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W.Va. SC extends Apex rule to high-ranking corporate officials

By Jessica M. Karmasek | Mar 1, 2012


CHARLESTON, W.Va. (Legal Newsline) - The West Virginia Supreme Court of Appeals last week granted an insurer's writ seeking prohibition of a circuit court's order requiring its CEO to submit to depositions.

The state's high court filed its 22-page opinion Friday.

Massachusetts Mutual Life Insurance Company filed a writ of prohibition with the Court, asking it to stop the Jefferson County Circuit Court from enforcing two orders entered Oct. 26, 2011.

The orders required Roger Crandall, president, chief executive officer and chairman of MassMutual, to submit to depositions.

MassMutual argues that the orders compelling his depositions -- despite his lack of personal or "unique" knowledge about the cases -- are "clearly erroneous" and constitute an abuse of the lower court's discretion.

The respondents contend Crandall, indeed, has "unique" knowledge of the litigation, making his deposition "relevant" and "necessary."

Howard G. Demory et. al v. Massachusetts Mutual Life Insurance Company and the related case of 3rd Time Trucking LLC et. al. v. Massachusetts Mutual Life Insurance Company are the two civil actions at issue.

Both cases, filed in Jefferson County, relate to the purchase of 412i retirement plans purchased through MassMutual.

A 412i plan must be established by an employer as the sponsor of the plan, and the plan itself is then established as a separate and distinct entity with its own employer identification number for IRS tax reporting purposes.

Howard Demory, who was 81 in 2005, had sold his 30-acre farm. However, he did not have enough money to qualify for a 412i plan and was not in a position to fund the plan for the minimum five years.

Demory alleges that MassMutual, through its agents, fabricated an employer named "Demory Farm" and an employer sponsored retirement plan named "Demory Farm Retirement Plan."

The Demory Farm Retirement Plan then purchased the annuity.

Demory claims the annuity was then illegally funded with $100,000 from the capital gains from the sale of his farm.

Demory also claims that in January 2007 the insurer caused the "improper and illegal" conveyance of the Demory Farm Retirement Plan "annuity" to an individual retirement account, which it had set up for Demory.

Justice Margaret Workman, who authored the Supreme Court's opinion, said all the circuit court determined was that the so-called Apex deposition rule is inapplicable to Crandall.

The Apex rule sets forth guidelines for deposing a high-ranking corporate official.

"There was not a full hearing on the motion for protective order, rather the issue was discussed in a scheduling hearing before the parties had completed the written briefing on the matter," Workman wrote.

"Further, the circuit court's orders are not supported by findings of fact and conclusions of law."

Because the circuit court did not make findings of fact, nor conclusions of law, there is "insufficient basis" to sustain its denial of the protective order, she explained.

The Court, in its opinion, said now when a party seeks to depose a high-ranking corporate official, and that official or his or her corporation files a motion for protective order to prohibit the deposition, the circuit court should first determine whether the party seeking the deposition has demonstrated that the official has any unique, or superior, personal knowledge.

"If the party seeking the deposition cannot show that the official has any unique or superior personal knowledge of discoverable information, the circuit court should grant the motion for protective order and first require the party seeking the deposition to attempt to obtain the discovery through less intrusive methods," Workman wrote.

"Depending upon the circumstances of the particular case, these methods could include the depositions of lower level corporate employees, as well as interrogatories and requests for production of documents directed to the corporation."

Only after making a "good faith effort" to obtain the discovery through less intrusive methods, the party seeking the deposition may attempt to show:

- That there is a reasonable indication that the official's deposition is calculated to lead to the discovery of admissible evidence; and

- That the less intrusive methods of discovery are unsatisfactory, insufficient or inadequate.

"If the party seeking the deposition makes this showing, the circuit court should modify or vacate the protective order as appropriate," Workman wrote.

Ancil G. Ramey and William E. Galeota, lawyers for Steptoe and Johnson, called the Court's opinion a "well-reasoned decision."

Ramey, who works in Steptoe's Huntington office, practices appellate, commercial and insurance litigation. Prior to joining the firm, he served as clerk of the Supreme Court for more than a decade.

Galeota, who works in the firm's Morgantown office, practices personal injury and commercial litigation, in particular medical and hospital liability, commercial disputes and fiduciary litigation.

In a one-pager Tuesday, both agreed that the Court's ruling "imposes a standard of reasonableness and common sense."

A common tactic for lawyers suing corporations, they explained, has been to schedule or "notice" the company's CEO for a deposition.

That is, with nothing more than the assertion that he or she should know, or must know, something or have information that falls within the broadly defined "scope of discovery," they said.

"Of course, that tactic is also subject to abuse, given its harassing and unnecessarily burdensome effect, particularly where the information sought can be obtained by other means or from other persons," Ramey and Galeota wrote.

Businesses, especially those involved in civil litigation, will benefit from the Court's ruling, which restricts such a "straight-to-the-top" approach to pre-trial discovery depositions, they said.

From Legal Newsline: Reach Jessica Karmasek by email at

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