KENNETH G. GALE, Magistrate Judge.
Now before the Court is Defendant's "Motion for Sanctions." (Doc. 478.) Having reviewed the submissions of the parties and the attachments thereto, the Court
The above-captioned matter is a declaratory judgment action based on a dispute concerning insurance coverage and the settlement of a trademark dispute involving Plaintiff AKH and a third party. (See Doc. 1; Doc. 75, sealed, at 5-6 (underlying litigation hereinafter referred to as "RT litigation" or "RT case).) The RT litigation occurred in California. During the RT litigation, Defendant paid for the defense and settlement of claims against Plaintiff, which was both a defendant and the claimant in that case. The parties disagree concerning duties owned to each other arising out of that litigation. The claims in this case exceed five million dollars.
The present case has a complicated procedural history involving
Defendant brings the current motion seeking sanctions for alleged misconduct by Plaintiff's counsel during depositions and destruction of documents. (See generally Docs. 478, 479.) According to Defendant, shortly after Plaintiff filed the present lawsuit,
(Doc. 479, at 4.) Defendant states that it has filed the present motion, not in an effort to expand the scope of discovery, but instead
(Id., at 5.)
The Federal Rules of Civil Procedure give the court "ample tools to deal with a recalcitrant litigant."
"In considering the imposition of sanctions, the court must consider on a case-by-case basis whether a party's failure was substantially justified or whether other circumstances make the imposition of sanctions inappropriate."
Plaintiff designated Hratch Andonian and Sergio Andonian as witnesses in response to Defendant's 30(b)(6) notice. (Doc. 479-1.) The notice sought witness(es) on the following topics:
(Doc. 479-1, at 8-9.) The topics were those that Plaintiff either agreed to or was ordered to provide a witness by this Court. (Id., at n.1.)
It is uncontroverted that both Hratch Andonian and Sergio Andonian testified that they did little or nothing to prepare for the depositions. Hratch Andonian stated he met with counsel for approximately 30 minutes but did not review any documents or his prior deposition transcript. (Doc. 479-2, at 18-19.) Sergio Andonian stated he did "[n]othing much" to prepare for his deposition. (Doc. 479-3, at 19.) More specifically, he testified that he had a 5 minute call with lead counsel, did not meet with local counsel, did not review documents, and did not speak with or interview any employees. (Id., at 19-20, 45.)
Plaintiff now contends, however, that "[n]either witness accurately or completely described their preparation when asked about it during the deposition." (See Doc. 486, at 21; see also 486-5, Chorbajian Decl. ¶ 4, 486-3, H. Andonian Decl. ¶ 10.) Rather, Plaintiff contends that "[l]eading up to the deposition, Mr. Chorbajian provided the witnesses with documents and deposition transcripts to review, met with the witnesses on multiple occasions, and regularly communicated with the witnesses about the case and their testimony." (Doc. 486, at 21; see also Doc. 486-5 at ¶ 4-6; 486-3 at ¶¶ 5, 6, 8, 9.)
The Court is not persuaded by Plaintiff's attempt to re-write the deposition testimony of its witnesses. Cf.
Based on the portions of the deposition transcripts submitted (as well as the apparently length of the depositions), the Court surmises that the witnesses at issue provided a significant amount of useful information in response to Defendant's deposition queries. Even so, no witness, no matter how well prepared, can be expected to have answers to every question potentially posed by opposing counsel. According to Defendant, however, the deponents were "unable to provide answers to several questions that could have been determined with a reasonable investigation," relating to the basis for Plaintiff's damage claim, Plaintiff's finances, and Plaintiff's use of the internet as a sales tool. (Doc. 479, at 9-12.)
Defendant contends Plaintiff's approach "violated its obligations to provide knowledgeable witnesses to testify on the company's behalf." (Id., at 9.) This District has held that "[p]roducing an unprepared witness for a 30(b)(6) deposition is ``tantamount to a failure to appear' at a deposition' and constitutes sanctionable conduct." (Id., quoting
It is undisputed that Plaintiff had sufficient notice that a proffered witness would need to testify regarding the categories of its damages. Plaintiff represented to Defendant that fact witness testimony regarding damages would be unnecessary because Plaintiff would rely on its expert for this. (Doc. 479, at 10; see also Doc. 479-4, at 3-4.) Defendant explained to Plaintiff that if Plaintiff's "expert testimony was stricken for any reason, [Defendant] would object to [Plaintiff's] efforts to offer fact witness testimony on the categories of [Plaintiff's] damages if it refused to provide deposition testimony on the same." (Doc. 479, at 10.)
