Opinion
20-cv-01049-VC (RMI)
08-02-2022
DEPARTMENT OF TOXIC SUBSTANCES CONTROL, Plaintiff, v. LISA MARIE ROSSI, et al., Defendants.
REPORT AND RECOMMENDATION
Re: Dkt. No. 68
ROBERT M. ILLMAN United States Magistrate Judge
Now pending before the court is Plaintiff's request to find Defendants in contempt and to issue, inter alia, terminating sanctions due to discovery misconduct. Pl.'s Mot. (dkt. 68). Defendants have responded (dkt. 69) and Plaintiff has filed a reply (dkt. 72). Before the round of briefing just mentioned, the undersigned heard the arguments of the Parties at a contempt hearing (see dkts. 64 & 67) on June 7, 2022. The matter, now fully briefed, is ripe for decision. For the reasons set forth below, the undersigned recommends that Defendants be found in contempt of court, and that terminating sanctions be imposed.
BACKGROUND
The Nature of the Case
This action was brought in February of 2020 by the Department of Toxic Substances Control of the State of California against Lisa Marie Rossi, Gerald Rossi, Lee Doslak Florence, Patricia Rossi, and E-D Coat, Inc., a California Corporation controlled by the individual Defendants. See generally FAC (dkt. 59) at 2-6. Plaintiff's action is brought, inter alia, pursuant to § 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9607(a), for the recovery of response costs (including interest) associated with the release of hazardous substances caused by Defendants' business. See FAC (dkt. 59) at 2. Plaintiff also seeks a declaratory judgment - as provided for under 28 U.S.C. § 2201 and 42 U.S.C. § 9613(g)(2) - to the effect that each of the named Defendants is liable for future response costs incurred as a result of hazardous substance releases at the E-D Coat site. FAC (dkt. 59) at 2-3. Plaintiff also seeks injunctive relief pursuant to Cal. Health and Safety Code §§ 25358.3(e) & (f), 25359.2, 25358.3(a)(3), (e), & (f). FAC (dkt. 59) at 3.
Through various forms, including trust agreements, the individual Defendants have controlled the business located at the E-D Coat site. Id. at 3-7. Through the corporate form (E-D Coat, Inc.) and by use of the trust agreements, Defendants operated an electroplating facility on a portion of the E-D Coat site, providing electroplating services using zinc, cadmium, and chromium. Id. at 6. In the course of conducting this business, Defendants stored and maintained a hazardous materials inventory which included sodium hydroxide, nitric acid, hydrochloric acid, hydrofluoric acid, sulfuric acid, zinc, and cadmium. Id. at 6-7. Between 1993 and 2000, the East Bay Municipal Utilities District (“MUD”) cited Defendant E-D Coat, Inc., for 97 separate violations of federal law dealing with discharge limits designed to protect water bodies from pollutants. Id. at 7. In 2009, the Alameda County District Attorney's Office executed a search warrant based on MUD's allegations that E-D Coat was causing metal discharges into the sewer system. Id. Given E-D Coat's continued violations, in June of 2012, MUD terminated E-D Coat's wastewater discharge permit and ordered it to immediately cease all plating operations at the site. Id. at 7-8. The following hazardous substances have been found at various locations at the E-D Coat site: hydrochloric acid, hydrofluoric acid, sulfuric acid, chromic acid, nitric acid, caustic soda, cyanide, and various heavy metals. Id. at 8.
In April of 2017, another search warrant was executed as to a number of addresses within the E-D Coat site. Id. Thereafter, Plaintiff issued a document entitled, “imminent and / or substantial endangerment determination and remedial action order,” (“I&SE Order”) directing Defendants to undertake certain remedial measures. Id. at 8-9. In June of 2017, Plaintiff issued a letter to Defendants notifying them of their non-compliance with the I&SE Order. Id. at 10-11. Specifically, Defendants were ordered to: (1) submit a hazardous substance inventory and a removal workplan specifying a schedule for removal of all hazardous substances from the site; and, (2) to prepare and submit to Plaintiff a detailed remedial investigation / feasibility study workplan and implementation schedule for the E-D Coat site. Id. at 9-10. Thereafter, in October of 2017, Defendants' continued failure to comply with the provisions of the I&SE Order caused Plaintiff to pay an environmental remediation corporation to undertake the work - to wit, removing the contents of three sumps containing cyanide waste for off-site disposal on October 26, 2017, and November 1, 2017. Id. at 9-10. Subsequently, in 2018, Defendants reportedly undertook a series of further remedial actions themselves (see id. at 10), however, those actions still did not fully address the various requirements of the I&SE Order. Id.
In December of 2017, the filing of a 15-count felony complaint instituted a criminal action against Defendant Lisa Marie Rossi for various hazardous waste management violations associated with the E-D Coat site (see People v. Rossi, Alameda Cnty. Sup. Ct., Case No. 17-CR-036926); and, in August of 2018, Defendant Lisa Marie Rossi entered a guilty plea - pursuant to a plea agreement - admitting to the unlawful storage of hazardous waste at the E-D Coat site causing an unreasonable risk or fire, explosion, serious injury, or death. FAC (dkt. 59) at 11-12. In December of 2018, Defendant Lisa Marie Rossi was sentenced to serve a 6-month term of imprisonment in the county jail, however, subject to certain terms (including compliance with the I&SE Order) she was permitted to serve her sentence on probation. Id. at 12. Nevertheless, due to her continued non-compliance with the terms of the I&SE Order, her probation was revoked in October of 2019, and she was ordered to appear in court on May 22, 2020, for sentencing. Id. In the meantime, due to Defendants' failure to pay property taxes on their respective parcels, the Alameda County Treasurer - Tax Collector held a tax defaulted land auction for the real property parcels that comprised the E-D Coat site. See Compl. (dkt. 1) at 14. Presumably, due to learning about the problems associated with these parcels of land, many of those successor owners have since filed petitions with Alameda County seeking the rescission of the transactions through which they purchased these parcels of land at auction. Id. at 15-16. Thereafter, in early April of 2019, Plaintiff issued an amended I&SE Order which, inter alia, named additional companies, individuals, and trusts as additional respondents including Gerald F. Rossi and Patricia Rossi as Trustees of the Rossi Family Trust II, as well as adding other properties to be covered by the amended order. See FAC (dkt. 59) at 12.
