3e Mobile, LLC v. Global Cellular, Inc. , 222 F. Supp. 3d 50 ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
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3E MOBILE, LLC, )
)
Plaintiff / Counterclaim Defendant )
)
v. ) Case No. 14-cv-1975 (EGS)
)
GLOBAL CELLULAR, INC., )
)
Defendant / Counterclaimant )
)
___________________________________)
MEMORANDUM OPINION
This matter comes before the Court on Global Cellular
Inc.’s (“Global”) motion to sanction 3E Mobile, LLC (“3E”) for
its failure to comply with its discovery obligations. Due to
3E’s failure to produce documents or respond to certain
interrogatories until months after the close of discovery,
Global asks this Court to treat as established certain facts,
preclude 3E from introducing contrary evidence or argument, and
order 3E to pay Global’s attorneys’ fees. Global Mem. Supp. Mot.
for Sanctions (“Global’s Mem. Supp.”), ECF No. 41 at 1. Upon
consideration of the motion, the response and reply thereto, the
applicable law, and the entire record, Global’s motion will be
GRANTED in part and DENIED in part.
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I. BACKGROUND
A. Procedural History
3E is a manufacturer of cell phone protective cases and
Global is a provider of cell phone accessories. In 2013, Global
and 3E settled an intellectual property lawsuit that resulted in
a Manufacturing Agreement (“Agreement”) under which Global
promised to make monthly advance payments to 3E in return for
3E’s agreement to manufacture products for Global or source
products from Global’s manufacturers. Global’s Mem. Supp., ECF
No. 41 at 4. Although Global made the required advance payments
during the first six months of the Agreement, 3E failed to
produce any of the products Global ordered. See Mem. Op., ECF
No. 21 at 3. When Global brought 3E’s inaction to the attention
of management, 3E executives advised Global to stop making
payments. Id. Nonetheless, when Global halted the payments, 3E
brought suit claiming that Global breached the Agreement.
Compl., ECF No. 1. Global filed a counterclaim for the payments
it had already made to 3E, citing 3E’s failure to manufacture
the products as required by the Agreement. See Answer and
Countercl., ECF No. 5. On August 11, 2015, this Court denied
3E’s motion to dismiss Global’s counterclaim due to 3E’s
untenable interpretation of the Agreement which would have
allowed 3E to collect Global’s advance payments without
incurring any obligation to produce the products Global ordered.
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Mem. Op., ECF No. 21 at 9. The parties then proceeded to
discovery.
B. The Parties’ Discovery Efforts
On September 11, 2015, Global served its first set of
document requests and interrogatories. Global’s Mem. Supp., ECF
No. 41 at 6. After the parties agreed to stay discovery pending
an ultimately unsuccessful mediation, the Court set a fact
discovery deadline of August 24, 2016. See Stipulated Revised
Scheduling Order, ECF No. 33. On April 29, 2016, Global served a
second set of interrogatories and document requests on 3E.
Global’s Mem. Supp., ECF No. 41 at 7. Because 3E changed counsel
before its discovery responses were due, Global agreed to extend
the deadline for 3E to respond to Global’s first and second
rounds of discovery requests to June 2, 2016 and June 3, 2016
respectively. Id. 3E did not respond to either set of discovery
requests by June 3, 2016. Id. at 8. After an extended back and
forth between counsel and repeated time extensions granted by
Global (which 3E consistently ignored), 3E produced written
discovery responses on July 19, 2016 in response to Global’s
first set of discovery requests. 1 Id. at 9. 3E’s corresponding
document production consisted of approximately 115 pages. Id.
Global’s numerous letters inquiring as to 3E’s failure to
1 3E does not dispute that it failed to meet the repeated extensions granted
to it by Global.
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respond to Global’s second set of discovery requests went
unanswered. Id at 10.
On August 1, 2016, Global filed a motion to compel 3E to
produce all responsive, non-privileged documents and respond to
Global’s second set of interrogatories. Mot. to Compel, ECF No.
