JAMES L. GRAHAM, District Judge.
The course of this litigation is an appalling example of discovery run amok. This straightforward age discrimination case has spawned nearly three years of collateral litigation over discovery, which has consumed enormous amounts of the resources of the parties and this Court without materially advancing the goal of fair and efficient preparation for trial. It is the Court's intention to resolve these collateral disputes expeditiously and put this case on course for trial before the end of the year.
This matter is before the Court on a number of discovery-related objections and motions. The Plaintiffs in this case are Robert and Christine Brown, former salespersons for Defendant Tellermate. The Defendants are Tellermate Holdings Ltd.; Tellermate, Inc.; Paul Rendell; David Lunn; Gareth Davies; Edgar Biss; John Pilkington; Debra Elliott (collectively, Defendant Tellermate); and Insperity PEO Services, L.P. (Defendant Insperity). Defendant Tellermate offers cash management products and services. Defendant Insperity is a human resources outsourcing company.
In August 2011, Defendant Tellermate terminated the Plaintiffs' employment. Several months after their termination, the Plaintiffs commenced this action for age discrimination. As the Magistrate Judge diplomatically put it, "[d]iscovery did not go smoothly." July 1, 2014 Op. & Order at 2, doc. 96. The parties repeatedly clashed over discovery matters, necessitating the Magistrate Judge's frequent intervention. Now before the Court are the Defendants' objections to the Magistrate Judge's award of discovery sanctions against the Defendants and the Plaintiffs' objections to the Magistrate Judge's denial of their Second Motion for Default Judgment.
"The nature of the matter considered by the magistrate judge, dispositive or nondispositive, determines the standard of review by the district court."
An award of attorneys' fees for discovery misconduct is not dispositive of a claim or defense and is therefore reviewed under Rule 72(a)'s "clearly erroneous or contrary to law" standard.
The evidentiary sanction imposed by the Magistrate Judge precludes the Defendants from "from using any evidence which would tend to show that the Browns were terminated for performance-related reasons."
The Defendants have objected to the Magistrate Judge's July 1, 2014 Opinion and Order imposing sanctions. The Plaintiffs have objected to the Magistrate Judge's March 30, 2015 Opinion and Order denying their Second Motion for Default Judgment. The Court will address each set of objections separately.
In the fall of 2013, the Plaintiffs filed a Motion for Default Judgment (doc. 60) and a Motion for Sanctions (doc. 65) based on their belief that the Defendants had engaged in a pattern of obfuscation and misconduct related to discovery. After the parties briefed the motions, the Magistrate Judge held a three-day evidentiary hearing. At the conclusion of that hearing, the Magistrate Judge offered the parties the opportunity to submit additional briefing, but the parties declined to do so.
The Magistrate Judge issued his Opinion and Order ruling on the Plaintiffs' motions on July 1, 2014. He identified three areas in which the Defendants and their counsel, of the law firm Calfee, Halter & Griswold LLP (Calfee), failed to live up to their discovery obligations: (1) the preservation and production of salesforce.com records; (2) the production of records concerning a previous age discrimination claim against the Defendants (the Frank Mecka documents); and (3) the production of 50,000 pages of employee performance-related documents and the designation of those documents as "Attorneys' Eyes Only." A summary of each of these issues is necessary to understand the objections now before the Court.
Salesforce.com Records: Salesforce.com provides services and products related to "customer relationship management." Defendant Tellermate contracted with Salesforce.com to provide customer relationship management application for the use of Defendant Tellermate's sales employees. Each salesperson had their own account in which they could record a variety of sales activities, including: customer contacts, potential sales leads, and information concerning actual sales.
During discovery, the Plaintiffs requested that the Defendant Tellermate produce salesforce.com reports for the Plaintiffs and their co-workers. The Plaintiffs sought these records to help establish their contention that their sales performance was comparable to that of younger employees who were not terminated.
Defendant Tellermate nonetheless asserted that it could not produce the salesforce.com reports requested by the Plaintiffs because: (1) they did not maintain hard copies of salesforce.com reports; (2) they could not access historical salesforce.com data and could only access salesforce.com in real time; (3) they were contractually prohibited from turning over salesforce.com data to third parties; and (4) salesforce.com, rather than the Defendant Tellermate, had possession and control over the salesforce.com data that the Plaintiffs requested. These justifications were either false or irrelevant as demonstrated by the testimony of the Defendant Tellermate's employees.
