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FILED

Case 2:11-cv-03695-RDP-TMP Document 407 Filed 11/19/15 Page 1 of 10

2015 Nov-19 AM 09:55


U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT


FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
)
DRUMMOND COMPANY, INC.,
)
)
Plaintiff,
)
)
v.
)
)
TERRENCE P. COLLINGSWORTH, et al., )
)
Defendants.
)

Case No 2:11-cv-3695-RDP
OPPOSED1
Confidential Pursuant to Protective
Order

DEFENDANTS MOTION TO STAY PENDING SUMMARY JUDGMENT


RULING IN INSURANCE COVERAGE PROCEEDINGS
Defendants Conrad & Scherer, LLP (C&S) and Terrence Collingsworth move the
Court to stay this matter pending a ruling on motions for summary judgment in insurance
coverage proceedings in Florida federal court that will directly impact Defendants ability to
adequately defend themselves in this case and the RICO case.2
A stay is not only permitted under existing case law, it is necessary given the facts of
these cases:

This case has only now entered the heart of the discovery phase, and Defendants
will incur substantial fees and expenses in completing this phase and proceeding
through the summary judgment and trial phases.

Similarly, Defendants will incur substantial fees and expenses in the RICO case,
which is in the very early phases.

C&S is a modestly-sized law firm that cannot afford to pay what may amount to
millions of dollars in outside counsel fees in the coming months in this and the
RICO case.

On November 17, undersigned counsel for defendants contacted counsel for Drummond to inform
Drummond of defendants intention to file this motion and to inquire whether Drummond would oppose the motion.
Counsel for Drummond later indicated that Drummond would oppose this motion.
2

Defendants have filed on this date a nearly identical motion in the RICO case, No. 2:15-cv-0506-RDP.

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C&S had insurance defense coverage in this case until March 2015, after which
time it incurred more than
in legal fees and expenses. It expects to
incur millions more that it will have to pay out-of-pocket if additional insurance
coverage is not available.

C&S is involved in a declaratory judgment case in the U.S. District Court for the
Southern District of Florida involving its insurers obligation to provide defense
coverage in the RICO case.

Resolution of the declaratory judgment case will not only provide clarity as to
Defendants ability to defend themselves in the RICO case, it will also provide
clarity about the resources available for Defendants to devote to the defense of
this case.

Summary judgment on the coverage question is fully briefed, and the parties
expect the U.S. District Court for the Southern District of Florida to render a
decision quickly.

Courts regularly enter stays of an underlying action while insurance coverage


disputes are resolved.

Defendants, therefore, request a very short stay of this case and the RICO case until the
district court in Florida renders a decision on the summary judgment motions concerning
insurance defense coverage.
INTRODUCTION AND FACTUAL BACKGROUND
On October 21, 2011, Drummond Company, Inc. filed this libel action against C&S and
Mr. Collingsworth. Due to an appeal to the Eleventh Circuit over personal jurisdiction, the
parties did not begin litigating the merits of the case until 2013.
Defendants were initially represented in this matter by the law firm of Clark, Hair &
Smith P.C. In late 2014, Defendants retained the law firms of Susman Godfrey L.L.P.
(Susman), Steptoe & Johnson L.L.P. (Steptoe), and Spotswood Sansom & Sansbury L.L.C.
(Spotswood) when they realized significantly more resources were going to be required to
adequately respond to and address the ever-expanding scope of legal and factual issues in the
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case. Two of the most prominent issues were the massive document review Defendants
undertook following entry of the Courts October 15, 2014 Order, and the intense effort required
to respond to, and participate in hearings on, Drummonds renewed motion for sanctions.
Between October 15, 2014when the Court entered its order on privilege logsand
January 9, 2015the date Defendants served their supplemental interrogatory responses and
revised privilege logC&S incurred approximately

in legal fees and costs. Ex. 1,

Declaration of Eldon Hills (Hills Decl.) 3. A significant portion of those expenses were
attributable to the document review and privilege logging necessary to comply with the Courts
October 15, 2014 Order.
C&S then incurred approximately