38. 3E never filed an opposition and the Court granted the
motion. Minute Entry of December 22, 2016. On August 24, 2016,
fact discovery closed pursuant to the Court’s scheduling order.
At that time, 3E still had not responded to Global’s second set
of discovery requests. Global’s Mem. Supp., ECF No. 41 at 11. On
September 30, 2016, more than a month after the close of
discovery and after all depositions had been conducted, 3E
responded to Global’s second set of discovery requests and
produced 1,151 pages——i.e., over nine times as many pages as 3E
had produced before depositions took place. Id. Global
identified a number of deficiencies in 3E’s untimely production,
including that 3E omitted all email attachments, neglected to
produce specific documents acknowledged in depositions, and
withheld “confidential” but non-privileged documents that should
have been produced pursuant to the protective order governing
this case. Id. at 12-14. In an effort to remedy these
deficiencies, 3E made a supplemental production of 597
additional pages on November 11, 2016. See Letter of Nov. 11,
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2016, ECF No. 45-1; Global’s Mot. for Oral Hearing, ECF No. 46
at 1.
As a result of 3E’s actions, Global asks the Court to: (1)
order 3E to pay Global’s attorneys’ fees related to its motion
to compel and motion for sanctions; (2) treat certain facts as
established; and (3) preclude 3E from introducing contrary
evidence or argument. Global’s Mem. Supp., ECF No. 41 at 1-2.
II. LEGAL STANDARDS
A. The Court’s Power to Sanction Discovery Misconduct
“[D]istrict court judges enjoy wide discretion in managing
the discovery process.” Shatsky v. Syrian Arab Republic, 312
F.R.D. 219, 223 (D.D.C. 2015)(quotation marks omitted). The
Federal Rules of Civil Procedure provide federal courts with the
authority to police the parties’ conduct during discovery. In
particular, Rule 37(b) authorizes federal courts to impose
sanctions when a party fails to obey a discovery order.
Fed.R.Civ.P. 37(b). Authorized sanctions under Rule 37 include,
but are not limited to, designating facts as established for the
purpose of the action, entering a default judgment, and ordering
the payment of attorney’s fees and expenses. Id. In situations
where a party has committed discovery abuses but Rule 37 does
not apply, a court may issue appropriate sanctions under its
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inherent power. Shepherd v. Am. Broadcasting Cos., Inc., 62 F.3d
1469, 1474 (D.C. Cir. 1995). 2
The Court of Appeals for the District of Columbia Circuit
divides sanctions into two categories: penal sanctions and
issue-related sanctions. Id. at 1478. “When selecting the
appropriate sanction, the Court must properly calibrate the
scales to ensure that the gravity of an inherent power sanction
corresponds to the misconduct.” Davis v. D.C. Child & Family
Servs. Agency, 304 F.R.D. 51, 60 (D.D.C. 2014). The choice of an
appropriate sanction is “necessarily a highly fact-based
determination based on the course of the discovery process
leading up to the sanction[.]” Bonds v. D.C., 93 F.3d 801, 804
(D.C. Cir. 1996). A court’s use of its power to sanction
misconduct “should reflect our judicial system’s strong
presumption in favor of adjudication on the merits.” Shepherd,
62 F.3d at 1475.
B. Penal Sanctions
Penal sanctions include dismissals, default judgments,
contempt orders, awards of attorneys’ fees, and imposition of
fines. For those sanctions that “are fundamentally penal –
dismissals and default judgments, as well as contempt orders,
2 This power also authorizes courts to enter a default judgment, impose fines,
award attorneys’ fees and expenses, issue contempt citations, disqualify or
suspend counsel, permit adverse evidentiary determinations, and preclude the
admission of evidence. Johnson v. BAE Sys., Inc., 307 F.R.D. 220, 224 (D.D.C.
2013).
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awards of attorneys’ fees, and the imposition of fines – the
district court must find clear and convincing evidence[ ] of the
predicate misconduct.” Id. at 1478. With regard to the Court’s
ability to use its inherent power to award attorneys’ fees and
impose fines, the Court must find clear and convincing evidence
of bad faith. Parsi v. Daioleslam, 778 F.3d 116, 131 (D.C. Cir.