The lengthy battle over the production of the salesforce.com records was compounded by the preservation, or lack thereof, of those same records. Following the Plaintiffs' termination, Defendant Tellermate's salesforce.com administrators had the ability to access the salesforce.com records, including those of the Plaintiffs, and change or delete information in those accounts.
The Plaintiffs' forensic review of Defendant Tellermate's salesforce.com records revealed the problem with this lax approach to Defendant Tellermate's discovery obligations. The forensic expert explained that it was not possible to determine whether, in the interim between the Plaintiffs' termination and the forensic review of the salesforce.com records, anyone changed or deleted the information therein.
Frank Mecka Documents: The Magistrate Judge then turned to the Defendants' failure to produce documents concerning Frank Mecka. Mecka was a former salesperson for the Defendants. After his termination, he alleged that he was discharged because of his age. Mecka settled his claim of age discrimination with the Defendants. The Plaintiffs requested that the Defendants produce a variety of documents relating to Mecka, including the agreement settling his claim. Although the Defendants initially objected to the Plaintiffs' request for production of documents relating to that agreement, the Defendants agreed to produce the relevant, nonprivileged documents.
In April 2013, the Magistrate Judge found that the Defendants had waived their claim of privilege with respect to the Mecka documents by failing to create a privilege log and ordered the Defendants to produce the relevant documents.
Document Dump and Attorneys' Eyes Only Designation: Finally, the Magistrate Judge turned to the Defendants' handling of discovery with respect to documents concerning the performance of the Plaintiffs' co-workers. Initially, the Defendants represented that the number of such documents was "unlimited."
Following the issuance of the Magistrate Judge's order, the Defendants notified the Plaintiffs that their request for performance evaluation-related documents encompassed 35,000 to 40,000 records.
Further, the Defendants marked almost all of these documents as "Confidential — Attorneys' Eyes Only" (AEO).
The Magistrate Judge's Sanctions: In his Opinion and Order of July 1, 2014, the Magistrate Judge denied the Plaintiffs' Motion for Default Judgment and found instead that lesser sanctions were appropriate. Considering each of the discovery issues before him, the Magistrate Judge assigned fault to both the Defendants and their counsel.
The Browns did not get this discovery timely; they were forced, unnecessarily, to spend time and money trying to resolve the matter informally, with the Court, and, eventually, by way of motions practice; and by the time they got it, due to Tellermate's failure to preserve the evidence properly, they had no way of knowing how much of it was still reliable and accurate.
In support of his decision to impose sanctions, the Magistrate Judge cited Federal Rules of Civil Procedure 26(g)(3), 37(a)(3)(c)(B)(iv), 37(b)(2); 28 U.S.C. § 1927; the Court's inherent authority; and the common law related to the spoliation of evidence.
The Magistrate Judge further found that the severity of the Defendants' misconduct during the discovery process justified a further sanction, holding that the Defendants would be "preclude[d] . . . from using any evidence which would tend to show that the Browns were terminated for performance-related reasons."
After filing their objections to the Magistrate Judge's Opinion and Order, the Defendants terminated Calfee's representation and retained new counsel. Whereas the Defendants previously had joint representation, Defendant Tellermate and Defendant Insperity retained separate law firms to represent their individual interests.
Defendant Tellermate makes numerous objections to the Magistrate Judge's Opinion and Order. As an initial matter, Defendant Tellermate argues that Rule 37(b)(2) sanctions cannot be imposed in this case because it did not violate a Court order. Def. Tellermate's Objections at 25-27, doc. 99. Rule 37(b)(2) provides that a court may sanction a party for "fail[ing] to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a)." In his July 1, 2014 Opinion and Order, the Magistrate Judge cited Rule 37(b)(2) as one of many bases for his sanctions order.
The Magistrate Judge's reliance on Rule 37(b)(2) was appropriate. Defendant Tellermate and its counsel violated the Magistrate Judge's April 3, 2013 Opinion and Order (doc. 37) granting the Plaintiffs' motion to compel. In his Opinion and Order, the Magistrate Judge instructed Defendant Tellermate to "[p]roduce additional documents responsive to the request for documents either constituting or pertaining to evaluation of other sales representatives." April 3, 2013 Op. & Order at 11, doc. 37 (emphasis added). In response to this Order, Defendant Tellermate produced over 50,000 documents, many of which counsel for Defendant Tellermate conceded were not responsive to the Plaintiffs' request for production.