As to the costs of remediation for which Plaintiff seeks recovery, while the FAC does not list dollar amounts, Plaintiff's Original Complaint listed the unpaid response costs related to the ED Coat site, through September 20, 2019, as totaling approximately $230,517.17, not including interest, legal enforcement costs, and emergency response costs - for which Defendants are jointly and severally liable. See Compl. (dkt. 1) at 17-18. Additionally, as to the costs associated with Plaintiff having to contract an environmental remediation company to undertake certain remediation and disposal work in October and November of 2017, the Complaint submits that Defendants are jointly and severally liable for an additional $20,660.86. Id. at 18. Beyond these sums, Plaintiff's submits that it has incurred additional response costs, as well as substantial legal fees, since September 20, 2019. Id.
The History of Defendants' Discovery Misconduct
On September 22, 2020, the presiding judge in this case established a case schedule (dkt. 30) under which a fact discovery deadline was established as March 31, 2022. Thereafter, on December 23, 2021, the Parties presented a number of discovery disputes through five jointly-filed letter briefs (dkts. 32, 33, 34, 35, 36). The first letter brief (dkt. 32-1) was addressed to Plaintiff's discovery dispute with E-D Coat, Inc., and noted that while Plaintiff had propounded a substantial number of RFPs (see dkt. 32-2), and number of interrogatories (see dkt. 32-3), Defendant E-D Coat had refused to properly respond to the majority of the requests in dispute (viz., those that were set forth at dkts. 32-2 and 32-3) while advancing boilerplate objections which were hedged by a claim “that E-D Coat would conduct a search of the documents in its custody and produce any relevant documents.” Ltr. Br. No. 1 (dkt. 32-1) at 2. In short, Plaintiff's portion of the discovery dispute letter brief noted that “[a]s of December 23, 2021, the Department has not received any documents requested through [the] E-D Coat RFP[s], nor any responsive and verified answers to any of the interrogatories in [the] E-D Coat ROGS.” Id. at 3. Plaintiff's RFPs, for example, sought broad-based information including documents relating to, inter alia, the following categories: E-D Coat's articles of incorporation, bylaws, and any amendments thereto; minutes of all shareholder meetings; property ownership, liens, encumbrances, leases, permits, authorizations, and licenses; hazardous substances releases, responses, removal, treatment, disposal and storage; communications with contractors relating to the I&SE Order; insurance policies, claims made thereunder, communications with the insurer; data relating to sampling or analysis of chemicals used or stored at the E-D Coat site, or otherwise found in the site's environment, soil, or groundwater; communications between E-D Coat and any person or entity relating to hazardous substances associated with the E-D Coat site; federal and state tax returns from 2016 to present; and, all financial statements, including auditors' footnotes and reports, that were prepared by or for E-D Coat; and, any loan applications since 2010. See Ltr. Br. No. 1, Exh. A, E-D Coat RFPs (dkt. 32-3) at 2-16. Plaintiff's interrogatories were similarly broad-based and sought information in numerous categories that were similar in scope and sweep to the information sought by the RFPs. See Id. at Exh. B, E-D-Coat RFPs (dkt. 32-4) at 11-14.
Defendant E-D Coat's portion of this Letter Brief, purportedly opposing all or most of this discovery, was limited to eight sentences that could not be characterized any way other than nonspecific, meritless boilerplate - coupled with a hedge to the effect that “Defendants are meeting with their accounting professionals in order to supply the Department with the available, relevant, personal financial documents, to the extent they exist, pursuant to a protective order.” See Ltr. Br. No. 1 (dkt. 32-1) at 5. The remaining (4) letter briefs followed the same pattern, they pertained to substantially similar discovery requests, and they involved substantially similar responses from each of the remaining Defendants. See Ltr. Br. No. 2 (dkt. 33-1) (pertaining to Defendant Lee Doslak Florance, trustee of the Rossi Family Trust I); Ltr. Br. No. 3 (dkt. 34-1) (pertaining to Defendant Gerald F. Rossi); Ltr. Br. No. 4 (dkt. 35-1) (pertaining to Defendant Lisa Marie Rossi); Ltr. Br. No. 5 (dkt. 36-1) (pertaining to Defendant Patricia S. Rossi, trustee of the Rossi Family Trust II). Similarly, each Defendant's response in their respective portions of each of these letter briefs were substantially a verbatim reproduction of the eight non-specific and meritless boilerplate objections found in Letter Brief No. 1. See Ltr. Br. No. 2 (dkt. 33-1) at 5; Ltr. Br No. 3 (dkt. 34-1) at 5; Ltr. Br. No. 4 (dkt. 35-1) at 5; Ltr. Br. No. 5 (dkt. 36-1) at 5.