2015). Bad faith “may be found where a party, confronted with a
clear statutory or judicially-imposed duty towards another, is
so recalcitrant in performing that duty that the injured party
is forced to undertake otherwise unnecessary litigation to
vindicate plain legal rights.” Am. Hosp. Ass’n v. Sullivan, 938
F.2d 216, 220 (D.C. Cir. 1991) (quotation marks omitted).
C. Issue-Related Sanctions
Issue-related sanctions include adverse evidentiary
determinations——such as adverse findings of fact, considering an
issue established for the purpose of the action and adverse
inferences——and precluding the admission of evidence. Shepherd,
62 F.3d at 1475. A court can impose issue-related sanctions
after finding by a preponderance of the evidence that the
alleged misconduct occurred. Id. at 1478(reasoning that issue-
related sanctions are “fundamentally remedial rather than
punitive” and can be imposed “whenever a preponderance of the
evidence establishes that a party’s misconduct has tainted the
evidentiary resolution of the issue”).
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With regard to the misconduct giving rise to the sanction,
courts have routinely found that an adverse inference
instruction is appropriate when a preponderance of the evidence
establishes that the conduct was negligent. See, e.g.,
Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99,
108 (2d Cir. 2002)(reasoning that the “culpable state of mind”
factor for adverse evidentiary determination is satisfied by
showing that evidence was destroyed either knowingly or
negligently “because each party should bear the risk of its own
negligence”)(citations omitted); Chen v. District of Columbia,
839 F. Supp. 2d 7, 12 (D.D.C. 2011) (“To justify the issuance of
an adverse inference instruction, the spoliation of evidence
need not be purposeful . . . negligent spoliation may
suffice.”)(citations omitted). Although penal and issue-related
sanctions are distinct categories, an issue-related sanction can
operate as a penal sanction. For example, precluding the only
source of evidence available in support of a dispositive issue
operates as a dismissal, even though it is nominally an
evidentiary sanction. See Shepherd, 62 F.3d at 1479.
Accordingly, a court should assess the practical effect of the
sanction when determining which sanction is appropriate.
Johnson, 307 F.R.D. at 225.
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III. ANALYSIS
Global asks this Court to impose both penal and issue-
related sanctions. According to Global, 3E’s “pattern of delay
and intransigence” warrant the award of attorneys’ fees, the
establishment of certain facts, and the preclusion of 3E from
introducing contrary evidence or argument. Global’s Mem. Supp.,
ECF No. 41 at 1-3. Specifically, Global requests that the Court
establish:
i. In February 2014, 3E adopted a new procedure for
Global to place orders with 3E under the Manufacturing
Agreement. Under that new process, Global was to send
orders to its own suppliers, but copy 3E on those
communications. By copying 3E, Global in fact placed
an order with 3E, and 3E then had an obligation to
fill the order itself;
ii. Global placed hundreds of product orders with 3E under
this process; and
iii. 3E failed to fill those orders repeatedly and thus
repeatedly failed to live up to its obligations under
the Manufacturing Agreement.
Id. at 16. Global contends that such sanctions are
appropriate because 3E had ample time to collect and produce the
documents Global requested, the documents produced after the
close of discovery relate to key issues in the case, and Global
has been prejudiced by 3E’s conduct. Id. at 2, 17, 20. According
to Global, the facts it requests the Court to establish are
“facts that those [late] documents would have shown if produced
on time[.]” Global’s Reply Mot., ECF No. 44 at 7. 3E does not
dispute that its productions were untimely and thus in violation
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of the Court’s May 25, 2016 scheduling order. 3E’s Opp’n, ECF
No. 43 at 8 (“3E is not claiming to have performed perfectly
throughout discovery”). Instead, 3E argues that its misconduct
does not rise to the level where sanctions are proper. Id. For
the reasons stated below, the Court finds that sanctions are
appropriate here, but in the form of attorneys’ fees rather than
issue-related sanctions.