Further, the Magistrate Judge's April 3, 2013 Opinion and Order directed Defendant Tellermate to produce additional documents relating to Mr. Mecka, which had previously been withheld on grounds of privilege. April 3, 2013 Op. & Order at 11. This Court denied Defendant Tellermate's objections to the Magistrate Judge's finding that Defendant Tellermate waived its claim of privilege for these documents.
Finally, "attorney's fees and costs, as well as other appropriate sanctions, may be awarded under Rule 37(b)(2) for a violation of a protective order."
Because Defendant Tellermate and its counsel "fail[ed] to obey an order to provide or permit discovery," Rule 37(b)(2) sanctions are available in this case.
Pursuant to Federal Rule of Civil Procedure 37, the Court has discretion to impose sanctions against a party for failure to comply with discovery orders. Fed. R. Civ. P. 37(b)(2). Courts consider a four factor test to determine whether the imposition of extreme sanctions under Rule 37 is appropriate:
In addition to its authority under the Federal Rules of Civil Procedure, "[a] district court has the inherent power to sanction a party when that party exhibits bad faith, including the party's refusal to comply with the court's orders."
Willfulness, Bad Faith, or Fault: Defendant Tellermate asserts that its failure to cooperate in discovery was not due to bad faith, willfulness, or fault. Instead, Defendant Tellermate argues, any misrepresentations made to the Court were a result of miscommunication between the Defendants and their former counsel. Def. Tellermate's Objections at 32-34.
In
___ F. App'x ___, 2015 WL 3450075, at *3 (6th Cir. May 29, 2015) (internal citations and quotation marks omitted). Under this definition, the Court has little trouble concluding that Defendant Tellermate's and its former counsel's actions during the discovery process were due to a combination of gross negligence and bad faith. The actions of Defendant Tellermate and its former counsel significantly delayed the prosecution of this case and demonstrated a reckless disregard for their obligations to the Court.
The Magistrate Judge's finding that Defendant Tellermate and its former counsel made numerous false and misleading representations to the Plaintiffs and the Court regarding their ability to produce the salesforce.com records is well supported by the record.
Likewise, with respect to the Frank Mecka documents, Defendant Tellermate and its former counsel: failed to produce discoverable documents in a timely manner; misled the Plaintiffs and the Court about the number of discoverable documents; and claimed that many of the documents in question were privileged without creating any privilege log as required by the Rules. Moreover, with respect to the performance evaluation documents sought by the Plaintiffs, Defendant Tellermate and its former counsel produced more than 50,000 documents, the vast majority of which were irrelevant to the discovery requested by the Plaintiffs. Despite the overbroad production, counsel for Defendant Tellermate designated almost all of them as "Confidential — Attorneys' Eyes Only." Former counsel for Defendant Tellermate took little, if any action, to cure these production deficiencies.
In responding to discovery requests, the Court expects parties to provide accurate information to their counsel and opposing parties. However, "trial counsel must exercise some degree of oversight to ensure that their client's employees are acting competently, diligently and ethically in order to fulfill their responsibility to the Court."
The record supports the finding that Defendant Tellermate's and its former counsel's failure to cooperate with discovery was a result of gross negligence
Prejudice: Defendant Tellermate maintains that the Plaintiffs have suffered no prejudice as a result of its misconduct because the Plaintiffs "received the discovery that they sought." Def. Tellermate's Objections at 34. The Court disagrees. Defendant Tellermate's argument is inconsistent with the Sixth Circuit's definition of prejudice. As the Sixth Circuit has explained, in the context of Rule 37, a litigant is prejudiced by an opposing party's "dilatory conduct if the [litigant] is `required to waste time, money, and effort in pursuit of cooperation which [the opposing party] was legally obligated to provide.'"