Essentially, the lion's share (if not the entirety) of Plaintiff's discovery demands against each Defendant had become the subject of these discovery disputes, and Defendants had responded by offering nothing more than meritless boilerplate in opposition to Plaintiff's request to compel the production of this information. Six days after the filing of these letter briefs, the case was referred to the undersigned (see dkt. 37) on December 29, 2021, for the resolution of these disputes. Several days later, on January 3, 2022, the undersigned entered an order finding as follows: (1) Defendants have abandoned all of the objections which they raised in boilerplate fashion in response to the discovery requests but that were not presented and developed in response to Plaintiff's motions to compel (the letter briefs); (2) the few objections that Defendants did present in response to the motions to compel were non-specific, lacked any support or argument, and were so totally undeveloped that the undersigned concluded that they too were abandoned; and, (3) the undersigned construed Defendants' statement that they would confer with accounting professionals to determine what relevant documents could be found and produced as amounting to a request to keep a relevance objection in their pockets for use at a later time - a request which the undersigned summarily denied. See Order of January 3, 2022 (dkt. 38) at 4-5 (hereafter, the “January 3rd Order”). In short, the undersigned granted all five of Plaintiff's motions to compel all of the information described in each letter brief (and its attendant exhibits) as to each Defendant; thus, Defendants were ordered, on January 3, 2022, “to produce all responsive discovery forthwith and without further objection.” Id. at 5. As described herein, however, Defendants have flouted and ignored the court's January 3rd Order to this very day.
Nearly two months later, the Parties stipulated (dkt. 39) to the entry of a protective order (dkt. 40) in this case; however, by mid-March of 2022, it became clear that Defendants had still not complied with the January 3rd Order causing Plaintiff to have to move for sanctions and attorneys' fees. See Pl.'s Sanctions Mot. (dkt. 42) at 6-17; and Pl.'s Fee Mot. (dkt. 41). In short, Plaintiff's sanctions motion (dkt. 42 at 6, n.2) made clear that Defendants had only produced a single document deemed confidential, along with a few non-confidential documents “that left most of the requests for production unaddressed, and those documents do not include documents referenced in Defendants' interrogatory responses.” It was also noted that notwithstanding the fact that Plaintiff's counsel “has attempted numerous times to resolve this ongoing discovery dispute without further involving the Court, [] Defendants - despite their own counsel's apparent urging -persistently fail to comply.” Id. at 6. Given that Plaintiff's case was being effectively scuttled due to Defendants' refusal to participate in the discovery process, even after being specifically ordered to do so, the Court granted a stipulated extension of the deadline within which to conduct fact discovery (dkt. 47) - extending the deadline until May 19, 2022. Meanwhile, Defendants' response (dkt. 49) to the sanctions motion contained another series of meritless and oblivious assertions - they were oblivious in that the responses completely overlooked the fact that Defendants had been ordered, months earlier, to provide the discovery in question without delay or further objections. By way of a few examples, Defendants opposed the sanctions motions by advancing such surprising assertions as follows: that Defendant Lisa Marie's tax returns should have no bearing on the outcome of this matter, and that she could instead be deposed to the same end; that E-D Coat has contacted its tax preparer and has requested its own documents which were claimed not to be in its own possession and that “it is continuing to conduct a search for relevant documents and will produce them when they are in [its] possession”; and, as to the Rossi Family Trust, Defendants claimed that “[t]he Department has not articulated to this Court why such tax returns, if they exist, should be compelled to be produced.” See generally Defs.' Opp. to Sanctions Mot. (dkt. 49) at 4-8. Defendants also contended that Plaintiff's fee request was unreasonable as to the number of hours expended. See id. at 7; see also Defs.' Opp. to Fee Request (dkt. 48) at 2-5. As to attorneys' fees, Defendants did not claim they were unable to afford to pay a fee award; nor did they suggest that a fee award was unwarranted - instead, Defendants' merely quibbled with the number of hours Plaintiff's counsel spent in drafting and filing the motions to compel. See id. More specifically, Defendants suggested that “[i]f the Court awards the Department any of its expenses, that time [expended on the letter briefs] should be limited to no more than 5 hours or $1,100.” Id. at 2, 4.
As mentioned above, the scope of Plaintiff's discovery requests, and the January 3rd Order granting Plaintiff's motion to compel, far exceeded the subject of mere tax returns. Indeed, as of January 3, 2022, Defendants were ordered to tender a broad array of documents and information forthwith and without further objections (see supra at 4-5). Plaintiff's reply brief in the sanctions matter made it clear that Defendants had simply ignored the court's order to produce most of that information, let alone all of it. See Pl.'s Reply Sanction Br. (dkt. 51) 2-3. Plaintiff then made it clear that, at the very least, Defendants should be forced to immediately sign a release which would allow Plaintiff to secure Defendants' state tax returns directly from the California Franchise Tax Board. Id. at 4-7.
On April 26, 2022, the Parties appeared before the undersigned for hearings on Plaintiff's motions for attorneys' fees and coercive sanctions. See Tr. (dkt. 66). As to the attorneys' fees, Plaintiff pointed out that Defendants have not disputed Plaintiff's entitlement to fees, just the amount (see id. at 3-4) - furthermore, at no point during the hearing did Defendants' raise any issue about any inability to pay a fee award (see id. at 2-13). As to the sanctions motion, intended to coerce Defendants' long overdue compliance with the January 3rd Order, Plaintiff noted that not much had changed from what had been described in the papers - Defendants had requested the entry of a protective order, and since the entry of that order, Defendants “have produced one document pursuant to the protective order, but they have not produced any of their tax returns or other financial documents.” Id. at 5-6. When asked why the court should not impose coercive sanctions, Defendants' counsel stated:
I believe my client has been working to get these documents. I know it's taking some time. They have had some issues relating to personal Covid issues, which is not an excuse that I'm raising with the Court but it's something that did cause delay.
And then, their tax advisors have had - are in the middle of tax season. They should be done now. It should be something that we can work towards getting accomplished sooner rather than later. We're looking at several years of tax documents going back, I think, to 2012. So it's just - it's taking time.Id. at 7.