Thereafter, Plaintiff proffered Hratch Andonian to testify regarding this subject. According to Defendant, the witness "was unprepared to provide that information, instead directing [Defendant] on a run-around, back to [Plaintiff's] expert." (Doc. 479, at 10.) The following deposition exchange is illustrative of Defendant's concerns:
(Doc. 479-2, at 264-65 (emphasis added).)
Defendant argues that it is "unacceptable" that Plaintiff "claims to be unable to quantify the damages" it seeks "[a]t this late stage of the litigation. . . ." (Doc. 479, at 11.) Defendant contends that sanctions are necessary because it should not be "forced" to defendant at trial against a "nebulous" claim for damages. (Id.)
The Court finds, however, that Plaintiff's damage claim is not "nebulous," despite the uncertainty of the witness testimony. Plaintiff has indicated it intends to rely on expert testimony regarding damages. (Doc. 486, at 20.) That expert has submitted a report and has been deposed by Defendant. (Id.)
As stated above, Defendant warned that if Plaintiff refused to provide fact witness deposition testimony on damages, Defendant would object to efforts by Plaintiff to offer fact witness testimony at trial on the subject if the expert testimony was stricken for any reason. (Doc. 479, at 10.) In response, Plaintiff submitted Hratch Andonian for deposition on this subject. Plaintiff prepared Mr. Andonian, or chose not to prepare him, as it saw fit. Should Plaintiff need to rely on the deposition testimony provided by Mr. Andonian, it will rise or fall on the merits and sufficiency of the testimony provided. In other words, to whatever degree Plaintiff has failed to provide sufficient factual witness testimony regarding damages, Plaintiff runs the risk of being unable to support claims for such damages at trial if its expert is stricken. Plaintiff was free to make this tactical choice and has not acted in a sanctionable manner. The risk Plaintiff faces is sanction enough. Defendant's motion is
Defendant also sought factual witness testimony regarding Plaintiff's "financial status, tax returns, loans, bank accounts and statements, corporate credit cards, loans, financial transactions, net worth, profits, losses, revenue, expenses, and other information bearing on a potential punitive damages award, since the time of the Settlement until the present time." (Doc. 479-1, at 9.) This topic was revised by Defendant to comply with a prior Order by the undersigned Magistrate Judge granting in part a motion to compel filed by Defendant. (See Doc. 451.)
Prior to the deposition, Plaintiff's counsel specifically assured Defendant that "[a]ny additional concerns you may have regarding . . . how AKH managed its finances can be properly addressed at Hratch Andonian's deposition." (Doc. 479-5, at 2.) According to Defendant, however, Hratch Andonian had not reviewed tax returns in 6 to 8 months at the time of his deposition. (Doc. 479, at 11-12.) Defendant also contends he was unable to answer basic questions, including whether Plaintiff
(Id., at 12; see also Doc. 479-2, at 37, 74, 76, 82-85, 92-93, 100-101.) On several occasions during the deposition, Hratch Andonian stated that he was not a CPA and/or that the question would need to be posed to a CPA. (See Doc. 479-2, at 37, 74, 76, 82-85, 92-93, 100-101, 115-116, 124.)
Plaintiff, on the other hand, contends that Defendant's expectations for the deposition were unrealistic. Plaintiff argues that Defendant asked Hratch Andonian
(Doc. 486, at 18-19.) Plaintiff also argues that the topics on Defendant's deposition notice "were extremely broad and did not identify any line items that [Defendant] intended to cover with respect to [Plaintiff's] tax returns and bank statements." (Id., at n.5.)
Some of the issues raised in the present motion, as well as one previous ruling by the undersigned Magistrate Judge (Doc. 374), evince an on-going effort by Plaintiff to obstruct discovery of its financial status. The discovery of Plaintiff's available assets against which to enforce a potential judgment is of understandable interest to Defendant, but not relevant to the substantive issues for trial. However, if Defendant prevails in proving its entitlement to an award of punitive damages, the financial status of Plaintiff may be relevant at trial to a determination of the amount of such an award.