Further, Defendant Tellermate's argument ignores the more fundamental prejudice suffered by the Plaintiffs' in this case. As thoroughly explained by the Plaintiffs' forensic expert at the evidentiary hearing before the Magistrate Judge, Defendant Tellermate's failure to preserve the salesforce.com records has made it impossible to know whether the salesforce.com records have been altered since the Plaintiffs' termination. In short, the salesforce.com records are now unreliable and therefore of little evidentiary value to the Plaintiffs.
Notice: Defendant Tellermate also argues that the imposed sanctions came without warning and are therefore improper. Def. Tellermate's Objections at 34. According to Defendant Tellermate:
The Court notes some tension in Sixth Circuit case law as to whether notice is an absolute requirement prior to the imposition of extreme sanctions. In
Other Sixth Circuit decisions suggest a different view of the notice requirement. "There is no magic-words prerequisite to dismissal under Rule 37(b),"
Here, it is unclear whether Defendant Tellermate was put on notice by the Court that its failure to comply with discovery orders could lead to the imposition of extreme sanctions. But even assuming that it was not, the Court agrees with the Magistrate Judge's finding that Defendant Tellermate and its former counsel acted in bad faith, limiting the import of the notice requirement in the context of Rule 37(b) sanctions,
Here, the Magistrate Judge issued an order granting the Plaintiffs' motion to compel. "If there has been an order compelling discovery, . . . it is not ordinarily necessary (although it may be desirable) that the court have warned the sanctioned party in advance of the risk of serious sanctions." 8B Charles A. Wright and Arthur R. Miller, Fed. Prac. & Proc. § 2289 (3d ed. 2015). The Plaintiffs then filed a motion for default judgment and a motion for sanctions, putting Defendant Tellermate on notice that the most severe sanction available under Rule 37(b), default judgment, could be imposed. The Magistrate Judge held a three-day evidentiary hearing at which Defendant Tellermate and its former counsel had ample opportunity to present evidence explaining their conduct. At the end of the hearing, the Magistrate Judge made clear that he would be imposing sanctions on Defendant Tellermate and that the only remaining question was how serious those sanctions would be. He offered Defendant Tellermate the opportunity to submit additional briefing, but it declined to do so. While the Plaintiffs' motions may not have provided prior notice that a failure to cooperate in discovery could lead to severe sanctions, "a motion to dismiss or for default is sufficient to put the offending party on notice that such a sanction is being considered."
Consideration of Lesser Sanctions: Defendant Tellermate argues that less drastic sanctions are available. In its view, the Court should choose to extend the discovery deadline, rather than the preclusion sanction imposed by the Magistrate Judge. Def. Tellermate's Objections at 35-37.
The fourth factor obligates courts to consider the availability of lesser sanctions, which the Magistrate did here,
Evidentiary Sanction: "In selecting a sanction under Rule 37, a court may properly consider both punishment and deterrence."
In
Like the Magistrate Judge, the Court believes that Defendant Tellermate's conduct with respect to the salesforce.com records has prejudiced the Plaintiffs' ability to present their case. Although the parties debate the relative importance of the salesforce.com records, there is no question that they are relevant to the Plaintiffs' age discrimination claim. Indeed, they were highly relevant at the time Defendant Tellermate resisted their discovery because Defendant Tellermate was then claiming that one of the reasons it terminated the Plaintiffs was that they failed to effectively use their salesforce.com accounts, a claim that Defendant Tellermate has since apparently abandoned. But because Defendant Tellermate did not preserve the salesforce.com records, those records are inherently unreliable.
The Court finds that the Magistrate Judge's decision to impose sanctions, including an award of attorneys' fees and expenses and a limitation on defense evidence, is supported by the record and is not clearly erroneous or contrary to law. The Court finds, however, that the evidence does not support the Magistrate Judge's findings regarding the severity of the prejudice suffered by the Plaintiffs and concludes that the evidentiary sanction is overbroad.
A determination of the severity of prejudice to the Plaintiffs necessarily involves an examination of the issues for trial and the totality of the evidence available to the parties. The Defendants assert that the Plaintiffs' employment was terminated because their sales performance had declined to an unacceptable level. The Plaintiffs assert to the contrary that their sales performance exceeded that of their peers but that the Defendants manipulated their sales quotas and account profiles by eliminating their most lucrative accounts, assigned them to the sale of unprofitable products, and otherwise failed to support their sales efforts thereby setting them up to fail.