When the court informed Defense counsel that his clients' pattern of contumacious behavior was leaving the court with little choice but to impose coercive sanctions, Defense counsel responded to the following effect:
I understand, your Honor. And I too want to avoid that. I don't think my clients want to have any kind of coercive sanctions, and I don't want to impose that on them.
I think that if there is a date certain . . . that they need to get
something by . . . then, I think that is persuasive enough for them to either do one of two things. One, if they cannot get the documents by that time, then they can state that they're not going to have them and they can do what [Plaintiff] has asked and sign[] the [release] documents for [Plaintiff to be able to retrieve state tax returns directly from] the Franchise Tax Board.Id. at 9.
The undersigned then informed Defendants that coercive sanctions would be automatically triggered within a few days if Defendants did not either turn over their tax documents or (at the very least) execute certain releases which would allow Plaintiff to secure Defendants' state tax returns. Id. at 10; see also Order of April 27, 2022 (dkt. 53) at 1-2. Near the same time, due to the hopelessly frivolous boilerplate objections through which Defendants had resisted tendering the virtual entirety of the discovery requests Plaintiff had advanced in this case (coupled with the fact that Defendants had not raised any issues, either in their papers or at the hearing of April 26, 2022, about any inability to pay an attorneys' fee award), the undersigned entered an order on April 28, 2022, awarding Plaintiff the sum of $15,518.25 in attorneys' fees - which Defendant was ordered to pay no later than May 12, 2022. See Order of April 28, 2022 (dkt. 54) at 3. As discussed below, and as was the case with the court's previous discovery orders as well, Defendants did not object or seek reconsideration - instead, Defendants followed their usual tack and simply ignored the attorneys' fee award order.
As to the outstanding discovery concerning Defendants' tax documents, notwithstanding what now appeared unmistakably to be yet another in a long series of hollow and false promises from Defendants, on April 27, 2022, Plaintiff filed a notice of non-compliance which noted that “[a]s of the time of the filing of this Notice, Defendants have not complied with the Court's Order [and further,] Defendants have not provided the Department with Schedule A of the Rossi Family Trust established on June 10, 2003.” See Pl.'s Not. (dkt. 55) at 2. On May 2, 2022, however, Plaintiff filed another notice, indicating that Defendants had rendered partial compliance by tendering some partially completed (and thus, partially incomplete) release forms that would (once completed) allow Plaintiff to retrieve Defendants' state (but not federal) tax returns directly from the Franchise Tax Board. See Pl.'s Not. (dkt. 56) at 2.
On May 27, 2022, more than two weeks after Defendants' deadline for tendering the $15,518.25 in attorneys' fees which they were ordered to pay no later than May 12, 2022, Plaintiff filed a document informing the court that Defendants had failed to make the required payment. See Pl.'s Mot. (dkt. 60) at 2-3. At a loss about how to collect this sum of money, in addition to all of the still-outstanding discovery that had been ordered to be produced in the January 3rd Order, Plaintiff requested the scheduling of a judgment debtor examination, prior to which Plaintiff urged the court to once again order Defendants to tender, inter alia, “[a]ll tax returns filed by Defendants with any governmental body for the years 2016 through the present, including all schedules, W-2s and 1099s” as well all of Defendants' accounting records, insurance policies, and bank statements for that same period. Id. It should not go without mention, that the court had already ordered Defendants to produce all of this (and much more) information in the January 3rd Order. Finding that the well of patience had run dry with Defendants' utter disregard for the court's orders, a contempt hearing was set for June 7, 2022, during which Defendants were ordered to show cause why they should not be found in contempt and punished accordingly for their pattern of disobedience regarding the orders of this court. See Order of June 1, 2022 (dkt. 62).
During the show-cause hearing, Defendants' counsel stated - for the first time - that Defendants were unable to afford paying the $15,518.25 amount of attorneys' fees occasioned by their own misconduct during the discovery process. See Tr. (dkt. 67) at 2-3. Defense counsel then stated, “In no way are the Defendants trying to be obstructive in this right now,” which the undersigned finds to be a familiar and empty sentiment that is frequently paired with Defendants' active obstructionism in this case. To recapitulate, Defendants obstructed Plaintiff's access to evidence by failing to tender the discovery that is demanded of them; they further stymied the progress of this case by needlessly forcing Plaintiff to move to compel that discovery; they then frustrated the course of the proceedings further by opposing the motions to compel with boilerplate responses of the most frivolous nature; the court then ordered them to produce that discovery without further objection, however, Defendants largely ignored that order by continuing to fail to tender much of the discovery in question; the court then ordered Defendants to pay for Plaintiff's attorneys' fees to recompense Plaintiff for the wasted time and labor occasioned by Defendant's misconduct; and, Defendants neither asserted an inability to pay, nor moved for reconsideration, nor appealed that order - instead, they simply ignored it until they were ordered to show cause why they should not be found in contempt. In short, Defendants asked the court to stand by and wait while they try to secure a loan with which they would supposedly use to pay for a clean-up of the land associated with the E-D Coat business, as well as to pay the fee attorneys' fee award occasioned by their own wholly unnecessary misdeeds.
