BENITA Y. PEARSON, District Judge.
Pending is Plaintiff's Omnibus Motion for Sanctions Against Interested Party, Cavitch Familo & Durkin Co., LPA (the "Cavitch Firm"). ECF No. 333.
Pursuant to Federal Rules of Civil Procedure 26(g)(3) and 37(b)(2)(C), 28 U.S.C. § 1927, and the Court's inherent authority, Plaintiff moves for sanctions against the Cavitch Firm and certain of its attorneys
The Court has been advised, having reviewed the record, the parties' briefs and the applicable law.
Plaintiff KCI USA, Inc. ("KCI") initiated this action on March 12, 2014, alleging that Defendants stole its wound-care vacuums ("VACs") and marketed them as their own. See ECF No. 1. Since the inception of this suit, KCI's efforts to litigate the merits of this case have been hindered by uncooperative behavior, dilatory tactics, and repeated discovery violations by Defendants and, to some degree, the Cavitch Firm and certain of its counsel. A brief chronology of the events that led the Court to this finding is instructive.
On March 13, 2015, after having made several discovery requests, KCI moved for its first order requesting that the Court sanction Defendants "for a pattern of blatant and continuous discovery abuses." ECF No. 42 at PageID#: 207. Then, KCI had only Defendant Healthcare Essentials, Inc. (and possibly its counsel) in its sights, and complained that "Healthcare Essentials has refused, despite being compelled to do so by successive Orders of this Court and almost a year into the discovery process, to produce purchase records and KCI serial numbers for the VACs Defendant possess[ed]." Id. At that time, Plaintiff sought discovery pertaining to: how Defendant acquired KCI VACs; how many VACs remained in Defendants' possession; and, where the VACs were located. See ECF Nos. 42; 42-2 (KCI's February 16, 2015 letter to Court). The Cavitch Firm asserted that Defendant Healthcare Essentials had produced complete and accurate documents of invoices and inventory spreadsheets that identified all of KCI's VACs within its control or possession, or presently being leased by Defendant to its customers. ECF No. 49 at PageID#: 365 370. Based on the Cavitch Firm's representations certifying that Defendant had complied with KCI's discovery requests and produced documents regarding their KCI VAC inventory, KCI's motion for sanctions was denied.
Unfortunately, KCI's counsel found it necessary to continue seeking intervention from the Court about outstanding discovery issues.
KCI's motion was heard at a January 25, 2016 Status Conference before Magistrate Judge Baughman.
ECF No. 111 at PageID#: 1850.
When Magistrate Judge Baughman asked whether a chain of custody as to the VAC units in Defendants' possession had been developed, Cavitch Firm Attorney, Komlavi Atsou, answered in the affirmative. Id. at PageID#: 1851. After further questioning, he expounded that for each of the units "[w]e bought it, we produced it, we have receipts for them, and we distributed it to our customers that are using it, your Honor." Id. at PageID#: 1851 52. When asked whether the Cavitch Firm had been disclosing and updating their VAC list and initial disclosures, Atsou again answered in the affirmative, stating that "[w]e produced the units that we have, the complete list." Id. at PageID#: 1852 53. Lastly, regarding the serial numbers of the thirty-five VACs produced by Defendants, the Court asked Atsou: "[D]o you have anything you haven't produced yet?" Atsou responded, "No, your Honor. We have produced everything to them." Id. at PageID#: 1867 68. Despite Atsou's assurances that the above-mentioned discovery had been produced to KCI, Magistrate Judge Baughman, warned the Cavitch Firm of the significance of compliance:
Id. at PageID#: 1882.
Now, the Cavitch Firm contends that it was not until its March 30, 2016 review of documents on Defendants' Jurinov Hard Drive (herein "Defendants' hard drive") that "troubling" information with respect to Defendants' litigation-related conduct was revealed. See ECF No. 341 at PageID#: 6178 79. Subsequently, on April 8, 2016, Cavitch Firm Attorneys Eric J. Weiss, Michael R. Rasor, John Lisy IV, and Atsou, moved to withdraw as counsel for Defendants, and filed an ex parte memorandum in support of their motion.
As a result of the continued discovery-related disputes between the parties, KCI filed a Motion to Show Cause and Request for Discovery Hearing arising out of Defendants' spoliation of evidence. ECF No. 269. On November 9, 2017, the Court held a hearing on Plaintiff's Motion to Show Cause. See November 9, 2017 Minutes of Proceedings. At the Show Cause Hearing, KCI presented evidence of Defendants and the Cavitch Firm's discovery misconduct including, violations of multiple Court Orders, misrepresentations made to the Court and KCI regarding the prior document discovery productions, fabrication of documents produced in discovery, and spoliation of evidence. See ECF No. 331.