The Plaintiffs maintain that the salesforce.com records are the best evidence to support their position that without those records their ability to prosecute their claims has been severely damaged. A discussion of the salesforce.com application is necessary to understand the strength of the Plaintiffs' argument. Salesforce.com is a sales and marketing tool, not a sales management or business records keeping tool. Defendant Tellermate's employees were encouraged to use it to record information that would help them be more effective in selling Defendant Tellermate's products. This could include information like sales leads, customer contact information, the identity of the customers employees who make purchase decisions, how those customers tend to make their purchase decisions, and how best to approach customers. They might also record personal information about their customer contacts, such as: family information, hobbies, favorite sports teams, etc. The salesforce.com account would also be used as a sales calendar to record dates and times of appointments and to schedule reminders for follow-up contacts. The amount, frequency, and kind of information recorded would be entirely up to the salesperson using the application. Salesforce.com is a digital repository for the kind of information that a salesperson of the last century would have recorded on Rolodex cards, calendars, and notebooks. It has many of the features of today's social medica applications. It can be used to send email, photographs, and documents.
Although the Plaintiffs emphasize the importance of the salesforce.com records to their ability to prove their claim of age discrimination, it appears that the Plaintiffs have significant personal knowledge of the sales activities of their co-workers. Defendant Tellermate's sales department is a relatively small group of individuals. The Plaintiffs, because of their long tenure, and Mr. Brown's position as a regional sales director, were personally acquainted with most if not all of them and had at least general knowledge of their responsibilities and effectiveness. Indeed the Plaintiffs' opposition to the Defendants' motion for summary judgment, including their individual affidavits, shows that they have firsthand knowledge of various aspects of the activities of the entire Tellermate sales staff and that they are aware of how all of the major customer accounts are handled. They have sufficient first-hand knowledge to make their own calculations and projections about their sales efforts and those of other Tellermate sales employees.
Furthermore, it has not been suggested that the Plaintiffs have not been provided with unhindered access to much of Defendant Tellermate's official sales, business, and personnel records kept in the regular course of business. These records would presumably include sales results for all of Defendant Tellermate's sales staff and all of Defendant Tellermate's customers, including sales staff travel and entertainment expenses as well as the amount of sales generated by each employee. The Plaintiffs' counsel listed the kinds of business records maintained by Defendant Tellermate in a letter to defense counsel on October 18, 2012 as follows:
October 18, 2012 Letter from Pls.' Counsel at 5, doc. 24-6. Defendant Tellermate's business records would seem to be a more useful source of evidence than the contents of salesforce.com accounts.
The Plaintiffs have had access to their salesforce.com accounts since July 1, 2014. Nevertheless, over a year later, at the July 17, 2015 hearing, their counsel conceded that they have never looked at those records. The unstructured and constantly changing information which was recorded in the salesforce.com accounts undoubtedly includes some additional relevant information, but its sheer volume and somewhat haphazard nature likely produce a rather unwieldy and bewildering mass of random information. This may explain why the Plaintiffs themselves have not yet begun to examine the contents of their own salesforce.com accounts to determine what information they contain.
After considering the nature of this evidence the Court has been able to discern only a few instances in which it might have significant value. If the Defendants were to claim, as Defendant Tellermate did previously, that the Plaintiffs failed to effectively use the salesforce.com sales tool then, of course, the salesforce.com data could be used to rebut that contention. If an issue were to arise regarding a specific transaction or event that would normally be recorded in a salesforce.com account then the data could be mined to glean whatever information it might contain about that event.
But the Court is not persuaded that the salesforce.com data could be effectively used as evidence to compare the sales performance or effectiveness of the Plaintiffs with that of other Tellermate sales employees. Clearly, the Court would not permit the parties to dump this massive amount of unstructured data in the jury's lap for them to evaluate. While theoretically it might be possible for an expert (or a large team of them) to examine this massive amount of daily information recorded by 20 or 30 different sales employees over a period of months or years and reach some opinions about their comparative level of activity and effectiveness, the questionable admissibility and limited persuasive value of such evidence would hardly justify the effort and expense, particularly when the Plaintiffs can offer their own testimony and the Defendants' sales and personnel records.