Following the contempt hearing, the Parties submitted post-hearing briefing. For its part, Plaintiff began by noting the extent of Defendants' disobedience regarding this court's orders. See Pl.'s Br. (dkt. 68) 5-9. Notably, despite the January 3rd Order commanding Defendants to produce broad-based discovery in the nature described above, Plaintiff noted that even as late as June 21, 2022, “except for providing supplemental answers to the ROGs and a few responsive documents, Defendants [have still] failed to comply with that Order, most notably, by failing to provide any [of the] financial documents requests, except for one federal 2018 income tax return for one of the Defendants.” Id. at 6. Indeed, since the issuance of the January 3rd Order and despite repeated threats from the court relating to the imposition of coercive sanctions, Defendants showed a continuing and steadfast disregard for this court's orders by playing an extended game of cat-and-mouse with the court regarding their discovery obligations. For example, in late April - nearly 4 months after Defendants were ordered to tender all discovery in question - Defendants casually claimed that they had some unspecified “personal Covid issues” (while claiming that it was not an excuse they were raising, but maintaining that it “did cause delay”) as well as stating that “their tax advisors . . . are in the middle of tax season [but that] [t]hey should be done now.”). See Tr. (dkt. 66) at 7. Two things should be noted in this regard. First, this was yet another in a long series of empty gestures and hollow assurances by Defendants because, notwithstanding Defense Counsel's affirmance that “[i]t should be something that we can work towards getting accomplished sooner rather than later,” the undersigned had ordered the immediate production of several years of Defendants' federal tax returns (dating to at least 2016) on January 3, 2022. Clearly, Defendants' excuse about a “tax season” ranging from January through April no longer holds any water as late as July and August.
Second, Defendants have been using this species of delay tactic in another case in this court for several years now. In February of 2017, Defendant Lisa Rossi was charged in this court with stealing a large sum of money from her employees' retirement benefits plan. See United States v. Lisa Rossi, Case No. 4:17-cr-00066-JST (dkt. 1) at 1-2. A few months later, Mr. Rossi tendered a guilty plea (see dkt. 14) pursuant to a written plea agreement (dkt. 13). In February of 2018, Judge Tigar entered judgment (dkt. 25) and ordered Ms. Rossi to pay $234,270.49 in restitution (Id. at 5). Ms. Rossi's restitution payment was due to be paid by her - pursuant to the terms of her plea agreement - no later than March 16, 2018 (Id. at 6). A review of the docket in Ms. Rossi's federal criminal case reveals that she has yet to pay back the restitution she owes (see Fed. Crim. Case, dkts. 78, 79, 80); however, over the span of the last four years, Ms. Rossi has steadily represented to the court that certain loans, with which she would presumably use to pay her restitution, had been funded, “but [that] there are some outstanding tax liens that need to be resolved” (see id., dkt. 27) (see also id., dkt. 29) (wherein, two months later, Ms. Rossi “informed the Court [that] the loan to pay restitution has been approved but not funded.”). Further, Ms.
Ms. Rossi's federal criminal case will hereafter be referred to as, “Fed. Crim. Case.”
By now, the notion of a perpetually almost-funded loan with which Defendant Rossi would presumably repay the money she admitted to stealing from her employees' retirement fund, or with which she would supposedly pay for the clean-up costs shouldered by the State of California for the contamination that Defendants have caused on the E-D Coat site has become somewhat reminiscent of the punishment of mythological figure Tantalus who was made to eternally stand in a pool of water which would instantly drain whenever he sought to quench his ever-present thirst. Now, more than four years later, Defendants are still tantalizing the United States, the State of California, and this court with the specter and promise of a never materializing loan which is still stubbornly suggested as being imminent despite every indication to the contrary. See Tr. of Hearing of June 16, 2022, in this case (dkt. 67) at 4 (Defendants Counsel: “We are working diligently on trying to secure a loan . . . [s]o it's not like we're not doing anything.”); see also id. at 5 (Ms. Rossi: “I just was wondering if it would be okay for me to give the judge a little background on where the loan stands right now with the lender.”).
Rossi has achieved a lengthy record of non-compliance in failing to effect the production of various financial documents demanded from her by Judge Tigar, the U.S. Probation Office, and the U.S. Attorney's Office in the criminal case (see id., dkt. 36 at 2) (Defendant defaulted on her restitution payments, and ignored a demand that she “submit financial information so that the government could properly assess her financial resources and ability to pay her restitution debt.”) (see also dkt. 39 at 2, wherein on February 1, 2019, Ms. Rossi responds to assertion of default by claiming, again, that she “is in the process of securing a loan which will allow her to pay the entire amount of restitution within the next few months). Of course, the financial documents demanded from Ms. Rossi in the federal criminal case overlap to a great degree with those that the undersigned ordered produced in the January 3rd Order. In short, there is no sign of the documentation ever being produced, and instead, the undersigned and Judge Tigar have been fed a steady diet of false assurances about loans that never materialize.
Indeed, Ms. Rossi and her counsel have uttered so many of the same hollow assurances and empty promises in her federal criminal case that Judge Tigar has repeatedly found her to be non-credible (see Fed. Crim. Case, dkt. 44 at 1, wherein Judge Tigar found that “Ms. Rossi failed to carry her burden of showing inability to pay. The only evidence of Ms. Rossi's financial condition submitted in opposition to the Government's motion was her own declaration. Ms. Rossi is not a credible witness.”); (see also id., dkt. 59 at 5, where Ms. Rossi promises to tender certain information about her finances in order to avoid a threatened sanction, to which Judge Tigar replied, “Was she not already obligated to provide that information?”); see also id., dkt. 59 at 2123, where Judge Tigar found as follows:
I feel that I'm being gamed, frankly. Ms. Rossi, by all appearances is not indigent. I can tell that from her personal appearance. I can tell that based on the quality of her representation. I don't know what her financial status is, but I feel confident she's not indigent . . . Even the government has conceded today that it doesn't know what Ms. Rossi's financial picture is . . . Of course, that's frustrating to me as a judge. How could we be at this stage of the game and not know what the defendant's true financial picture is? . . . And whatever personal feelings I have about the perceived lack of transparency or the feeling that the Court is being gamed, those don't seem to me like a sufficient reason to put someone in custody for 30 days . . . [However] [l]et's not obscure the fact that a quarter of a million dollars was stolen from some workers.