A. Issue-Related Sanctions Are Not Appropriate.
A court may impose issue-related sanctions “after finding
by a preponderance of the evidence that the alleged misconduct
occurred.” Johnson, 307 F.R.D. at 225. Here, this standard is
clearly met since 3E does not dispute that its productions were
untimely. 3E’s Opp’n, ECF No. 43 at 8. Nonetheless, this Court
is reminded that it “should keep in mind the practical effect of
its sanction when determining whether that sanction is
appropriate.” See Johnson, 307 F.R.D. at 225. Specifically,
“[w]hen considering possible penalties, the Court must remain
cautious that any alternative sanctions ordered in lieu of
dismissal [do] not effectively amount to a default judgment.”
Davis, 304 F.R.D. at 62 (citing Hildebrandt v. Vilsack, 287
F.R.D. 88, 97 (D.D.C. 2012))(quotation marks omitted).
Here, the Court finds that the issue-related sanctions
Global seeks would be the functional equivalent of a dismissal.
The crux of the underlying dispute in this case is whether
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either party breached the Manufacturing Agreement. Were the
Court to grant as established that “3E adopted a...procedure for
Global to place orders...under the Manufacturing Agreement” and
“3E failed to fill...orders repeatedly and thus repeatedly
failed to live up to its obligations under the Manufacturing
Agreement[,]” the case would, for all intents and purposes,
amount to summary judgment in Global’s favor. Put differently,
the Court, by adopting Global’s proposed facts, would
essentially establish that 3E breached the Agreement. “[A]
discovery sanction that results in a one-sided trial...is a
severe one” and before imposing such a sanction, the Court
“should consider a less drastic [option].” Bonds, 93 F.3d at
809; see also Outley v. City of New York, 837 F.2d 587, 591 (2d
Cir. 1988) (“Before the extreme sanction of preclusion may be
used by the district court, a judge ... must consider less
drastic responses.”). The Court does not find that precluding 3E
from introducing contrary evidence or argument is appropriate
when, as detailed below, alternative and less severe sanctions
are available, and when that evidence may be critical to
adjudicating the merits of 3E’s claims. 3
3 Global relies on a three-prong test employed by the Southern District of New
York to argue that 3E’s misconduct warrants issue-related sanctions. ECF 41
at 16-18 (citing Short v. Manhattan Apartments, Inc., 286 F.R.D. 248, 252
(S.D.N.Y. 2012)). Not only does Global fail to demonstrate that the same test
applies in this Circuit, but even if this Court were to adopt that test, it
would reach the same conclusion since Global has not shown that 3E had “a
culpable state of mind.” See Short, 286 F.R.D. at 252. According to the Short
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Further, 3E correctly points out that the cases on which
Global principally relies to justify issue-related sanctions are
factually distinguishable and generally concern more flagrant
misconduct. See, e.g., Johnson, 307 FRD at 222-224 (imposing
sanctions where party falsified medical records and counsel
failed to certify discovery requests and conduct a reasonable
inquiry to assess accuracy); Shepherd, 62 F.3d at 1479-80(discussing appropriateness of sanctions where party altered a
document and harassed potential witnesses); Parsi, 778 F.3d at
133 (affirming sanctions where party denied the existence of
documents and disobeyed court orders to produce certain
material). Here, Global does not contend that 3E intentionally
destroyed, falsified or tampered with evidence. See generally
Global’s Mem. Supp., ECF No. 41. Rather, 3E has simply failed to
produce responsive documents in a timely manner. Global has not
cited any cases in this Circuit granting issue-related sanctions
for a late document production in the absence of additional and
more flagrant misconduct. 4 Id.; see also Reply Mot., ECF No. 44
court, the party seeking the issue-related sanction must show: “(1) that the
party having control over the evidence had an obligation to timely produce
it; (2) that the party that failed to timely produce the evidence had a
culpable state of mind; and (3) that the missing evidence is relevant to the
party's claim or defense such that a reasonable trier of fact could find that
it would support that claim or defense.” Id. (quotation marks omitted).