The Plaintiffs' salesforce.com accounts were not assigned to other users after they were terminated, so, unlike the accounts of their former peers, the Plaintiffs' accounts were essentially frozen in time and not subject to the kind of daily or hourly changes which might occur in an active account. While Defendant Tellermate failed to take any steps to protect the integrity of the Plaintiffs' accounts, there is no evidence that any material changes or deletions were made. Thus there is at least the possibility that their accounts presently contain weeks months or years of data relating to their own sales efforts. However as of oral argument on July 17, 2015, the Plaintiffs had not bothered to examine the content of their salesforce.com accounts to determine whether there had been any alterations or deletions or whether they contain any information that would be favorable to their case.
The Plaintiffs argue that it is unreasonable to expect them to be able to determine whether any alterations or deletions have occurred in their salesforce.com accounts.
In light of the foregoing, the Court concludes that a somewhat narrower evidentiary sanction would be sufficient to mitigate the prejudice suffered by the Plaintiffs and serve the goal of deterrence. The Court will sanction Defendant Tellermate as follows:
This sanction will permit the Plaintiffs to effectively present their case with respect to the issue of pretext and ameliorate the prejudice resulting from Defendant Tellermate's and its former counsel's actions. It will also prevent Defendant Tellermate from benefiting from its own misconduct while allowing Defendant Tellermate to present a legitimate defense unrelated to the salesforce.com records—that the Plaintiffs were terminated because they failed to meet their sales quotas. Finally, these sanctions will discourage future litigants from their violating duties under the Federal Rules of Civil Procedure.
The Court has used the language of the clearly erroneous/contrary to law standard of review in the above analysis. The application of that standard to a significant evidentiary sanction is perhaps a close call. Thus, the Court has also considered whether de novo review would change the result in this case and has concluded that it would not. This Court, upon de novo review, would reach the same conclusions regarding the propriety of an evidentiary sanction in addition to the award of attorneys' fees and expenses, and this Court would exercise its discretion to impose the evidentiary sanction outlined above.
Attorneys' Fees: The Magistrate Judge's award of attorneys' fees against Defendant Tellermate and its former counsel is well-supported by the record.
Rule 26(g) requires a response to a discovery request to be signed by an attorney of record, certifying "that to the best of the person's knowledge, information, and belief formed after a reasonable inquiry" that the response is "consistent with [the Federal Rules of Civil Procedure]" and "not interposed for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation." Fed. R. Civ. P. 26(g)(1)(B).
Fed. R. Civ. P. 26(g)(3). Here, the Magistrate Judge concluded that counsel for Defendant Tellermate responded to the Plaintiffs' discovery requests without performing a reasonable inquiry into whether Defendant Tellermate could produce the salesforce.com records.
Rule 37(a) governs motions for an order compelling disclosure or discovery. Fed. R. Civ. P. 37(a). Pursuant to that rule, if a party's motion to compel is granted, "the court must, after giving an opportunity to be heard, require the party . . . whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the movant's reasonable expenses incurred in making the motion, including attorney's fees." Fed. R. Civ. P. 37(a)(5)(A). Here, the Magistrate Judge concluded that Defendant Tellermate's opposition to the Plaintiffs' motion to compel the attorneys'-eyes-only documents was not substantially justified because Defendant Tellermate failed to present "evidence that a single one of these documents was properly so designated," and failed "to recognize . . . that it had the burden to articulate and to prove, by competent evidence, its claim of harm which would result if any of the documents were viewed by the Browns." July 1, 2014 Op. & Order at 42-43. On the record before the Magistrate Judge, the Court agrees with his analysis, and finds that his award of attorneys' fees under Rule 37(a)(5) was appropriate.
Rule 37(b)(2) provides sanctions for a party's or attorney's failure to obey a discovery order. "Both parties and counsel may be held personally liable for expenses, `including attorney's fees,' caused by the failure to comply with discovery orders."
Under 28 U.S.C. § 1927, an attorney "who so multiples the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." The Sixth Circuit has interpreted the statute:
In passing, Defendant Tellermate appears to argue that its actions in opposing the Plaintiffs' discovery requests were substantially justified, and, as a result, they cannot be liable for attorneys' fees in this case.