Following the Show Cause Hearing, KCI filed its Omnibus Motion for Sanctions against the Cavitch Firm. ECF No. 333. KCI alleges that the Cavitch Firm repeatedly violated discovery-related provisions of Rules 26 and 37 of the Federal Rules of Procedure, as well as various Court Orders, by its:
Id. at PageID#: 5922 23.
As relief, Plaintiff urges the Court to impose sanctions attorney's fees and costs pursuant to Rules 26(g)(3) and 37(b)(2)(C), and the Court's inherent authority, 28 U.S.C. § 1927, against the Cavitch Firm and/or certain of its attorneys, as permitted and appropriate, for discovery misconduct during the litigation. ECF No. 333.
The Cavitch Firm and counsel oppose, arguing that they did not knowingly withhold information; provide direct assistance in the creation of fabricated and inaccurate evidence, nor have reason to know or suspect that documents produced were other than authentic. ECF No. 341. Furthermore, they assert that under the Fifth Amendment privilege against selfincrimination and the attorney-client privilege, they had a duty to refrain from disclosing the past discovery misconduct of their former clients. See id.
In deciding whether to impose sanctions on a law firm and individual attorneys, courts have several tools with which to work. "Deeply rooted in the common law tradition is the power of any court to manage its own affairs [which] necessarily includes the [inherent] authority to impose reasonable and appropriate sanctions upon errant lawyers practicing before it." Carlucci v. Piper Aircraft Corp., 775 F.2d 1440, 1147 (11th Cir. 1985) (internal citation omitted). In addition, a court has the authority to impose sanctions against counsel and law firms for discovery abuses under Rules 26(g) and 37 of the Federal Rules of Civil Procedure; and, 28 U.S.C. § 1927, permits sanctions to be imposed against individual attorneys. Undoubtedly, when faced with discovery misconduct that unduly delays the progress of civil litigation, courts may impose sanctions when warranted. See e.g., Med. Billing, Inc., v. Med. Mgmt. Sci., Inc. v. Reich, 1996 WL 219657, at *3 *4, *7 (N.D. Ohio Apr. 26, 1996) (imposing sanctions, pursuant to Rules 26 and 37, against the defendant and defense counsel's law firm based on a history of discovery abuses that include: failing to timely produce discovery documents; failing to identify relevant witnesses, altering relevant documents already subject to production requests, and lying to the court and counsel about all of these things).
The Federal Rules of Civil Procedure set forth the discovery obligations of parties and their attorneys, and authorize federal courts to impose sanctions on those participants whom fail to meet these obligations. "Federal Rule of Civil Procedure 26(g) requires an attorney or the party personally to certify that discovery responses and objections are supported by nonfrivolous argument and are not aimed to harass, cause delay, or drive up litigation costs. The rule requires a court to impose sanctions for any violation occurring without `substantial justification.'" Jones v. Ill. Cent. R.R. Co., 617 F.3d 843, 854 (6th Cir. 2010) (citing Fed. R. Civ. P. 26(g)). The signature of counsel or his client certifies that to the best of the "person's knowledge, information and belief formed after a reasonable inquiry" the discovery response is complete, correct, and interposed for a proper purpose. Fed. R. Civ. P. 26(g). The Advisory Committee Notes for Rule 26 explain:
Fed. R. Civ. P. 26 Advisory Committee Notes (1983 Amendment). The attorney's signature "certifies that the lawyer has made a reasonable effort to assure that the client has provided all information and documents available to him that are responsive to the discovery demand." Id. "If a certification violates this rule without substantial justification, the court, on motion or on its own, must impose an appropriate sanction on the signer, the party on whose behalf the signer was acting, or both. The sanction may include an order to pay the reasonable expenses, including attorney's fees, caused by the violation." Fed. R. Civ. P. 26(g)(3) (emphasis added).
Another rule is relevant to the Court's consideration of sanctions. Rule 37(b)(2)(A) of the Federal Rules of Civil Procedure governs the sanctions that may be imposed against the party's failure to obey an order to provide or permit discovery. And, Rule 37(b)(2)(C) provides that the court "must order the disobedient party, the attorney advising that party, or both to pay reasonable expenses, including attorney's fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust." (Emphasis added). The Sixth Circuit has held that a party meets the "substantially justified" standard if "there is a genuine dispute, or if reasonable people could differ as to the appropriateness of the contested action." Doe v. Lexington Fayette Urban Cty. Govt., 407 F.3d 755, 765 (6th Cir. 2005) (citing Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988)).