Thus, at the end of one of her revocation hearings (in the federal criminal case, on August 16, 2019) Ms. Rossi was ordered, yet again, to provide written disclosure to the U.S. Probation Office and the United States Attorney's Office “of all of her financial interests, including, without limitation, her beneficial interest in any trusts, lists of any bank brokerage, or other financial services account in which she has either a beneficial interest or signatory authority, or a power of attorney; her tax returns, including schedules for the last five years, to include her personal tax returns, returns filed on behalf of any trust that she controls, or any bills in which she maintains any ownership interest.” Fed. Crim. Case (dkt. 59) at 28. Several months later, in November of 2019, the government wrote Judge Tigar to complain that “[d]espite concerted efforts by the government, defendant has not yet come forward with the information this Court required defendant to disclose.” See id., dkt. 61 at 3. Indeed, even as of January of 2020, it was reported that the “[g]overnment is [still] awaiting the production of financial discovery.” See id., dkt. 64. A review of the remaining entries on the docket of Ms. Rossi's federal criminal case does not reveal if the government and the court ever received the financial documents that Ms. Rossi was repeatedly ordered to provide (see id. dkts. 69, 71, 73, 74, 75, 76, 77, 78, 79, 80). However, one thing is clear, Defendants have effectively stonewalled Plaintiff in this case, while ignoring clear orders from the undersigned to produce the discovery in question.
Having rendered a thoroughgoing and contextual background of the several years-long saga of Ms. Rossi's hollow assurances about forthcoming financial documents and the specter of a loan that perpetually remains on the distant horizon, the undersigned can now return the focus to the case at bar. Plaintiff's post-hearing brief effectively shows the falseness of Defendants' patently fabricated excuses for failing to tender the discovery they were ordered to produce nearly eight months ago as such:
Defendants have been informing the Department for several years that they are trying to secure a loan to complete the cleanup. However, if the Defendants were truly attempting to secure a loan, they should possess the financial documents the Department requested through discovery. See, e.g., RFP to E-D Coat, Inc., Nos. 26-31, (ECF No. 323); RFP to Gerald F. Rossi, Nos. 7-10 (ECF No. 34-3); RFP to Lee Doslak Florance, Nos. 13-17, (ECF No. 33-3); RFP to Lisa Marie Rossi, Nos. 7-10, (ECF No. 35-3); RFP to Patricia S. Rossi, Nos. 1317, (ECF No. 36-3). Given the inconsistencies between Defendants' actions in discovery and their justification for failing to comply with the Court's Order, the Department indicated that it was unclear how Defendants could now produce financial evidence through an examination that established they are unable to pay the monetary sanction [for attorneys' fees due to discovery misconduct] and are attempting to secure a loan, but could not produce those same documents through discovery.See Pl.'s Post-Hearing Br. (dkt. 68) at 9.
The undersigned agrees. Defendants are now unmistakably entangled in the complications created by the mendacity of their impossible-to-believe narrative. As such, Plaintiff seeks terminating sanctions, or, in the alternative, Defendants' appearance for a debtor examination. See id. at 11. However, as the undersigned sees it, a debtor examination is neither an effective substitute for Defendants' mulish refusal to participate in discovery, nor is it an effective punishment for Defendants' willful disobedience in the face of the court orders to tender discovery and for payment of Plaintiff's attorney's fees which were - of course - occasioned by Defendants' refusal to participate in the discovery phase of this case in good faith. Also, if Defendants wish to substitute their own declarations and testimony for documentary evidence of their financial condition, this too is an unacceptable substitute because (for the reasons described above) the undersigned finds their credibility to be sorely wanting.
In their post-hearing responsive brief, Defendants contend - without providing any detail -that they have complied with the January 3rd Order by serving unspecified “supplemental interrogatory responses” and by producing certain unspecified “documents to comply with the January 3rd Order.” See Defs.' Post-Hearing Opp. (dkt. 69) at 6. Following their failure to comply with the January 3rd Order (which, as discussed above, Defendant's blamed on “personal Covid issues” and “tax season”) the court ordered Defendants' to execute a release document which would allow Plaintiff to secure certain state tax returns from the Franchise Tax Board directly; astoundingly, Defendants now suggest that when the undersigned ordered them to execute that release (in order to avoid triggering coercive sanctions) the undersigned somehow absolved Defendants' obligation to comply with each and every provision of the January 3rd Order. See id. at 6-7. However, this is yet another example of Defendants' efforts to obfuscate, such as to take advantage of rendering what is otherwise clear into something abstruse and muddled. To put it simply, in January the court ordered Defendants to tender a large amount of material in discovery - including, but by no means limited to, financial data; when Defendants had failed to do so by April, Plaintiff asked the court to further order Defendants to execute a Franchise Tax Board release and, now, without a hint of irony, Defendants contend that their “compliance with the April 27, 2022 Order [begrudgingly and belatedly signing a release for the Franchise Tax Board] demonstrates that the existing level of discovery orders and monetary sanctions was sufficient to bring Defendants [into] compliance with their discovery obligations.” Id. at 7. This approach is so profoundly misguided that it requires no serious discussion other than to point out that Defendants seem to suggest that if a party disobeys a court order to tender dozens of categories of information in discovery for long enough, such that at some point in the future the opposing party asks for a signed release allowing it to secure a single category of information directly from another source, the upshot of this chain of events amounts to an effect that supersedes and nullifies the court's prior pronouncements. Nothing could be further from the truth. Of course, the essence of Defendants' subterfuge is evident in their effort to obscure the fact that they have never complied with the January 3rd Order - in this regard, they use vague and non-specific language to blur the issue by, for example, trumpeting the fact that they “produced additional documents including a Defendant's federal 2018 Income Tax Return and other responsive documents.” Id. at 8 (emphasis added). Defendants' evasive statements give rise to a series of rhetorical questions. What “other” responsive documents? Do they include all Defendants' federal tax returns for all of the years in question? Do the “other responsive documents” encompass each and every category of document that the undersigned ordered to be produced in the January 3rd Order? Of course, Defendants' briefing presents no answers to these questions, and it leaves the undersigned to pronounce - in Judge Tigar's words - “I feel I'm being gamed, frankly.”