in legal fees and costs between May 22,

2015the date that the evidentiary hearing on Drummonds renewed motion for sanctions was
originally scheduledand September 3, 2015the last day of the three-day evidentiary hearing.
Ex. 1, Hills Decl. 4. Much of those expenses were incurred in preparation for the three-day
evidentiary hearing.
In the middle of these massive projects, Drummond filed the RICO lawsuit in March
2015. That lawsuit is in the very early stages, as the parties are briefing Defendants motions to
dismiss.
In all, Defendants have incurred about

more in the RICO action. Ex. 1, Hills Decl. 6-7. The combined

and approximately
total, over

in legal fees and costs in this action

, is sure to balloontrial in this action is still far off and the RICO action

is only in the early stages.


Defendants, however, are incapable of paying the legal fees that will be required to
zealously defend against the claims in this and the RICO case moving forward. Indeed,
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Defendants have requested that all of their outside counsel firms except for Spotswood and
Badham & Buck withdraw from representing C&S and Mr. Collingsworth, respectively, due the
extraordinarily expensive nature of this action and to reduc[e] the size of [their] trial team.
Doc. 366 at 1 (Susmans motion to withdraw); see also Doc. 381 at 1 (In light of the
extraordinary expense of the case, Steptoe has been requested to withdraw in this matter.).3
C&S is a modestly-sized law firm based in Fort Lauderdale, Florida, that cannot afford to
pay what may amount to millions more in fees in the coming months. C&S only has 21 lawyers,
including two part-time lawyers, one semi-retired lawyer, and a lawyer who is not actively
practicing. The firm is simply not big enough to be able to absorb such fees on its own.
But, Defendants were not simply unprepared for the contingency of litigation. C&S was
insured in this case, and it relied on one of its insurers, Firemans Fund Insurance Company
(Firemans), to cover its legal costs in this action for a period of time. That coverage, however,
was quickly exhausted after the new team came on board given the scope of document review
and privilege logging required, and Drummonds efforts to seek potentially case-terminating
sanctions.
Defendants then sought defense coverage for the RICO action from another of their
insurers, Hartford Casualty Insurance Company (Hartford). But, Hartford refused to provide
any coverage. Since the time the Firemans coverage was exhausted in March 2015, Defendants
have incurred approximately

in outside counsel legal fees in this case. Ex. 1, Hills

Decl. 5.

Susman and Steptoe have remained, for the time being, Defendants counsel in the RICO action but most
of the work in that matter is now being handled in-house by C&S.
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Because of Hartfords refusal to provide defense coverage, Defendants sued Hartford in


the Southern District of Florida for a declaration that it had a duty to defend Defendants in the
RICO action. Ex. 2, C&Ss Mot. for Summ. Jgmt., Case No. 0:15-cv-61360-JIC (S.D. Fla. Sept.
15, 2015) at 2. Defendants and Hartford filed cross-motions for summary judgment. Those
motions are fully briefed, and Defendants expect a ruling from the Honorable James I. Cohn in
the very near future.
Accordingly, Defendants seek a temporary stay in this action and the RICO action until
the district court in Florida rules on the summary judgment motions. Any stay pending that
ruling would be short-lived.
ARGUMENT
Defendants seek a modest stay of virtually all proceedings in this action and the RICO
action until the district court in Florida renders a decision on Defendants and Hartfords crossmotions for summary judgment on the coverage issue. Defendants propose one exception to the
stay to avoid any delay in this action once the stay is lifted. Specifically, Defendants will file
with the Special Master their reply in support of their Motion for a Protective Order as to Eleven
Non-Party Subpoenas and Motion to Quash the Subpoenas by November 23, 2015. Defendants
request all other proceedingsincluding discovery and briefing before the Court and the Special
Masterbe stayed. The stay should, for example, toll all deadlines triggered by any non-partys
production of documents under the Special Masters procedures for non-party subpoenas,
including deadlines for privilege logs.
C&S has already incurred over

in legal fees and costs in the two actions.

