Opinion of the Court by Chief Justice MINTON.
Southern Financial Life Insurance Company sells credit life and disability insurance through lending institutions, mostly banks and car dealerships. In a class action brought against Southern Financial by purchasers of its credit life and disability policies in Kentucky, the trial court entered a discovery order compelling Southern Financial to produce certain loan information and documents regarding the putative class members and the insurance sold to them. Southern Financial objected to the discovery, arguing that the requested loan information and documents were not in its "possession, custody or control" within the meaning of Kentucky Rules of Civil Procedure (CR) 34.01. The requested information, according to Southern Financial, is in the hands of nonparties, the lenders. Applying principles of general agency law, the trial court overruled the objection.
Southern Financial now seeks a writ of prohibition to prevent the trial court's enforcement of that discovery order. The Court of Appeals, where this writ action originated, declined to issue a writ; and Southern Financial appeals to this Court as a matter of right.
Southern Financial is an insurer that sells disability and life insurance to help borrowers make loan payments in the event that the insured borrower becomes disabled or dies before the loan is paid off. In issuing these policies, Southern Financial did not directly solicit the insureds. Instead, the lending institutions offered Southern Financial's product with a lump-sum premium that was often included in the amount loaned to the borrower.
The underlying action from which this writ is being sought was filed by Roger Mullins as executor of his wife's estate. The suit alleges that Southern Financial did not properly pay disability benefits that his late wife was entitled to under the terms of her Southern Financial disability policies.
In furtherance of his claims against Southern Financial, Mullins, on behalf of the class, propounded written discovery upon Southern Financial seeking, as is relevant here, information regarding all of the loans that were insured by Southern Financial's product. The discovery request that is at the core of the instant controversy is interrogatory number two in Plaintiff's First Set of Merits Interrogatories to Defendant.
Southern Financial objected to the disclosure of the requested discovery, arguing that the loan information was not in its "possession, custody or control" within the meaning of CR 34.01. Instead, Southern Financial argued that the sought-after discovery materials were in the possession of the individual lenders. The trial court overruled Southern Financial's objections and entered an order, dated March 17, 2011, compelling Southern Financial's responses to Plaintiff's First Set of Merits Interrogatories. In doing so, the trial court noted that the lenders were agents
Following the trial court's order to compel discovery, Southern Financial did not obtain and disclose the information mandated by the order. As a result, Mullins moved the trial court to sanction Southern Financial for its failure to comply with the court's discovery order. In response to Mullins's motion, by order entered May 23, 2012, the trial court ordered that "in lieu of monetary or other sanctions," Southern Financial was to subpoena the records falling within the purview of the 2011 order or reimburse the class's expense in doing so itself.
Taking issue with the trial court's May 23, 2012, order, Southern Financial proceeded before the Court of Appeals on two separate but interrelated fronts. The first action was a direct appeal taking the position that the 2012 order was a contempt sanction and, thus, immediately appealable. The second action was the petition for a writ of prohibition.
In the writ proceeding, the Court of Appeals denied Southern Financial's petition, finding that the direct appeal then pending before it provided an avenue of relief sufficient to negate the availability of a writ. This appeal followed the denial. We affirm the denial of the writ by the Court of Appeals, although on different grounds.
The issuance of a writ of prohibition is an extraordinary remedy.
Writ cases are "divided into two classes, which are distinguished by whether the lower court allegedly is (1) acting without jurisdiction (which includes `beyond its jurisdiction'), or (2) acting erroneously within its jurisdiction."
When a writ is being sought under the second class of cases, a writ "may be granted upon a showing ... that the lower court is acting or is about to act erroneously, although within its jurisdiction, and there exists no adequate remedy by appeal or otherwise and great injustice and irreparable injury will result if the petition is not granted."
Because of the discretion intrinsic to the issuance of a writ, the decision of the Court of Appeals is typically reviewed for an abuse of discretion.
Southern Financial argues the necessity of a writ under both the irreparable harm and manifest injustice pathways. In arguing for the issuance of a writ in these circumstances, Southern Financial contends that it has no alternative remedy on appeal from the 2012 discovery order and that the enforcement of the order would cause Southern Financial irreparable harm, as well as result in a substantial miscarriage of justice. More specifically, Southern' Financial argues that there is typically no adequate remedy from orders allowing discovery,
Southern Financial's assignment of error facially attacks the 2012 order as an impermissible discovery sanction and also presents a veiled attack on the 2011 order. Southern Financial argues that trial court erred in entering the 2012 order as a sanction for failing to comply with the 2011 order because of the inherent inconsistencies between the two orders.