In reply, Plaintiff correctly points out that “[n]o intervening event has relieved Defendants of their obligation[s] under the January 3, 2022 Order [], to produce all responsive discovery forthwith”. See Pl.'s Post-Hearing Reply (dkt. 72) at 3. Plaintiff also notes that - to this day -Defendants have yet to fully comply with the court's January 3rd Order by providing responsive discovery that was clearly and unambiguously ordered to be produced nearly 8 months ago. See id. at 2-3; see also Pl.'s Post-Hearing Br. (dkt. 68) at 6 (“[E]xcept for providing supplemental answers to the ROGs and a few responsive documents, Defendants failed to comply with [the January 3rd] Order, most notably, by failing to provide any financial documentation requested, except for one federal 2018 income tax return for one of the Defendants.”).
LEGAL STANDARDS
Rule 37 permits district courts, in their discretion, to enter a default judgment against a party who fails to comply with an order compelling discovery. See Fed.R.Civ.P. 37(b)(2)(A)(vi). Additionally, an independent source of authority to accomplish the same result has long been considered to fall within the courts' inherent power to punish contumacious behavior. See Hammond Packing Co. v. Arkansas, 212 U.S. 322, 342 (1909) (“. . . a court, in virtue alone of its asserted inherent power to punish for contempt, strikes an answer from the files and renders judgment as by default . . .”). A district court's decision to impose discovery sanctions under Rule 37 would stand unless an appellate court's review results in “‘a definite and firm conviction that the court committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors.'” Comput. Task Grp., Inc. v. Brotby, 364 F.3d 1112, 1115 (9th Cir. 2004) (quoting Payne v. Exxon Corp., 121 F.3d 503, 507 (9th Cir. 1997). It is important to note, however, that when the drastic sanctions such as dismissal or default are chosen, the range of discretion is narrowed and the losing party's noncompliance must be due to “willfulness, fault, or bad faith.” Comput. Task Grp., Inc., 364 F.3d at 1115 (internal quotation marks and citations omitted).
In deciding whether a sanction of dismissal or default for noncompliance with discovery is appropriate, district courts must weigh five factors: “‘(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the [opposing party]; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.'” Id. (quoting Malone v. U.S. Postal Serv., 833 F.2d 128, 130 (9th Cir. 1987)). “Where a court order is violated, the first and second factors will favor sanctions and the fourth will cut against them . . . [t]herefore, whether terminating sanctions [would be] appropriate in [such a] case turns on the third and fifth factors.” Comput. Task Grp., Inc., 364 F.3d at 1115.
DISCUSSION
Given the factual foundation set forth above, very little discussion is necessary. First, the nature of the action should be kept in mind. This is an action for the recovery of certain costs associated with Plaintiff's remediation efforts related to Defendants' mishandling of hazardous substances in and around the E-D Coat site - as well as injunctive relief. In short, Plaintiff seeks to recover sums of money roughly equaling $230,517.17 (incurred through September 20, 2019), $15,518.25 (in attorneys' fees occasioned by Defendants' discovery misconduct), as well as certain as-of-yet unspecified additional costs incurred since September of 2019, including the costs and attorney's fees associated with instituting and maintaining this action. See Compl. (dkt. 1) at 17-18. Second, (as set forth in detail above, see supra, at 4-5) much of the discovery sought by Plaintiff - but never produced by Defendants - was calculated to establishing the details of Defendants' financial condition, that is, their ability to pay these sums; however, a great deal of the requested discovery was geared to establishing the extent of Defendants' mishandling of hazardous substances. Third, it cannot be sincerely disputed that Defendants resisted participating in discovery to any meaningful degree through the use of patently frivolous and boilerplate objections coupled with endless delay tactics and repeated false assurances which were first presented directly to Plaintiff and then to the court. By doing so, Defendants have obstructed Plaintiff's access to evidence; Defendants have also wasted a considerable amount of judicial time and resources; and, worst yet, Defendants have effectively brought the progress of this case to a grinding halt. The case is now totally bogged down, a condition from which it cannot be rescued except by the entry of a default judgment against Defendants, or by an unlikely turn of events that sees Defendants suddenly reversing course, turning over a new leaf and beginning to act in good faith.
Defendants' impunity and audaciousness should be noted: Defendants played word games with Plaintiff to frustrate its access to evidence; Defendants then played those same word games with the court by resisting motions to compel with boilerplate objections of the most frivolous degree; when the court ordered Defendants to put the games aside and to tender all requested discovery forthwith and without further objection, Defendants ignored that order (as to the majority of the discovery in question) to this very day; when the court heard arguments and briefing on Plaintiff's motion for attorney's fees, Defendants never uttered a word about any inability to pay, and when they were ordered to pay $15,518.25 to compensate Plaintiff for Defendants' gamesmanship which had rendered the orderly process of evidentiary exchange into a mockery, Defendants simply ignored that order too; then, weeks later, when Plaintiff moved to enforce that order, Defendants suddenly claimed that they were unable to afford payment of that amount. In short, the undersigned finds as follows: (1) none of Defendants' representations are at all credible; (2) Defendants' obstructionism in this case has not only been willful and in bad faith, indeed it has clearly been part of a concerted effort specifically calculated to stymie the progress of this litigation in general, and to frustrate Plaintiff's access to evidence specifically; (3) just as was found by Judge Tigar when faced with a long course of similar tactics by Ms. Rossi in her federal criminal case, the undersigned expressly finds that Defendants have been gaming this court with each and every hollow assurance and each empty promise, all of which are part of a clear pattern of unclothed contempt for the provisions of Rule 37, for the court's authority, and for Plaintiff's right to have a fair turn at litigating its case. Accordingly, the undersigned finds that Defendants' pattern of behavior amounts to contempt.