Continuing to incur such fees could very well financially ruin C&S. Staying these actions until
the district court in Florida rules would allow C&S to avoid potentially ruinous legal fees while
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the party ultimately responsible for the fees in the RICO action is still unknown. Indeed,
Defendants can only determine the type of legal representation they can afford in the RICO
action once they know if they have insurance coverage. And knowing whether there is coverage
in the RICO action will also provide clarity about the resources available for Defendants to
devote to the defense of this action. The coverage decision in the RICO action will have a great
impact on how Defendants litigate both cases.
The unique circumstances of these cases counsels for a stay, and the law plainly permits
this Court to enter stays in both actions. [T]he power to stay proceedings is incidental to the
power inherent in every court to control the disposition of the causes on its docket with economy
of time and effort for itself, for counsel, and for litigants. Landis v. N. Am. Co., 299 U.S. 248,
254 (1936). In deciding whether a stay is merited, the Court must weigh competing interests
and maintain an even balance. Id. at 254-55. Defendants precarious financial situation and the
difficulty of allocating resources to the defense of the cases before the RICO coverage ruling is
issued warrant a stay. In comparison, Drummond has no competing interests of comparable
importance that would favor denying the stay.
Moreover, Defendants are not seeking any novel relief, as courts regularly stay
underlying actions while insurance coverage disputes are resolved. See Markel Intl Ins. Co. v.
OQuinn, 566 F. Supp. 2d 1374, 1378 (S.D. Ga. 2008) (finding the scenario presented herein
represents the classic case for staying the underlying litigation to resolve an insurance coverage
issue in a declaratory judgment action); see also Candy Craft Creations, LLC v. Gartner, No.
CV 212-091, 2015 WL 2408185, at *3-4 (S.D. Ga. May 19, 2015) (staying trade secrets action
pending settlement conference in related insurance coverage matter); Admiral Ins. Co. v. Petron
Energy, Inc., No. 3:11-CV-02524-M, 2013 WL 5910880, at *1 (N.D. Tex. Oct. 31, 2013) (The
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remaining claims in the Oklahoma Litigation were stayed pending resolution of this coverage
action.); City of Scranton v. Indian Harbor Ins. Co., No. 3:11-CV-0529, 2012 WL 4509788, at
*1 (M.D. Pa. Sept. 28, 2012) (The Underlying Action has been stayed pending a resolution of
the present insurance coverage dispute.).
A 2012 decision from the District of Maine is directly on point. In Pan Am Systems, Inc.
v. Hardenbergh, No. 2:11-CV-00339-NT, 2012 WL 4855205 (D. Me. Oct. 12, 2012), a
defendant in a defamation action sought a stay until a duty to defend action against his insurer
was resolved. Id. at *1. The defendant argued the discrepancy in the resources of the parties is
such that he can only mount an adequate defense if his insurance company funds the litigation.
Id. The defendant further asserted he will be significantly affected by whether his fees and costs
will be covered by [his insurer] or come out of his own pocket. Id. at *2. In ordering the stay
requested by the defendant, the court found there would be minimal hardship to the Plaintiffs in
staying this proceeding pending resolution of the insurance action. Id.
A stay is merited here for the same reasons. There is an obvious discrepancy in the
resources of the parties; Defendants have demonstrated insurance funds are necessary to mount
an adequate defense in the RICO action; Defendants have underscored the critical importance to
both cases of determining whether their fees and costs will be covered by [their insurer] or
come out of [their] own pocket; and Drummond will suffer only minimal hardship (if any)
from a stay. Id. at *1-*2.
Indeed, staying these actions while Defendants seek to force their insurer to cover their
defense costs is akin to staying an action so that a party may obtain new counsel. See Dove v.
Grantier, No. CV 213-163, 2015 WL 5602458, at *1 (S.D. Ga. Sept. 22, 2015) ([T]he Court
stayed all deadlines in this case for a period of sixty days to permit Plaintiff time to retain new
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counsel); Dillon v. Champions BBQ, Inc., No. 807-CV-544-T-23MAP, 2008 WL 906767, at *1