In combination, Defendant Tellermate and its former counsel: made repeated misrepresentations to the Court; presented legally irrelevant arguments to the Court, one of which—that Defendant Tellermate's contract with salesforce.com prevented it from disclosing data entered into salesforce.com—was patently false; violated multiple discovery-related orders; and generally conducted themselves in a manner contrary to both the letter and the spirit of the Federal Rules of Civil Procedure. This behavior led to unnecessary delay in the prosecution of this case and required a significant expenditure of time and resources by the Court and the Plaintiffs. Defendant Tellermate and its former counsel are therefore jointly liable for the attorneys' fees identified by the Magistrate Judge in his July 1, 2014 Opinion and Order.
Defendant Insperity: In its Objections, Defendant Insperity argues that it should not be subject to any sanctions because it committed no misconduct during discovery in this case. Defendant Insperity notes that the Magistrate Judge treated it and Defendant Tellermate as a joint entity in his July 1, 2014 Opinion and Order, but emphasizes that it is, in fact, a separate entity from Defendant Tellermate. According to Defendant Insperity, it: (1) did not have possession or control of Defendant Tellermate's salesforce.com records; (2) believed that its former counsel had all of the responsive Frank Mecka documents; and (3) had no role in the document dump or the AEO designation concerning Defendant Tellermate's personnel evaluations.
In response, the Plaintiffs maintain that the Magistrate Judge properly imposed sanctions against Defendant Insperity. According to the Plaintiffs, Defendant Insperity and Defendant Tellermate both violated multiple court orders and jointly obstructed the Plaintiff's discovery efforts. The Plaintiffs contend that Defendant Insperity's handling of the Frank Mecka documents is representative of its actions in this case. They argue that most of the Frank Mecka documents that were the subject of the Magistrate Judge's Opinion and Order were possessed by Defendant Insperity, which in their view, undermines Defendant Insperity's claim that it committed no misconduct in the discovery phase of this case. Moreover, the Plaintiffs emphasize, Defendant Insperity now attempts to present new evidence and new arguments that were not presented to the Magistrate Judge prior to his issuance of the sanctions order.
In his July 1, 2014 Opinion and Order, the Magistrate Judge referred to Defendant Tellermate and Defendant Insperity as "Tellermate."
Generally, "`one party to litigation will not be subjected to sanctions [for failure to cooperate in discovery] because of the failure of another to comply with discovery, absent a showing that the other party controlled the actions of the non-complying party.'"
While the parties continued to brief their objections to the Magistrate Judge's July 1, 2014 Opinion and Order, the Plaintiffs filed a Second Motion for Default Judgment (doc. 145) on October 23, 2014. In their motion, the Plaintiffs accused the Defendants of further discoveryrelated misconduct, including: continuing to withhold Frank Mecka documents; continuing to misrepresent the number of Frank Mecka documents they were withholding; baselessly claiming the attorney-client privilege for otherwise discoverable documents; and concealing the existence of an insurance policy that would otherwise have satisfied judgment in this case. Pls.' Second Mot. for Default J. at 2-3, doc. 145.
At the outset of his Opinion and Order, the Magistrate Judge identified two primary issues before him: (1) the Defendants' untimely production of insurance-related information as required by Federal Rule of Civil Procedure 26(a) and (2) the Defendants' continued withholding of Frank Mecka documents.
The Magistrate Judge then turned to the Frank Mecka documents, which he discussed at length in his July 1, 2014 Opinion and Order. The parties offered competing narratives to explain the ongoing discovery problems related to the Frank Mecka documents. The Plaintiffs asserted that the Defendants' continued misrepresentations and withholding of these documents was consistent with the Defendants' prior history of misconduct and prevented the Plaintiffs from developing their case. In response, Defendant Insperity asserted that it had never received a formal request for any Frank Mecka documents in its possession and therefore was under no obligation to provide those documents to the Plaintiffs.
Addressing the Plaintiffs' request for default judgment, the Magistrate Judge acknowledged that it was "the most severe sanction" available to him and should only be imposed where: (1) a party acted in willful bad faith; (2) the opposing party suffered prejudice; (3) the court warned the disobedient party that the failure to cooperate could result in default judgment; and (4) less drastic sanctions were attempted.
The Plaintiffs subsequently filed an Objection (doc. 192) to the Magistrate Judge's ruling denying their Second Motion for Default Judgment.