Southern Financial somewhat circularly argues that the trial court's acknowledgement in the 2012 order that subpoenas were necessary to obtain the information from the lenders constitutes a tacit recognition that Southern Financial never was in control of the information it is being compelled to produce. Because the court has implicitly acknowledged that Southern Financial does not "control" the information possessed by the lenders, as the 2011 order held, Southern Financial further argues that complying with the 2011 order was impossible and, therefore, an improper basis for the imposition of sanctions in the 2012 order. In essence, Southern Financial is arguing that because the trial court was incorrect in its finding that Southern Financial was in "possession, custody or control" of the information held by lenders in the 2011 order, the 2012 order is similarly an error because it is a sanction for failing to comply with an erroneous order, compliance with which was impossible.
For discovery to be had from a party under both Kentucky's Rules of Civil Procedure and their federal analog, a party must be in "possession, custody or control" of the documents or information being sought.
In challenging this finding, Southern Financial argues that the trial court's agency theory has been "put to the test" and the fact that 141 lenders refused to turn over the requested documents to Southern Financial shows that the trial court's analysis regarding the extent of Southern Financial's control over the documents was incorrect in the 2011 order to compel. While this argument is facially appealing to some degree, ultimately it fails. This argument presents a nonsequitur, a logical fallacy in which the conclusion does not flow from the premise. Here, Southern Financial concludes that it was not in control of the relevant documents because the lenders in possession of the documents refused to turn them over on request. But the lenders' mere rejection of Southern Financial's request does not mandate a conclusion that it was not entitled to obtain those documents, only a conclusion that the lenders are not willing to disclose them.
An agent refusing to turn over information that falls squarely within the scope of agency does not make a principal any less entitled to possession of the sought-after information. Taking Southern Financial's argument to its logical conclusion, any records custodian could refuse to disclose discoverable information to its employer, thereby allowing the employer to escape from making the disclosures mandated by CR 34.01 because the record custodian's denial would definitively show that the principal was not in "possession, custody or control" of the records sought. This is surely an absurd result that was not intended under CR 34.01. An agent's response does not define the parties' relationship or set the parameters of "possession, custody or control."
The persuasiveness of Southern Financial's argument is further undercut by its internal inconsistencies. Southern Financial contends that the refusal of 141 out of "almost 300" lenders to disclose the requested information is conclusive proof that Southern Financial did not have CR 34.01 control of the documents. This position, however, neglects to account for the nearly 160 other lenders that did voluntarily comply with Southern Financial's request for information. While we do not take the position that this conclusively proves Southern Financial's control of the information, we cannot help but acknowledge the damage done to the argument's persuasiveness.
We begin our analysis by turning to a brief analysis of agency law. As noted by the trial court, Kentucky law operates to create a mandatory principal-agent relationship between any party that solicits and receives applications for insurance and the company for which they solicit, an agreement to the contrary notwithstanding.
Enumerated as some of the most basic and well-settled principles of agency law
When contemplating these undisputed tenets of agency law in light of CR 34.01's definition of control, it becomes clear that a principal has a legal right to obtain any information in the possession of his agent, so long as the agent owes no superior duty to a third party regarding the information and the information falls within the scope of the agency.
Based on our analysis of general agency law and its interplay with CR 34.01, we hold that a principal is in control, for purposes of CR 34.01, of all information that is in the possession of its agents to which it is entitled to receive under principles of agency law. Although we have expressly limited the scope of this control to information that the principal is entitled to receive, it is important to note that this only includes information that is properly within the scope of the agency between the principal and agent. The principal has no right to obtain information outside the scope of the agency and, therefore, is not subject to discovery because the principal cannot be said to "control" it. This position not only has support in our inclination for allowing broad discovery of relevant information,
First, Southern Financial cites In re Chapman
Southern Financial also relies upon Edwards v. Hickman
Lastly, Southern Financial cites Metropolitan Prop. & Cas. Ins. Co. v. Overstreet
The only remaining issue is whether the information that Southern Financial was ordered to disclose from its agent-lenders was within the scope of the agency and, thus, within the rule we have acknowledged today. We must concede that such a determination is necessarily fact-intensive
Having found no error in the trial court's 2011 order, we must now consider the validity of the 2012 order. We must admit that compelling a party to subpoena information or foot the bill for his adversary to do so is an unorthodox
For the foregoing reasons, we find that Southern Financial was legally in control of the information it was compelled to disclose in the 2011 and 2012 orders; and, therefore, the trial court committed no error, so we affirm the denial of the writ by the Court of Appeals.
All sitting. All concur.