Federal statute 28 U.S.C. § 1927 presents yet another avenue for sanctions against individual counsel. "In addition to the rule-based authority, federal courts have the inherent power to impose sanctions in order to prevent the abuse of the judicial process." Laukus v. Rio Brands, Inc., 292 F.R.D. 485, 502 (N.D. Ohio 2013) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 49, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). Under 28 U.S.C. § 1927, "sanctions are warranted `when an attorney has engaged in some sort of conduct that, from an objective standpoint, `falls short of the obligations owed by a member of the bar to the court and which, as a result, causes additional expense to the opposing party.'" Red Carpet Studios Div. of Source Advantage, Ltd. v. Sater, 465 F.3d 642, 646 (6th Cir. 2006) (quoting In re Ruben, 825 F.2d 977, 984 (6th Cir. 1987)). See also JPMorgan Chase Bank, N.A. v. Winget, 602 F. App'x 246, 266 (6th Cir. 2015) ("[A] court may sanction an attorney under § 1927 for unreasonably and vexatiously multiplying the proceedings even in the absence of any `conscious impropriety.'") (quoting Rentz v. Dynasty Apparel Indus., Inc., 556 F.3d 389, 396 (6th Cir. 2009)). "[Section] 1927 sanctions require a showing of something less than subjective bad faith, but something more than negligence or incompetence." Red Carpet Studios, 465 F.3d at 646.
The purpose of imposing sanctions under § 1927 is to "deter dilatory litigation practices and to punish aggressive tactics that far exceed zealous advocacy." Id. "Thus, an attorney is sanctionable when he intentionally abuses the judicial process or knowingly disregards the risk that his actions will needlessly multiply proceedings." Id. A court may exercise its inherent power to sanction when a party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons," or when the conduct was "tantamount to bad faith." Laukus, 292 F.R.D. at 502 (citing Metz v. Unizan Bank, 655 F.3d 485, 489 (6th Cir. 2011) (citing Chambers, 501 U.S. at 45 46, 111 S.Ct. 2123; Roadway Express, Inc. v. Piper, 447 U.S. 752, 767, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980)). See Red Carpet Studios, 465 F.3d at 646 ("[F]ederal courts have the inherent power to assess attorney's fees against counsel who willfully abuse judicial processes or who otherwise act in bad faith.").
Regarding the imposition of sanctions under Rule 26(g)(3), the Court finds that the Cavitch Firm and individual attorneys are liable. In signing the responses to KCI's requests for production and its former client, Ryan Tennebar's false affidavit, they certified that, "to the best of their knowledge, information, and belief after a reasonable inquiry," Defendants' responses were consistent with the discovery rules and laws. See Fed. R. Civ. P. 26(g)(1). This has been proven false and patently so.
The Cavitch Firm repeatedly represented to the Court and KCI that it had produced all requested discovery to KCI. See e.g. ECF No. 49 (in Defendants' Memorandum of Opposition to KCI's Motion for Sanctions, Cavitch Firm attorneys argued that sanctions are not warranted because Defendants had produced all discovery requested by KCI); ECF No. 111 at PageID#: 1851 52 (when asked at the January 25, 2016 hearing on Plaintiff's motion for sanctions, whether the Cavitch Firm developed a chain of custody as to the VAC units in Defendants' possession, Atsou responded, "We bought it, we produced it, we have receipts for them."); ECF No. 111 at PageID#: 1852 53 (when asked at the January 25, 2016 hearing on Plaintiff's motion for sanctions, whether the Cavitch Firm produced all information pertaining to the thirtyfive VACs, Atsou responded, "We have produced everything to them."); ECF No. 54-1 (Cavitch Firm attorneys prepared and filed a false affidavit of its former client, Ryan Tennebar stating that Defendants had made full and complete production of their records). Yet, KCI's discovery documents obtained from a third-party source and which Cavitch attorneys had access credibly contradict these representations. Among the discovery documents retrieved (from this third-party source) by KCI, was an email, dated January 29, 2016, between Cavitch Firm Attorney, Atsou, and Defendant Ryan Tennebar, in which Atsou requests that Ryan Tennebar "immediately" call him so that they "can (1) arrange the imaging of [his] computer . . . (2) compile the contracts and additional records for the 35 VACs with serial numbers we disclosed to KCI."