Discovery into this issue, however, has become the proverbial "tail wagging the dog" in this case. Sanctions are appropriate — and an appropriate sanction should be one which will allow the parties to move past this issue towards resolution of the merits of this case.
Therefore, the undersigned Magistrate Judge
Plaintiff identified Sergio Andonian as its 30(b)(6) witness to testify regarding its "web presence and the advertising and sale of tires or wheels over the internet, including but not limited to its use, ownership, design, or awareness of . . . discounttires.com and DTCmotorsports.com," and other domain names used by Plaintiff to advertise or sell over the internet. (Doc. 479-1, at 9.) Defendant complains that the witness "did not know when discounttires.com had been registered and admitted that he had not investigated that topic." (Doc. 479, at 12; Doc. 479-3, at 64.) Defendant characterizes this as a "simple — yet potentially dispositive — issue that AKH should have been prepared to confirm." (Doc. 479, at 12-13.)
While this may be so, the Court does not find this to be sanctionable conduct. As stated before, regardless of how prepared a witness may be, no witness can be expected to have answers to every question potentially posed by opposing counsel. The Court
This case has involved a long-standing dispute regarding Plaintiff's alleged ownership or use of the DTCMotorsports.com website. (See Doc. 479, at 13-14.) Defendant diplomatically characterizes Plaintiff's position regarding its ownership of the website as "evolving." (Id., at 13.) Defendant contends that publically available records contradict Plaintiff's denial of owning the website. (Id.) This Court previously addressed the denials and stated that whether Plaintiff owned the website was "a contested fact that cannot be resolved at this stage of the proceedings as part of a discovery motion." (Doc. 429, at 11.)
Defendant noticed this topic for 30(b)(6) deposition and Plaintiff designated Sergio Andonian. Defendant argues the witness's testimony "confirms the public information" obtained by Defendant while "also flatly contradicts the denials presented to this Court by [Plaintiff] and the statements of its counsel," as quoted in Defendant's motion. (See Doc. 479, at 13-15.) Defendant argues that it "spent thousands of dollars and months of discovery to prove this critical fact that is likely dispositive to the coverage issues, only for [Plaintiff] ultimately to admit the truth of that fact under oath." (Id., at 15.) According to Defendant, this "suggests that [Plaintiff] and its counsel directly misled [Defendant] and this Court until its designated witness (apparently unaware of the company line)" testified. (Id.)
Plaintiff responds that "[p]rior to Sergio Andonian's testimony, [Plaintiff's] current management was not aware that [Plaintiff] had any affiliation with the DTCMotorsports.com website, and it still has no recollection of that website." (Doc. 486, at 22; Doc. 486-3, at ¶ 12.) Plaintiff continues that
(Doc. 486, at 22-23.)
The Court finds that issues relating to factual inconsistencies, if any, perpetuated by Plaintiff are to be resolved by the District Court (on summary judgment) or the jury (at trial). A party is not entitled to sanctions every time it contends statements of the opposing party have been disproved by other evidence. This portion of Defendant's motion is
Pursuant to Fed.R.Civ.P. 37(c)(2), when a party fails to properly admit a Rule 36 RFA and the requesting party later proves the matter to be true, the Court must order the failing party to pay reasonable expenses, including attorney's fees, incurred in making that proof unless there was good reason for the failure to admit. During Plaintiff's Rule 30(b)(6) depositions, Defendant asked about various denials of prior RFAs from 2013, 2015, and 2016. (See Doc. 479, at 15.) According to Defendant, "in several instances [Plaintiff's designated witness] either changed its answer or admitted that its reasons for denying the Request were without support." (Id., at 15-16.) Defendant argues that all RFA responses for which Plaintiff changed its answers or for which Plaintiff's objection is baseless should be treated as unqualified admissions. (Id., at 18.)
