} On July 17, 2001, Plaintiffs served Defendant with their second request for production of documents. In late August 2001, Defendant timely responded to the request and made numerous objections to the documents requested. Because the objection to this request and the pleadings emanating from the objection form the basis for the parties' arguments on appeal, we set out the contents of the applicable pleadings.

{7} The dispute on appeal relates exclusively to Plaintiffs' Request for Production No. 5 (Request No. 5), which reads as follows:

Please produce a true and correct copy of the CCPR implementation manual together with each and every amendment or supplement thereto issued or published or created from 1994 to the present; in connection therewith please also produce each and every report, blue book, paper or document in hard copy or digital form produced by or contributed to by McKinsey & Company which refers to or discusses the creation of CCPR for [Defendant], the intent of CCPR, the goals of CCPR or the implementation of CCPR, and which was generated at any time between 1990 and 1996.

{8} Defendant objected to Request No. 5, based "on the grounds that it seeks confidential or proprietary information or information, some of which is protected by contractual licensing agreements, and [that] Plaintiffs have previously refused to enter into an appropriate protective order in this case." Defendant also objected on the grounds that the request was "overly broad, unduly burdensome, irrelevant, and not reasonably calculated to lead to the discovery of admissible evidence, insofar as it requests information having nothing to do with rejection of uninsured motorist coverage, so the information sought has nothing to do with the allegations of Plaintiffs' Complaint."

{9} In early September 2001, Plaintiffs filed a motion to compel, followed by a memorandum brief in support of the motion. In the memorandum, Plaintiffs acknowledged that Defendant's objections to Request No. 5 were based on Defendant's contention that the McKinsey documents were trade secrets and that their production would be burdensome, but Plaintiffs nevertheless argued that disclosure would be appropriate in these circumstances.

{10} In late September 2001, Defendant responded by filing its memorandum in opposition to Plaintiffs' motion to compel. In this motion, Defendant generally opposed production of the McKinsey documents on a number of grounds but requested that if the court did order production of these particular documents, it also enter an order to protect their confidentiality as trade secrets. The opening paragraph summarizes Defendant's position:

As discussed more fully below, Plaintiffs' Second Requests are irrelevant and overly broad, unduly burdensome, expensive and exceed the scope of permissible discovery under SCRA 1-026. Plaintiffs' Second Motion to Compel should, therefore, be denied in its entirety. Alternatively, in the event this Court orders production of any documents responsive to Plaintiffs' Second Request No. 5, those documents are to be produced only subject to conditions of strict confidentiality and non[ ]disclosure, because they contain trade secrets and proprietary information.

{11} Part IV of Defendant's memorandum response discusses Defendant's objections to Request No. 5, in relative detail, including citation of case law and attachment of the affidavit of Christine Sullivan, Assistant Vice President in the Property-Casualty Claim Service Organization at Defendant's home office. The memorandum response argues that the McKinsey documents specifically qualify as trade secrets under New Mexico's Uniform Trade Secrets Act (TSA), NMSA 1978, §§ 57-3A-1 to -7 (1989). In addition, the memorandum cites the common law factors used in determining whether a party possesses a trade secret entitled to protection as set forth in the Restatement (First) of Torts § 757 cmt. b, at 6 (1939). Sullivan, in her affidavit, asserts that the McKinsey documents "are confidential, proprietary, and trade secrets [sic] and are treated as such by [Defendant]." Sullivan states that

[Defendant] believes its procedures for investigating, handling, adjusting, and evaluating casualty claims give [Defendant] an advantage in attracting and keeping policy-holders which competitors do not share.

.... [Defendant] believes these procedures give it a competitive edge with respect to procedures used by other insurance companies with which it competes, and provides a significant benefit to its shareholders and policyholders. This benefit, and the investment that created it, would be lost if these materials were obtained or disclosed to ... competitors.

{12} The affidavit also details the measures Defendant uses to maintain the confidentiality of the information requested, including strict limiting of access, printing confidentiality notices on the documents, entering into agreements of non-dissemination with employees, and keeping the materials in secure locations. In the conclusion of the response memorandum, Defendant requested that the trial court deny the second motion to compel or, alternatively, in accordance with Rule 1-026(C)(7) NMRA and Rule 11-508 NMRA, subject any produced documents to conditions of strict...

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