Similarly, on February 2, 2016, Cavitch Firm attorney, Rasor, sent Defendant Ryan Tennebar an email encouraging Defendants to comply (albeit belatedly) with their discovery obligations to avoid a "[court] order that effectively closes down your business." Rasor urged that Defendants produce: "[r]eceipts for all VACs purchased since March 2015," "serial numbers for all VACs purchased since March 2015," and, "[a]ll contracts with every single customer you have." ECF No. 333-10 at PageID#: 5997 (alterations added). In the string of emails exchanged on February 2, 2016, Rasor emphasized the need to scan Defendants' company hard drive with a promise that the results would be given to "CAVITCH . . . (not Benesch or KCI)" and that Cavitch would only "produce the documents that KCI is entitled to see." See id. at PageID#: 5995 97.
Significantly, these instructions were given after the Cavitch attorneys' assertions to the Court and opposing counsel that all relevant and responsive documents had (already) been produced to KCI. If additional proof of noncompliance were needed, a February 8, 2016 email between Atsou and Defendants provides it. In this email Atsou writes: "[W]e still need the purchase records for the following three V.A.C.s, which are part of the original 35 or so V.A.C.s with serial numbers that we disclosed to KCI in March 2015." This further documents the Cavitch Firm's failure to produce discovery in accordance with Rule 26, ECF No. 333-11 at PageID#: 6000.
Before doing its due diligence, the Cavitch Firm and its individual attorneys, signed and, thereby, certified, that to the "best of their knowledge, information, and belief after a reasonable inquiry, Defendants' responses to KCI's requests for production of documents were complete and correct." It is now obvious that defense counsel had not made the necessary inquiries or investigations regarding Defendants' compliance before certifying their discovery responses; or submitting their clients' false affidavit (which stated that all responsive documents had been produced to the Court and KCI); or, telling the Court, verbally and in writing, on multiple occasions, that neither an injunction nor sanctions should be imposed on their clients because they had complied with Rule 26.
The Court finds it equally troubling that even after the Cavitch Firm and its individual attorneys had good reason to believe that their clients were not in compliance with the Rules of Civil Procedure and the Court's orders, they still did not act appropriately.
For the reasons above, the Court finds that the Cavitch Firm and its individual attorneys failed to meet even the minimal expectations of Rule 26.
When measured against the expectations of Rule 37, the Court finds that sanctions against the Cavitch Firm and individual counsel are appropriate for their failure to comply with the Court's discovery orders requiring that Defendants produce all relevant information in their possession relating to KCI VACs.
The Court also finds that sanctions are warranted under Rule 37 based on defense counsel's assistance in the creation of fabricated evidence. Specifically, Defendants produced to KCI and the Court invoices regarding its purchases of KCI VACs, inventory spreadsheets of KCI VACs within its possession, and product tracking sheets identifying KCI VACs sent to customers that were fabricated. See ECF Nos. 328-1 at PageID#: 5693 94 (at the November 9, 2017 Show Cause Hearing, KCI presented evidence, via former Healthcare Essentials' employee, Rose Edgar's deposition testimony that Defendants never kept a "tracking system or asset number" documenting the amount of KCI VACs in Defendants' inventory, proving the inventory spreadsheet created by Defendant Ryan Tennebar and Cavitch Firm attorney, Komlavi Atsou of all KCI VACs in Defendants' possession was fabricated); ECF No. 333-4 at PageID#: 5954 56 (Defendant Ryan Tennebar testified at his September 1, 2016 deposition that, "No VAC in my possession has ever been logged. I don't have a master list of every VAC that I own," and that the lists of KCI VACs and inventory spreadsheets Defendants and the Cavitch Firm jointly produced to KCI and submitted to the Court were "not legitimate" and "fabricated.").
The Court further finds that Rule 37 sanctions are appropriate based on the Cavitch Firm's and its individual attorneys' lack of candor with the Court in failing to correct its misrepresentations, and lack of forthrightness about Defendants' misconduct (even after it had been) discovered on Defendants' hard drive. See ECF 341 at PageID#: 6178 79 (in this opposition, the Cavitch Firm states that, on March 30, 2016, it began its review of Defendants' mirror-imaged hard drive CD containing "troubling emails" of Defendants' misconduct, and therefore, moved to withdraw as counsel). In arguing that sanctions are not warranted, the Cavitch Firm attempts to justify its actions. It asserts that it is absolved from any wrongdoing by the attorney-client privilege and its alleged actions to protect its former client's, Ryan Tennebar, Fifth Amendment privilege against self-incrimination. See id. The Cavitch Firm's arguments fall far short of substantially justifying its behavior.