Upon review of the various RFAs specifically discussed in Defendant's brief, as well as those that are the subject of the deposition testimony cited in this section of Defendant's brief, the Court finds that RFA Nos. 37, 38, 53, 123, 195, 197 — which were previously denied — have now admitted as a result of Hratch Andonian's deposition testimony. (See Doc. 479-2, at 295-97, 297-300, 320-21, 325-328, 329-30.) Defendant's motion is
The status of the remaining RFAs cited in Defendant's brief is a bit more complicated. Request for Admission No. 59 asked Plaintiff to admit that it "used the mark and domain name
Certain RFAs ask Plaintiff to admit statements that were included in its Complaint. (See Doc. 479-2, at 330-34, 336-38, regarding RFAs 200, 201, 205, and 208.) In response to deposition questioning, Hratch Andonian explains why he is reluctant to admit certain language from the Complaint. (Id.) Defendant merely cites to these passages of the deposition in its brief; it does not argue or discuss in the brief why the concerns raised in the deponent's testimony are inadequate or inaccurate. The Court will not presume to make Defendant's arguments for it. As such, the Court is unwilling to find Plaintiff's denial of the Requests was "baseless." Defendant's motion is
Request No. 136 asked Plaintiff to "[a]dmit that, in December 2012, [it] intended for [Defendant's] policy limits to be used to compensate [Plaintiff]." (Doc. 479-2, at 322-23.) The deponent testified he could not admit the RFA because of ambiguity of the term "policy limits." (Id.) Again, Defendant merely cites to a deposition passage and fails to discuss in the brief why the concerns raised in the deponent's testimony are inadequate or inaccurate. Again, the Court is unwilling to find Plaintiff's denial of Request No. 136 to be "baseless." Defendant's motion is
Defendant argues that "because this Court has already chastised [Plaintiff] for its failure to properly respond to RFAs and the above-described misconduct expressly violates Fed. R. Civ. P. 36, this warrants an award of costs and fees." (Doc. 479, at 18.) Given that the Court grants this portion of Defendant's motion in regard to the majority of the RFAs at issue (RFAs 37, 38, 53, 59, 123, 195, and 197), Plaintiff is hereby ordered to reimburse Defendant's reasonable legal fees incurred in litigating this portion of the motion.
Plaintiff was previously warned by the Court regarding speaking objections and went so far as to restrict lead counsel Vatche Chorbajian's participation in depositions because of his practice of improper speaking objections. (See Doc. 371.) Defendant contends the practice has now been continued by Plaintiff's local counsel, Brian Sobczyk. (Doc. 479, at 19.)
Federal Rule of Civil Procedure 30(c)(2) provides that objections taken during a deposition are noted on the record, but that the deposition proceeds with the testimony taken subject to the deposition. "An objection must be stated concisely in a nonargumentative and nonsuggestive manner." Fed.R.Civ.P. 30(c)(2). Form objections must be made at the time of the deposition to avoid waiver because they can be corrected at that time. Fed.R.Civ.P. 30(d)(3)(B).
Objections to relevance or materiality are not waived by a failure to object during the deposition. Fed.R.Civ.P. 32(d)(3)(A). An instruction not to answer is appropriate only when necessary to preserve a privilege, to enforce a limitation ordered by the court, or to present a motion to terminate or limit a deposition being conducted in bad faith or in a manner that unreasonably annoys, embarrasses or oppresses the deponent or party. Fed.R.Civ.P. 30(c)(3), (30)(d)(3).
To promote these principals, and to facilitate the efficient and fair conduct of depositions, this Court has promulgated Deposition Guidelines, which provide, in part:
Deposition Guidelines of the United States District Court for the District of Kansas, ¶ 5(a). See also,
The Guidelines support Rules 30 and 32 by highlighting some important concepts. One is to prohibit objections that suggest answers to, or otherwise coach, the witness, commonly referred to as "speaking objections." The other concept is to make clear that objections which need not be made to preserve the objection under Rule 32 should not be made in a discovery deposition. The Guidelines also prohibit argumentative interruptions. "Both the Rules and the Guidelines require objections to be concise, non-argumentative and non-suggestive. Implicit in the Rule and explicit in the Guidelines is that counsel will cooperate and be courteous to each other and to deponents."
In regard to Defendant's previous motion for sanctions regarding speaking objections, the Court held that
(Doc. 371, at 9-10 (footnote omitted).)
This Court could not have been more clear as to what it found to be inappropriate in the context of the prior depositions as well as the Court's expectations going forward. The Court ordered that two witnesses were to be re-deposed and went so far as to prohibit Plaintiff's lead counsel Vatche Chorbajian, who was admitted pro hac vice, from serving as counsel during the re-depositions. (Id., at 11.) The Court held that Mr. Chorbajian could be present during the re-depositions, "but will not be allowed to speak on the record." (Id.) The Court also required that local counsel appear with Mr. Chorbajian "in all depositions in which he participates to assure his compliance with this Court's rules, orders and guidelines." (Id.)
