LOUISE W. FLANAGAN, District Judge.
This matter is before the court on the government's motion to compel discovery. (DE 186). Also before the court is claimants' motion to dismiss, or exclude, or for other appropriate sanctions, (DE 190), and the government's motion exclude or limit evidence, or for sanctions. (DE 192). In this posture, the issues raised are ripe for ruling. For the reasons that follow, the court denies in part and grants in part the government's motion to compel. The court denies the parties' competing motions for sanctions.
This case has a lengthy and contentious history summarized more fully in the court's prior orders. The government initiated this civil forfeiture July 12, 2012, by filing a complaint for forfeiture in rem against $307,970.00 in U.S. currency seized from Apolinar Garcia-Ancelmo during a traffic stop conducted February 16, 2012. The government asserts that defendant currency was used or intended to be used in exchange for controlled substances, represented proceeds of trafficking in controlled substances, or was used or intended to be used to facilitate a violation of Title II of the Controlled Substances Act, 21 U.S.C. §§ 801
In August 2012, Apolinar Garcia-Ancelmo, Cirila Pineda Garcia,
Thereafter, on January 28, 2013, claimants filed a motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). In response, on February 11, 2013, the government filed notice of automatic stay of time to file response under Rule (G)(6)(c) of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions ("Supplemental Rules") until 21 days after claimants answered special interrogatories served upon them the same date. By order dated May 22, 2013, the court directed claimants to respond to the government's special interrogatories within 10 days of entry of the order. Pursuant to the May 22, 2013, order, all other discovery was stayed pending resolution of claimants' motion to dismiss.
On June 14, 2013, the government filed a motion to compel adequate responses to the special interrogatories it served upon claimants on February 11, 2013.
The court entered supplemental CMO on October 15, 2013. On January 23, 2014, the government filed a motion to stay, pending conclusion of a contemporaneous and related criminal investigation of one or more of the claimants. The court granted the government's motion, ultimately staying the case up to and through October 17, 2014. Upon expiration of stay, the court reset scheduling deadlines with discovery due by February 28, 2015, and motions due by March 31, 2015.
On January 30, 2015, claimants filed motion for summary judgment. On July 2, 2015, the court stayed all discovery pending partial resolution of claimants' motion for summary judgment. By order dated August 26, 2015, the court denied claimants' motion for summary judgment in part.
On October 27, 2015, government filed a second motion to stay proceedings, pending completion of a contemporaneous and related criminal investigation of all claimants. Thereafter, on November 10, 2015, claimants filed a motion to dismiss, as sanction for the government's alleged willful discovery violations. By order dated January 14, 2016, the court granted the government's motion to stay and denied claimants' motion to dismiss. The government filed a third motion to stay proceedings on May 19, 2016, which the court granted on June 28, 2016. The court ultimately stayed the case up to and including October 29, 2016.
Pursuant to Federal Rules of Civil Procedure 36 and 37, claimants filed a motion to compel production of documents relevant to two government's witnesses, or alternative motion to exclude their testimony on January 23, 2017. Thereafter, claimants filed a motion to quash or modify subpoenas on February 21, 2017, as amended February 24, 2017.
The court held telephonic hearing regarding claimants' motion to quash and motion for subpoenas on March 30, 2017. At hearing, the court granted in part and denied in part claimants' motion to compel or exclude. The court granted claimants' motion to the extent claimants sought the presentence report and psychiatric report of government witnesses, Thurman Ray Bohene, Jr. With regard to the other potential government witness, Hilaria Rodriguez, the court denied claimants' motion where no evidence established that the government withheld documents responsive to claimants' discovery requests. The court also denied claimants' motion to quash, on the basis that claimants lacked standing.
Following telephonic hearing, the court entered second supplemental CMO on April 10, 2017. Pursuant to supplemental CMO, the court set discovery deadline of October 2, 2017, and motions deadline of November 17, 2017. On August 18, 2017, the government filed a motion for extension of time to complete discovery, which the court denied in part by text order dated September 5, 2017. The court allowed the parties an extension of time for expert discovery, and directed the parties to file a motion for entry of a consent order setting such new deadline.
At the parties' request, on September 8, 2017, Magistrate Judge Robert Jones B. Jones, Jr., held telephonic conference regarding new discovery dispute, which concluded in impasse. On September 11, 2017, the court entered an order modifying discovery deadlines. The order required reports from retained experts to be served by the parties no later than November 1, 2017, and set deadline for depositions of expert witnesses for November 22, 2017. The order also set dispositive motions deadline of December 15, 2017.
The government filed the instant motion to compel discovery on September 12, 2017, together with a memorandum in support thereof and several exhibits. Claimants filed the instant motion to dismiss, alternativelya motion for other appropriate sanctions on September 29, 2017. On October 11, 2017, the government filed a motion to exclude certain evidence, alternatively a motion for other appropriate sanctions.
On November 21, 2017, the court extended the deadline for the parties to complete expert depositions to January 26, 2018, and the deadline to file dispositive motions to February 23, 2018.