The Cavitch Firm and individual attorneys, as former counsel and counsel of record to Defendants in this case, had a professional responsibility to their clients and the Court. See Ohio Prof. Cond. Rule 3.3 (explaining that an attorney's duty to advocate for its client while maintaining confidences of the client, however, is qualified by the advocate's duty of candor to the tribunal). See also Ohio Prof. Cond. Rule 1.6(d) ( "A lawyer shall reveal information relating to the representation of a client, including information protected by the attorney-client privilege under applicable law, to the extent the lawyer reasonably believes necessary to comply with Rule 3.3 or 4.1."). The attorneys at the Cavitch Firm were well aware of their professional duty and obligations to ensure that their clients complied with the Federal Rules and the Court's discovery orders but failed to do so on numerous occasions. On notice of Defendants' misconduct, counsel was obligated to inform the Court of information relating to, not only its former clients' discovery violations, but also, its own discovery violations, and the need for the earlier produced discovery to be corrected or otherwise supplemented. See Rule 3.3(a) (a lawyer shall not knowingly "make a false statement of fact or law to the tribunal or fail to correct a false statement of material fact or law previously made to the tribunal by the lawyer."). Instead, the Cavitch Firm and its attorneys Weiss, Rasor, Atsou, and Lisy IV, filed an ex parte motion that lacked any material information of its former clients' misconduct and did nothing to assist the Court in making a decision in the matter. ECF No. 136. See Rule 3.3(d) ("In an ex parte proceeding, a lawyer shall inform the tribunal of all material facts known to the lawyer that will enable the tribunal to make an informed decision, whether or not the facts are adverse."). And, when given a second opportunity to better inform the Court, the Cavitch Firm, again, responded in a manner unhelpful and inconsistent with its obligations under Rule 3.3. See ECF No. 233 at PageID#: 4218 19 (During the August 5, 2016, Status Conference, the Court admonished the Cavitch Firm for producing in discovery "that which [it] knew was false and/or fraudulent, and [it] did not tell the Court[.]") When given the opportunity to explain, the Cavitch Firm withheld any material information that would have assisted the Court in resolving the matter. Had Defendants' misconduct been revealed to the Court in August 2016 nearly two years ago the time, resources, and costs expended by the Court and parties in this case likely would have been avoided or significantly reduced.
The Court finds that the Cavitch Firm and individual counsel were well aware that Defendants' hard drive contained clear evidence of misconduct. The firm and counsel were also, thereby, made aware of their own discovery misconduct.
For the reasons stated above, the Court finds that the Cavitch Firm and individual counsel have failed to offer substantial justification for its misconduct, and the Court perceives no circumstances that would make an award of attorney's fees and costs unjust.
Lastly, KCI also seeks sanctions against individual Cavitch Firm attorneys: Michael R. Rasor, Komlavi Atsou, and Eric Weiss, pursuant to 28 U.S.C. § 1927. KCI argues that because these attorneys specifically orchestrated the above-mentioned falsehoods against the Court and KCI, they are each uniquely positioned to be singled out for sanctions under § 1927. The Court agrees.
Based on the record in this case, it is clear that the misconduct of these attorneys unreasonably multiplied the proceedings in this case, causing additional expenses to KCI and waste of the Court's limited resources. See JPMorgan Chase Bank, 602 F. App'x at 266. It must be presumed that officers of the court, attorneys at law, including the individual attorneys Rasor, Atsou, and Weiss, were aware of their obligation to present correct and complete information and evidence to the Court and KCI, pursuant to court orders and rules of discovery. Instead, these counsel obfuscated by making false assertions and presenting fabricated evidence. The Court finds that, but for their behavior, especially the false assertions on which great reliance was placed when considering KCI's earlier motions for preliminary injunctions and sanctions KCI's motions likely would have been well taken or unnecessary, allowing the case to proceed efficiently. Therefore, sanctions against Attorneys Rasor, Atsou, and Weiss, pursuant to § 1927 are justified for their behavior that unreasonably multiplied the proceedings.
For the reasons stated above, Plaintiff's Omnibus Motions for Sanctions (ECF No. 333) is granted. KCI is entitled to attorney fees and costs, in the form or sanctions, from the Cavitch Firm and individual attorneys Michael R. Rasor, Komlavi Atsou, and Eric Weiss.
The Court shall conduct a hearing to determine the sanctions on
IT IS SO ORDERED.