Considering that the Court has given specific instruction on this issue previously — instruction that should not have been necessary for established attorneys — the Court is disturbed that the issue has persisted. The Court is even more disturbed that in the examples cited by Defendant, the offending behavior has been attributed to counsel who is admitted to practice in the District of Kansas.
The first example provided by Defendant involves deposition questioning regarding apparent contradictions between Plaintiff's allegations in the present case and allegations made against its prior counsel in the related legal malpractice suit. Local counsel Brian Sobczyk interjected as follows:
(Doc. 479-2, at 334-35.) He then instructed the witness to answer.
Defendant complains that Mr. Sobczyk's speaking objection "influenced the testimony of the witness, who immediately responded that the allegations of the malpractice complaint `still needs to be proved, I guess in court.'" (Doc. 479, at 19; Doc. 479-2, at 335.) The witness subsequently testified regarding Plaintiff's apparently contradictory positions, "Well, first of all, the — again, those allegations are — have to be proved; right? . . . They have to be proved. They have to go through the process. . . ." (Doc. 479-2, at 413-14.) The witness also testified "I don't know that. Again, these things have to be gone through the legal process." (Id.) The Court agrees that Mr. Sobczyk's objection improperly coached the witness, whose subsequent testimony clearly mimicked the speaking objection.
Defendant also raises this issue as to questioning regarding Plaintiff's claim for damages. In the context of that questioning, the following exchange occurred:
(Doc. 479-2, at 354-55.)
Plaintiff responds that sanctions are not merited on the basis of only two objections. (Doc. 486, at 25-28.) Plaintiff continues that the objections were warranted and did not coach or influence the witness. (Id.) Based on the above discussion, the Court strongly disagrees that the objections were proper. The Court also finds that the objections specifically coached the witness, as outlined by the testimony excerpted above. On the other hand, this is clearly not a situation in which "[n]early every objection made by Plaintiff's counsel . . . was improper. . . ." (Doc. 371, at 9-10 (footnote omitted).)
The Court "may impose an appropriate sanction . . . on a person who impedes, delays or frustrates the fair examination of the deponent." Fed.R.Civ.P. 30(d)(2). Although the Court finds the tactics of Mr. Sobczyk to be improper, it cannot find that Defendant's ability to examine the deponent was prejudicially impeded or frustrated. The Court does, however, admonish Mr. Sobczyk for his use of speaking objections and directs him to review the pertinent federal and local rules on the issue, as discussed herein.
Plaintiff's pattern of deflection and delay when it comes to document production is well-established in this case. Defendant characterizes it as a "repeated and tortured pattern" consisting of the following:
(Doc. 479, at 20-21.) Defendant raises concerns regarding the following categories of documents.
After noticing a reference to a company called "AKH Company, LLC," defense counsel inquired with Plaintiff to determine if additional discovery was needed on the entity. Plaintiff's counsel responded that February 2017 that "AKH Company, LLC [was] a separate Nevada business entity . . . merely used for tax reasons around 2013 for a tax related matter and not used thereafter." (Doc. 479-5.) This was reiterated in a deposition of Plaintiff's representative in March 2017.
Defendant contends that discovery received from Plaintiff's accountant Darrel Whitehead in May 2017 included a "Plan of Conversion," which indicated that Plaintiff "converted to a Nevada entity named `AKH Company, LLC' shortly after filing this litigation, rendering Plaintiff a shell with no commercial purpose other than to litigate this case." (Doc. 479, at 22; Doc. 479-17.) Defendant argues the document establishes that "the LLC was not a company `merely used for tax reasons,' as stated by [Plaintiff's] counsel, but that it was the vessel into which Plaintiff . . . deposited all of its assets in an apparent attempt to devalue itself." (Id.)
Plaintiff dubiously responds that because Defendant learned about AKH Company, LLC from documents produced by its accountant, "it is undisputed that [Plaintiff] voluntarily disclosed the existence of this entity." (Doc. 486, at 11.) Plaintiff contends that the deposition of its accountant Mr. Whitehead made it clear that AKH Company, LLC "was merely a pass-through entity that was created to facilitate the disposition of [Plaintiff's] assets." (Id.; see also Doc. 486-6, at 12.) Further, Plaintiff points to a letter from its counsel Mr. Chorbajian dated April 20, 2017, that "explained the precise purpose of the LLC entity and specifically referenced the asset transfers" by Plaintiff. (Doc. 486, at 11.) Plaintiff also contends that the "Plan of Conversion" was not carried out "due to certain requirements of California law. . . ." (Id., at 12.)