(M.D. Fla. Apr. 1, 2008) (describing stay in discovery for 30 days so defendant could obtain new
counsel). In both situations, a stay is necessary so a party can ensure he or she has adequate
representation. Defendants are merely seeking the opportunity to mount a proper defense in these
costly and complicated actions that have the potential to spell their financial ruin.
If the Court does not stay the two actions, Defendants will be placed in an untenable
situation. Continuing a vigorous defense of both actions is obviously desirable, but if Hartford
does not have to pay defense costs in the RICO action, C&S simply lacks the resources to pay
defense costs in the two cases on its own. Without a stay, whatever Defendants do is fraught with
risk. If they maintain a scaled-down defense, but the Florida district court rules in their favor,
they will have needlessly foregone a vigorous defense during an important period in these
lawsuits. Alternatively, if they maintain an aggressive defense, and the Florida district court rules
against them, they will have incurred fees they have no way of paying. Defendants, of course,
fear the consequences of not zealously defending against Drummonds allegations. Yet they fear
immediate financial ruindeath by legal feeseven more.
Drummond, by contrast, will not be prejudiced by a temporary stay in the proceedings.
This action has been pending for four years, so a few additional weeks or, at most, months is not
a meaningful delay. The merits of the libel case involve activity over four years ago for which
Plaintiff admits it has no economic damages. See Doc. 220 at 3 & n.2 (Drummonds brief
reciting its stipulation that it will not be presenting evidence of special damages, and
explaining that, [i]n defamation law, actual economic harm is referred to as special
damages). The RICO case was filed in March, and only two defendants have responded to the
complaint. There has also been no discovery conducted in this case. Summary judgment in the
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insurance coverage action is complete, and a ruling is likely imminent. Defendants will
immediately inform the Court of the summary judgment ruling so the stay may be lifted.
Defendants are not asking for a stay pending any appeal of that ruling.
CONCLUSION
For the foregoing reasons, Defendants respectfully request a stay in this action until the
Florida district court rules on the motions for summary judgment in the insurance coverage
dispute with Hartford.
DATE: November 19, 2015

Respectfully submitted,
/s/ William T. Paulk
Robert K. Spotswood
Michael T. Sansbury
William T. Paulk
SPOTSWOOD SANSOM & SANSBURY LLC
1819 5th Ave. N.
Suite 1050
Birmingham, AL 35203
Phone (205) 986-3620
Fax (205) 986-3639
rks@spotswoodllc.com
msansbury@spotswoodllc.com
wpaulk@spotswoodllc.com
Attorneys for Conrad & Scherer, LLP
/s/ W. Percy Badham
W. Percy Badham
Brett A. Ialacci
BADHAM & BUCK, LLC
2001 Park Place North, Suite 500
Birmingham, Alabama 35203
Phone: (205) 521-0036
Fax: (205) 521-0037
pbadham@badhambuck.com
bialacci@badhambuck.com
Attorneys for Terrence Collingsworth
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that, on November 19, 2015, I electronically filed the foregoing
with the Clerk of Court using the CM/ECF system, which will send notification of such filing to
the following:
T. Michael Brown
Carly Miller
BRADLEY ARANT BOULT CUMMINGS, LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, Alabama 35203
mbrown@babc.com
camiller@babc.com
William Anthony Davis, III
H. Thomas Wells, III
Benjamin T. Presley
STARNES DAVIS FLORIE, LLP
P.O. Box 59812
Birmingham, AL 35259
tdavis@starneslaw.com
twells@starneslaw.com
bpresley@starneslaw.com
Sara E. Kropf
LAW OFFICE OF SARA KROPF PLLC
1001 G Street NW, Suite 800
Washington, D.C. 20001
Sara@kropf-law.com

/s/ William T. Paulk


William T. Paulk

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