The Court has conducted a de novo review of the Magistrate Judge's March 30, 2015 Opinion and Order denying the Plaintiffs' Second Motion for Default Judgment and adopts the Magistrate Judge's findings as its own. In the Court's view, the Magistrate Judge conducted a thorough Rule 37(b)(2) analysis and correctly concluded that the Defendants' misconduct did not rise to the level sufficient to justify the imposition of default judgment.
Two of the Magistrate Judge's findings are of particular importance to the Court's conclusion. First, the Magistrate Judge found that Defendant Tellermate's and its former counsel's failure to disclose insurance coverage permitted the inference that they acted in bad faith and was consistent with their "grossly deficient participation in the discovery or disclosure process." March 30, 2015 Opinion and Order at 8-9, doc. 189. However, the Magistrate Judge concluded that, while the other instances of misconduct identified by the Plaintiffs were troubling, they did not support a finding of bad faith against the Defendants.
Second, the Magistrate Judge found that the Plaintiffs suffered limited prejudice from the Defendants' misconduct at issue in the Second Motion for Default Judgment. March 30, 2015 Opinion and Order at 10-11. In the Court's view, the lone action that supported a finding of bad faith—Defendant Tellermate's and its former counsel's failure to disclose the existence of a second insurance policy—did not actually prejudice the Plaintiffs. As the Magistrate Judge explained, the Plaintiffs' settlement demand did not exceed the limits of the first insurance policy,
The Court offers several additional reasons why it will not grant default judgment in favor of the Plaintiffs. The Plaintiffs have presented a detailed factual account of the Defendants' discovery-related misconduct following the July 1, 2014 Opinion and Order in their objections to the Magistrate Judge's March 30, 2015 Opinion and Order.
Nor do the Plaintiffs attempt to engage with the requirement that a court provide notice and consider lesser sanctions before imposing default judgment as a sanction under Rule 37(b)(2). The misconduct described in the Plaintiffs' Second Motion for Default Judgment pales in comparison to the misconduct at the heart of the Magistrate Judge's July 1, 2014 Opinion and Order. If default judgment was not an appropriate sanction in response to Defendant Tellermate's and its former counsel's actions concerning the salesforce.com records, it is not an appropriate sanction for the lesser misconduct at issue in the Second Motion for Default Judgment.
On November 4, 2014, Calfee filed a motion requesting an order finding that (1) the attorney-client privilege between itself and the Defendants had been waived and (2) allowing it to present additional evidence at an evidentiary hearing on objections to the Magistrate Judge's July 1, 2014 Opinion and Order.
The Magistrate Judge issued an Order (doc. 190) addressing Calfee's Motion. He observed that Calfee's request for an order declaring the attorney-client privilege waived "appear[ed] to be largely moot" based on Defendant Tellermate's filing of a motion (doc. 186) to which they attached numerous attorney-client communications. Order on Calfee's Mot. at 2. The Magistrate Judge reasoned that "[h]aving chosen to waive the privilege for those communications, Tellermate cannot now be heard to claim that other communications regarding the same subject-matter are still protected by the privilege."
On July 8, 2015, the Court issued an Order (doc. 214) denying Calfee's Motion to Present New Evidence (doc. 148) and Defendant Tellermate's Motion for Leave to File Second Supplemental Brief in Support of Objections (doc. 186). In their motions, Defendant Tellermate and Calfee sought leave to present the Court with new evidence regarding their actions during the discovery phase of this case. While the Court recognized that it had the authority to consider new evidence, the Court declined to exercise its discretion to do so:
July 8, 2015 Order at 3-6, doc. 214. To develop the record for appellate review, the Court directed the parties to submit proffers of what new evidence they would have presented to the Court if the Court had granted their motions.
The Court will adhere to its July 8, 2015 Order. In so doing, the Court notes that much of the evidence proffered by Calfee would be merely duplicative of the evidence already in the record which includes extensive testimony from Calfee attorneys. The proffered evidence would not change the result in this case.
For the foregoing reasons, the Court adopts the Magistrate Judge's July 1, 2014 Opinion and Order (doc. 96) as modified by this Opinion and Order; adopts the Magistrate Judge's March 30, 2015 Opinion and Order (doc. 189); and grants Defendant Tellermate's Motion for Extension of Time (doc. 132).
IT IS SO ORDERED.