Even assuming these assertions of Plaintiff to be true, these subsequent facts seem to be somewhat at odds with the explanation Plaintiff gave Defendant in February 2017 that "AKH Company, LLC [was] a separate Nevada business entity . . . merely used for tax reasons around 2013 for a tax related matter and not used thereafter." (Doc. 479-5.) The Court thus
Defendant also refers the Court to documents produced by Mr. Whitehead showing a previously undisclosed account with Charles Schwab. (Doc. 479, at 23.) According to Defendant, the documents "show that [Plaintiff] sold several million dollars in assets after this lawsuit was filed, deposited the proceeds from that sale into the undisclosed Schwab Account, and then paid multi-million dollar distributions from that account directly to the owners of [Plaintiff], without ever disclosing those transfers to [Defendant] in discovery." (Id.; see also Docs. 479-12, 479-13.)
Defendant contends that it "had actually noticed prior to the accountants' depositions that something appeared to be missing: [Plaintiff's] tax returns claimed millions of dollars in sales of stores but the bank accounts did not show any corresponding deposits." (Doc. 479, at 23.) Upon noticing this, Defendant asked Plaintiff "to identify where those deposits were reflected in the bank records." (Doc. 479-15.) Defendant contends that, despite this inquiry, Plaintiff "never identified the Schwab account, leaving [Defendant] to uncover it in the accountant's production months later." (Doc. 479, at 23.)
Although Plaintiff "finally indicated, the night before [Defendant] filed this Motion, that it would produce the Schwab documents," Defendant contends this is "too little, too late. . . ." (Id., at 24.)
Plaintiff responds that the Schwab account "was opened in 2013 for the specific purpose of receiving and distributing the proceeds from [Plaintiff's] reorganization and sales of assets to Pep Boys, 55, Inc. and Andonian Enterprises." (Doc. 486, at 12.) Apparently the account has not been used since 2014. (Id.) Further, the account was opened by a former CFO of Plaintiff who is no longer employed by the company. (Id.) Plaintiff characterizes the account was simply "overlooked" and was "inadvertent, and an honest mistake." (Id., at 12-13.)
Given the history of discovery abuses by Plaintiff in this case, the Court is hesitant to conclude that the withholding of any documents from Defendant occurred "inadvertently." Plaintiff's pattern of concealment overshadows its attempt to concede an "honest mistake." The Court
In regard to one of Defendant's many previously granted Motions to Compel, this Court ordered Plaintiff to produce all bank statements. (Doc. 451.) The undersigned Magistrate Judge stated that the Order was not limited to Plaintiff's accounts with US Bank, stating that "[t]o the extent Plaintiff switched banks or has opened/maintained accounts at any other banks since 2011, Plaintiff is ordered to provide the requested information as to any and all such bank accounts from 2011 through the present." (Id., at 4.) This Court specifically stated that the production was to include, "but is not limited to, accounts with Bank of America." (Id.)
Plaintiff represented to Defendant that all bank accounts had been identified and all bank statements had been produced. (Doc. 479-210, at 2.) Approximately two months after the Court's Order, Plaintiff's lead counsel Vatche Chorbajian specifically stated to Defendant that "
Plaintiff again contends that its current management did not open the accounts at issue and did not know they existed. (Doc. 486, at 13.) Plaintiff also argues that the existence of these accounts "has not hindered [Defendant's] investigation of [Plaintiff's] ability to pay a judgment, and does not warrant sanctions." (Id., at 14.)
Again, given the history of discovery abuses by Plaintiff in this case, the Court is hesitant to conclude that the withholding this information was inadvertent. The Court thus
In January 2016, Plaintiff produced a 2012 tax return. (Doc. 479, at 25.) The return was used as a deposition exhibit and provided to Defendant's experts. (Id.) Unfortunately, Defendant eventually learned that the 2012 tax return provided by Plaintiff was never filed with the IRS. (Id., at 25-26.) Plaintiff's accountant Whitehead then produced the 2012 tax return that was filed with the IRS. (Id., at 26.) Unfortunately, this did not occur until after all the depositions of Plaintiff's representative and executives. (Id.)