Federal Rule of Civil Procedure 37 provides that when a party fails to respond to discovery, the party seeking discovery can move for an order compelling production. Fed. R. Civ. P. 37(a)(3)(B). The trial court holds broad discretion when addressing a motion to compel discovery.
Ordinarily, a "[p]art[y] may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case." Fed. R. Civ. P. 26(b)(1). "Information within the scope of discovery need not be admissible in evidence to be discoverable."
Relevance within the context of Rule 26 "has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case."
The government seeks to compel production of claimants' federal income tax returns for the years 2007 through 2012. Relevant to the government's motion to compel, the government previously served upon claimants requests for production of claimants' tax returns and other financial documents, including IRS 1099 forms, for the years 2007 through 2012. The government also requested that claimants execute IRS Forms 4506 and 8821 ("IRS authorization forms") authorizing the IRS to release claimants' tax information directly to the government.
In November of 2014, claimants produced several documents in response to the government's requests. First, claimants produced tax returns of Apolinar Garcia-Ancelmo and Cirila Pineda Garcia (together the "Garcia claimants") for the years 2008 through 2011, as well as 1099 forms issued to the Garcia claimants for the years 2011 and 2012. In January of 2015, claimants supplemented their discovery responses and produced tax returns of claimant Covarrubias for the years 2009, 2011, 2012, and 2013. To date, claimants have not executed the IRS authorization forms.
To supplement its written discovery requests, the government also sought information concerning claimants' income and tax liability from claimants' tax preparer Sylvia Miller, and claimants' payroll bookkeeper Justo Urena. The government took depositions of these individuals on July 25 and August 2, 2017, respectively.
While the Fourth Circuit has not developed a clear rule as to the discoverability of tax returns, disclosure of tax returns is disfavored.
"The majority rule that has emerged from federal case law is that a two-prong test should be applied to determine if qualified privilege protecting tax returns is overcome."
In the instant case, the government contends that claimants' tax returns provide information as to claimants' business profits, and therefore are relevant to issues regarding the source of the defendant currency. Where claimants' tax returns provide information concerning profits of their farm labor business, the court agrees that the tax returns are relevant for discovery purposes.
Notwithstanding the potential relevancy of their tax returns, claimants argue that information contained in their tax returns is available from other sources already provided to the government. Specifically, claimants contend that copies of their filed tax returns, deposition testimony from Miller and Urena, and other financial documentation produced to the government provide the same information contained in their tax returns filed with the IRS.
The government argues that these alternative sources are unreliable and inaccurate. The government points to the fact that in other, unrelated litigation, claimants produced tax information that is inconsistent with the tax information produced in this case.
Claimants contend that the tax returns they produced are reliable and accurate. To support their position, claimants highlight that during his deposition, Urena testified that he verifies information provided to him and that claimants' tax returns are accurate. (DE 188-1, Urena Depo, 19:9-20:14; 105:2-106:25). Where the Garcia claimants have produced tax information for years 2008 through 2012,
However, the Garcia claimants have not produced tax information for the year 2007 and claimant Covarrubias has not produced tax information for the years 2007, 2008, and 2010. Furthermore, Miller testified that she is unable to provide information concerning claimants' tax returns for any year prior to 2010. (DE 187-5, Miller Depo, 47:25-48:9). Furthermore, claimants have not demonstrated that financial information contained in these tax returns for these years is otherwise available to the government. Therefore, the court grants the government's motion to compel, to the extent the government seeks production of the Garcia claimants' 2007 tax return and claimant Covarrubias's 2007, 2008, and 2010 tax returns.
Federal Rule of Civil Procedure 37 grants district courts wide discretion to impose sanctions for discovery violations. Rule 37(c)(1) provides that "[i]f a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial." Fed. R. Civ. P. 37(c)(1). "In addition or instead of this sanction, the court, on motion and after giving an opportunity to be heard:. . . (C) may impose other appropriate sanctions, including [dismissing the action or proceeding in whole or in part]."
As relevant here, Rule 26(e) provides that "[a] party who has . . . responded to an interrogatory . . . must supplement or correct its disclosure or response . . . in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information that has not otherwise been made known to the other parties during the discovery process or in writing." Fed. R. Civ. P. 26(e).
However, "Rule 37(c)(1) provides two exceptions to the general rule excluding evidence that a party seeks to offer but has failed to properly disclose: (1) when the failure to disclose is substantially justified, and (2) when the nondisclosure [or belated disclosure] is harmless."
Facts relevant to claimants' motion for sanctions are as follows. On November 26, 2014, the government responded to claimants' interrogatories and requests for production. Through these interrogatories, claimants asked the government to identify any individual involved in investigation concerning claimants, as well as any individual who had information tending to connect the defendant currency to drug sales. In response to claimants' interrogatories, the government identified Sergeant Matt Miller ("Sergeant Miller") of the Wayne County Sheriff's Office, and three Drug Enforcement Administration ("DEA") agents. In its responses, the government referenced reports made by these individuals, as well as dash-camera video footage from the traffic stop which lead to the seizure of the defendant currency. During 2015 and 2016, the government supplemented its discovery responses several times.