4 The Court also notes that other courts have neglected to impose issue-
related sanctions in cases involving document productions that were
significantly more untimely than 3E’s late production. See e.g., Williams v.
Saint-Gobain Corp., No. 00 Civ. 502, 2002 WL 1477618, at *2 (W.D.N.Y. June
28, 2002) (holding that there was no basis for adverse inference instruction
for failure to produce e-mails until five days before trial).
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at 5. For all of these reasons, Global’s requests for issue-
related sanctions are hereby DENIED.
B. Monetary Sanctions are Warranted.
While issue-related sanctions may not be proper here, the
Court will not reward 3E for blatantly flouting the Court’s
scheduling order and producing over ninety percent of its
documents months after discovery had closed and depositions
concluded. The Court concludes that monetary sanctions in the
amount of Global’s attorneys' fees incurred during the
preparation of its motion to compel and motion for sanctions are
the just penalty for 3E’s discovery violations. Imposing penal
sanctions, such as attorneys’ fees, requires a court to find by
clear and convincing evidence that the alleged misconduct
occurred, see Johnson, 307 FRD at 224-225, a standard met by
3E’s admission that its productions were untimely. See 3E’s
Opp’n, ECF No. 43 at 8. 3E’s discovery conduct has resulted in
the late production of at least 1,748 pages of additional
documents——over fourteen times more pages than 3E produced in
advance of depositions——and has significantly disrupted the
progress of this litigation. The Court recognizes that 3E
produced for the first time as recently as November 11, 2016,
the email attachments to the documents it had previously
produced. Letter of Nov. 11, 2016, ECF No. 45-1. While 3E had
the benefit of Global’s timely productions when preparing for
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depositions, 3E’s sparse pre-deposition production confined
Global to a mere cross-section of potentially responsive
documents. Global has not only incurred unnecessary costs by
having to file a motion to compel and motion for sanctions as a
result of 3E’s failure to fulfill its discovery obligations, but
Global will also incur additional expenses if it decides to re-
depose witnesses using 3E’s newly-produced documents. See Am.
Hosp., 938 F.2d at 219-20 (reasoning that monetary sanctions are
warranted where a party “is so recalcitrant in performing [its]
duty that the injured party is forced to undertake otherwise
unnecessary litigation to vindicate plain legal rights”). As in
Davis, 3E has “missed or ignored discovery deadlines, not
provided appropriate documentation or answers to discovery
requests, and generally failed to comply with the Federal Rules
of Civil Procedure.” 304 F.R.D. at 60 (concluding that monetary,
and not issue-related sanctions, were appropriate). The Court
finds that monetary sanctions will most appropriately serve the
punitive and remedial purposes of discovery sanctions and
preserve the case for adjudication on the merits. Accordingly,
3E is ordered to pay Global the attorneys' fees it incurred
during the preparation of its motion to compel and motion for
sanctions, the exact amount to be determined by a fee petition
that Global shall present to the Court within ten days of this
Order.
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3E is advised that its failure to comply with discovery
moving forward can and will result in more drastic sanctions
than paying attorneys' fees. The Court will reopen discovery in
this matter for the narrow purpose of permitting Global to re-
depose witnesses based on information gleaned from the documents
3E produced after the discovery deadline.
IV. CONCLUSION
For the foregoing reasons, Global’s Motion for Sanctions is
GRANTED in part and DENIED in part. The Court does not impose
any issue-related sanctions but ORDERS monetary sanctions in the
form of the attorneys’ fees Global incurred in connection with
its motion to compel and motion for sanctions. The value of this
sanction shall be determined by a fee petition that Global shall
file within 10 days of this Order. The Court also ORDERS that
discovery will be reopened until February 28, 2017 for the
limited purpose of allowing Global to re-depose witnesses based
on information gleaned from the documents 3E produced after the
discovery deadline. An appropriate Order accompanies this
Memorandum Opinion, filed this same day.
SO ORDERED.
Signed: Emmet G. Sullivan
United States District Judge
December 22, 2016
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