Plaintiff again contends that this was merely a "simple misunderstanding." (Doc. 486, at 14.) More specifically, Plaintiff contends it "learned for the first time that the return it previously produced to [Defendant] was not its final 2012 return" in connection with Defendant's deposition of Mr. Whitehead. (Id.) Plaintiff also contends that there is no prejudice to Defendant because Plaintiff's "accounting treatment of [the RT] settlement has no relevance to the merits of this lawsuit, and there is no contention that the two returns differed in any respect as to that accounting." (Id., at 15.)
The Court is troubled by Plaintiff's assertion that it "worked with its accountants" to respond to Defendant's document requests (id., at 10), but then is surprised on more than one occasion at documents its accountant produces in conjunction with his deposition. The Court thus
In October 2016, the undersigned Magistrate Judge ordered Plaintiff to produce all of its "profit and loss statements, annual statements, balance sheets, and expense/revenue reports for 2011 through the present." (Doc. 451, at 5.) After the entry of this Order, Plaintiff informed Defendant that it had no profit and loss statements to produce. (Doc. 479, at 26.) Defendant contends that "[o]n the day before his deposition . . ., [Plaintiff's] accountant Mr. Whitehead produced a number of [Plaintiff's] profit/loss statements. (Id., at 27.) Defendant only attached one such profit and loss statement to the present motion, however. (Doc. 479-16.)
According to Defendant, there are only two explanations for this: "either [Plaintiff] knew about these documents and lied about them, notwithstanding a Court order that they be produced, or [Plaintiff] failed to ask its accountants to provide whatever profit/loss statements it had until [Defendant] served Subpoenas on the Accountants." (Doc. 479, at 27.) According to Defendant, "[e]ither way, [Plaintiff] again failed to meet its discovery obligations." (Id.)
Plaintiff responds that it "does not routinely prepare or maintain profit and loss statements, nor has it requested that such statements be prepared by its outside accountants." (Doc. 486, at 15; Doc. 486-3, at ¶ 17; Doc. 486-9, at ¶ 3.) In his subsequent declaration, Whitehead states that the 2013 profit and loss statement was "mistakenly prepared" and that no such statements were subsequently prepared. (Doc. 486-9, at ¶ 3.) Plaintiff contends that sanctions are not warranted because it "did not know of any profit and loss statements in Mr. Whitehead's file and did not have any reason to believe any existed because [it] did not request that they be prepared." The Court is not persuaded by Plaintiff's arguments.
The Court
Defendant contends that "approximately $70.3 million worth of canceled checks are unexplained in [Plaintiff's] bank account records, making it difficult, if not impossible, to determine [Plaintiff's] profitability for punitive damages purposes." (Doc. 479, at 27.) Although Plaintiff initially offered to produce the checks, it ultimately stated that doing so "was too costly an expense" and that it understood that Defendant would subpoena copies of the checks at Defendant's expense. (Doc. 479-18, at 4.) Plaintiff indicated it would not object to such a subpoena. (Id.)
Plaintiff contends that this request is evidence of "how far afield [Defendant's] discovery campaign has strayed from the merits of this case. . . ." (Doc. 486, at 15.) Plaintiff continues that it never agreed to produce the checks, but merely agreed not to object if Defendant tried to obtain them from the banks. (Id., at 16.) Further, Plaintiff argues that the checks "have no relevance to the merits of this case, and [Defendant] has not made any showing as to how they purportedly have any relevance to the punitive damages portion of its case." (Id.)
(Doc. 488, at 24.) The Court does not agree with Defendant's assertion that Plaintiff promised "under oath" to produce the cancelled checks. In response to questioning as to how "we find out what all of these checks were for or who they were paid to," Hratch Andonian merely replied, "I suppose we could ask the bank to get us the cancelled checks." (Doc. 486-7, at 212.) The Court does not interpret this as an agreement to produce this voluminous amount of documentation.
That stated, the Court agrees with Defendant's assertion that the cancelled checks are within Plaintiff's possession, custody, or control. As stated by the Honorable District Judge Julie Robinson in this case, "control comprehends not only possession but also the right, authority, or ability to obtain the documents." (Doc. 400, citing
The undersigned Magistrate Judge finds that Plaintiff has "the right, authority, or ability to obtain" its own cancelled checks, which he also finds to be relevant, discoverable, and proportional to the needs of this case. This portion of Defendant's motion is
Defendant sought documents relative to the multi-million dollar sale of certain of Plaintiff's stores to Pep Boys in 2013. Defendant hoped the documents would help it "to understand the value of the stores owned by [Plaintiff] when the this action was initiated" and determine "how much money was paid to [Plaintiff]. . . . to track the funds in [Plaintiff's] bank account statements for valuation purposes related to punitive damages." (Doc. 479, at 28.)