On September 14, 2017, the government served by mail its fifth supplemental response to claimants' interrogatories and third supplemental response to claimants' requests for production. At that time, the government indicated for the first time that it intended to rely on a purported drug dog alert. In its supplemental responses, the government also identified Officer Kenny Prevost ("Officer Prevost") as the handler of the drug dog.
Claimants contend that sanctions must issue where the government's initial November 2014 responses did not mention Officer Prevost, a drug dog, or the Goldsboro Police Department.
Importantly, Rule 37(c) provides for the sanction of a party where such party fails to provide information or identify a witness as required by Rule 26(e).
Pursuant to Rule 26(e), the government supplemented its responses to claimants' interrogatories and requests for production by identifying the name of the dog handler three days after the government verified that information. While earlier disclosure of this information could have been beneficial to claimants, the government promptly supplemented its initial disclosures once it received confirmation of Officer Prevost's identity. The government disclosed this information prior to the October 2, 2017, fact discovery deadline.
Notwithstanding the foregoing, consideration of the
Second, any potential surprise resulting from the alleged belated disclosure of Officer Prevost is, to some extent, curable. Here, the government represents that it intends to offer Officer Prevost as an expert witness. (DE 196, at 9-10).
Next, evidence of the drug dog alert is important. At trial, the government is prepared to present evidence that claimant Garcia was involved in drug trafficking activity prior to the seizure of the defendant currency. As the government indicates, evidence of the drug dog alert is important because it tends to connect the defendant currency to drug sales, a central dispute in this matter.
Lastly, the government indicates that its failure to provide earlier disclosure of Officer Prevost "was both unknowing and unintentional." (DE 196, at 11). The government explains, that given continued stays of this case, "by the time [it] began preparing its discovery responses, at least two years had elapsed since the [dash-camera] video first came into [its] possession." (DE 196, at 2). In preparing its discovery responses, the government relied primarily on reports written by law enforcement officers involved in the seizure of the defendant currency, which, significantly, make no reference to the drug dog alert or Officer Prevost. The government discovered the dog alert in June of 2017 when new counsel was assigned to assist with the case. At that time, the government solicited assistance from Sergeant Miller, who preliminarily identified Officer Prevost on August 18, 2017. The government did not receive confirmation of Officer Prevost's identity until September 11, 2017.
In sum, even if the government violated Rule 26(e), consideration of the
To the extent claimants seek monetary sanction for the government's allegedly belated disclosure, the court also finds such sanction inappropriate under the present circumstances. Importantly, Rule 37 permits the court to order the "payment of reasonable expenses . . . caused by [a belated disclosure]," as sanction for violation of Rule 26(e). Any belated disclosure of Officer Prevost or the drug dog alert will not cause claimants to incur any expense they would not have incurred had the disclosures been made earlier. Accordingly, the court also declines to issue monetary sanction against the government.
The government contends that claimants failed to timely supplement their interrogatories as required by Rule 26(e). Relevant to the government's motion, pursuant to Supplemental Rule (G)(6)(a), on February 11, 2013, the government served special interrogatories on each of the claimants. Claimants ultimately responded on June 5, 2013. At the court's direction, claimants filed supplemental responses to the government's special interrogatories on August 24, 2013.
Pursuant to CMO entered October 15, 2013, the government served upon claimants its first set of interrogatories on November 15, 2013. In their responses to these interrogatories, claimants again indicated that the defendant currency represented legitimate business profits. To support this contention, claimants referred to financial documents previously provided to the government, which included financial documentation and tax information for multiple years.
On September 26, 2017, the government deposed claimants Cirila Pineda Garcia and Covarrubias. At her deposition, claimant Covvarrubias testified that the defendant currency was accumulated over the years 2010 and 2011.
The government contends that where claimants' initial interrogatory responses suggest that the defendant currency only represents business profits accumulated in the year 2011, claimants were required by Rule 26(e) to supplement their responses to indicate that the defendant currency represents profits accumulated over other years as well.
Contrary to the government's suggestion, claimants did supplement their responses to the government's initial special interrogatories to indicate that the defendant currency represented business profits for multiple years. In responses dated November 12, 2014, claimants referred to financial documents spanning multiple years to support their position regarding the source of the defendant currency. (
Based on the foregoing, the court GRANTS IN PART and DENIES IN PART the government's motion to compel. (DE 186). The court also DENIES claimants' motion for sanctions (DE 190), and the government's motion for sanctions. (DE 192). Claimants are DIRECTED to produce to the government the Garcia claimants' 2007 tax return and claimant Covarrubias's 2007, 2008, and 2010 tax returns by January 15, 2018. The parties are reminded that deadline to file dispostive motions is February 23, 2018. (
SO ORDERED.