Turning to the relevant factors - set forth in Comput. Task Grp., Inc., 364 F.3d at 1115 -that must be contemplated when considering the sanction of default judgment, it is eminently obvious that Defendants' continuing refusal to obey the January 3rd Order has seriously interfered with the public's interest in the expeditious resolution of litigation and the court's need to manage its docket. In fact, the progress of this case since January, if there has been any at all, has been negligible - as Plaintiff has noted, eight months of discovery litigation has resulted in little movement other than a few supplemental responses to ROGs, a signature on a release allowing Plaintiff to get some documents from the Franchise Tax Board, and a single 2018 federal tax return (see supra, at 16). To this day, the bulk of the material ordered to be tendered in discovery by the January 3rd Order has not been tendered, and by all appearances will never be tendered. Further, when the undersigned ordered the payment of attorney' fees, Defendants ignored that order as well, and only when Plaintiff later moved for enforcement did Defendants tardily raise the issue of an inability to pay.
Of course, the irony is unbearable here - Plaintiff seeks to recover environmental clean-up money from Defendants so Plaintiff files suit and seeks discovery about Defendants' financial condition; Defendants then refuse to cooperate with discovery causing Plaintiff shoulder the added expense of moving to compel; the court then grants the motion to compel, but Defendants ignore that order; Plaintiff then wins a fee award for having to move to compel in the first place, but Defendants ignore that order too; and then, in an ultimate display of “gaming” the court, Defendants make yet another empty promise to offer documentation of their inability to pay. That is, the very documentation they have been ordered to provide for the last eight months. For these reasons, the undersigned finds that the first two facts weigh heavily in favor of imposing default judgment because Defendants' conduct in this case is (at least) the functional equivalent of the degree of obstruction that would be occasioned by a non-appearing and defaulting defendant.
Similarly, the undersigned finds that the third factor (the risk of prejudice to the opposing party) and the fifth factor (availability of lesser sanctions) also weigh heavily in favor of entering a default judgment for two reasons. First, Defendants' machinations and shenanigans have stifled and effectively foreclosed Plaintiff's ability to proceed to trial without anything remotely approaching the quantum and quality of evidence that is contemplated by the rules of procedure and evidence. Accordingly, it would be manifestly unfair for the court to permit Defendants' misconduct to force Plaintiff into such a disadvantaged position. Second, it should be mentioned at this juncture that the imposition of any or all lesser sanctions would be useless. Monetary sanctions would clearly not be effective because Defendants have already been assessed a monetary sanction and have simply refused to pay it. Also, any adverse inference instruction would, under the circumstances of this case, give rise to no practical difference over entry of a default judgment other than operating to waste judicial time and resources. Because the essential nature of this action is the recovery of environmental remediation costs caused by Defendants' mishandling of hazardous waste at the E-D Coat website, it would serve little purpose to have a trial in which the court imposes any presumptions or inferences (See Fed.R.Civ.P. 37(b)(2)(A)(i)) about Defendants' financial condition (which they have effectively kept hidden from this court just as Ms. Rossi has done in her federal criminal case), or by striking pleadings (See Fed.R.Civ.P. 37(b)(2)(A)(iii)) seeing as striking Defendants' Answer serves as a prerequisite to entering a default judgment, or by staying further proceedings until Defendants obey (See Fed.R.Civ.P. 37(b)(2)(A)(iv)) as doing so would effectively reward Defendants for their bad faith obstructionism. As to the question of liability, given Ms. Rossi's guilty plea in the Alameda County criminal case accusing her of unlawful mishandling of the hazardous waste in question, and Defendants' repeatedly asserted admissions as to their liability for the cleanup necessary on the E-D Site, it appears that there is no identifiable benefit to imposing any lesser sanction. Accordingly, for these reasons, the undersigned also finds that the third factor (the risk of prejudice to the opposing party), and the fifth factor (the availability of lesser sanctions) both strongly weigh in favor of entering default judgment. While the third factor (public policy favoring disposition of cases on their merits) ordinarily would always weigh against the entry of default judgment as a discovery abuse sanction, this factor is not, by itself, dispositive; and, despite the fact this factor tends “to cut against” entry of default as a contempt sanction, entry of default judgment is nevertheless proper when the other factors weigh in its favor (see Comput. Task Grp., Inc., 364 F.3d at 1115) as is clearly the case here.
See TR. Hearing of June 7, 2022 (dkt. 67) at 3 (Defendants' counsel stating that they plan to “get a loan on the property to do the cleanup and as well pay the attorneys' fees. In no way are the Defendants trying to be obstructive in this right now.”)
CONCLUSION
Therefore, given that all factors, except for the third, weigh so strongly in favor of the entry of default judgment, the undersigned RECOMMENDS that the court find Defendants in contempt of court; and, pursuant to Fed.R.Civ.P. 37(b)(2)(A)(vi), as well as under the court's inherent authority, the undersigned RECOMMENDS the court enter a default judgment against Defendants for all claims pleaded in the Amended Complaint (dkt. 59). If the Court elects to accept these recommendations, all that would remain for adjudication would be the terms of the injunction sought, and the ascertaining of the total sum of damages and fees that Plaintiff seeks.
Any party may file objections to this report and recommendation with the district court within fourteen (14) days after being served with a copy. See 28 U.S.C. § 636(b)(1)(B) & (C); Fed.R.Civ.P. 72(b); Civil Local Rule 72-3. Failure to file objections within the specified time may waive the right to appeal the district court's order.
IT IS SO ORDERED.