Defendant argues that Plaintiff conceded the relevance of the documents, but stated it could not produce them because they were subject to "strict confidentiality" provisions. (Doc. 479-18, at 4.) As with other documents discussed herein, Defendant ultimately received the document from Plaintiff's accountant. In this instance, the document was not complete, as schedules and exhibits were withheld. According to Defendant, however, the agreement did not contain any type of confidentiality provision, leading Defendant to believe Plaintiff made this objection "solely to shirk its discovery obligations." (Doc. 479, at 28.)
Further, even if the confidentiality provision existed, a Protective Order was entered in this case.
Plaintiff contends that "[t]he protective order entered by this Court would not protect [it] from the consequences of . . . a breach" of the confidentiality provision. (Doc. 486, at 16.) Plaintiff does not, however, explain how or why this is so. The Court is not persuaded by this factually-unsupported, conclusory statement. Cf.
This portion of Defendant's motion is
Defendant requested documents showing Plaintiff's pre-2007 use of the internet to sell tires. Plaintiff responded that documents produced in the RT litigation were the only ones that existed. Defendant continues that Sergio Andonian testified that "historical records relating to [Plaintiff's] sale of tires and wheels online are maintained in a database and that no one ever asked him — or to his knowledge, anyone else — to review that database for responsive documents. (Doc. 479, at 29; Doc. 479-3, at 40-41, 47.) Defendant complains that Plaintiff "[a]gain . . . misrepresented the thoroughness of its review for documents and prejudiced [Defendant's] ability to obtain discoverable information that could be dispositive to whether it ever owed coverage in the underlying case." (Doc. 479, at 29.)
As Plaintiff correctly points out, however, Sergio Andonian's testimony related to internet sales that
Defendant replies that Andonian's testimony related to sales via the discounttires.com website beginning in October 2007, but that Defendant is seeking information about Plaintiff's sales "through the DTC Motorsports website, which [Plaintiff] used for sales prior to 2007." (Doc. 488, at 25-26; see also Doc. 479-8, at 15-16.) Defendant also directs the Court to Sergio Andonian's testimony that he did not search for documents relating to Plaintiff's "eCommerce sales" in the context of this litigation and was never asked by anyone to do so." (Doc. 488, at 26; Doc. 479-3, at 46-48.) The cited portion of Andonian's testimony, however, again appears to relate to Plaintiff's eCommerce sales from 2007-on. (Doc. 479-3, at 46-48.)
The Court
Fed. R. Civ. P. 37(b)(2) states that "[i]f a party . . . fails to obey an order to provide or permit discovery . . . the court where the action is pending may issue further just orders." Sanctions enumerated by Rule 37(b) include:
Subsection (b)(2)(C) of Rule 37 also allows the Court to order the "disobedient party" to pay reasonable expenses relating to the underlying motion. The sanctions imposed should endeavor to remedy the violation and address the specific conduct to the extent possible.
In the context of the various misdeeds catalogued above, Defendant asks the Court to enter default judgment against Plaintiff on Defendant's counterclaim and dismiss Plaintiff's claims against Defendant in their entirety. (See Doc. 479, at 30-31.) In the alternative, Defendant requests the following adverse inferences, instructions, and/or preclusive orders:
(Doc. 479, at 31-32.) As addressed in footnote 2, supra, Defendant also requests that the pro hac admission of Vatche Chorbajian be revoked. See
Given the on-going pattern of misrepresentation and obfuscation by Plaintiff and its counsel in this matter, the Court finds the following sanctions to be measured and appropriate:
IT IS THEREFORE ORDERED that Defendant's Motion for Sanctions (Doc. 478) is
IT IS THEREFORE RECOMMENDED to the District Judge that a Jury Instruction, as generally described supra, be given at trial and the recommended presumption be used during the consideration of dispositive motions (if applicable).
Pursuant to 28 U.S.C. §636(b)(1), Fed.R.Civ.P. 72, and D.Kan. Rule 72.1.4, the parties shall have