Opinion
C.A. No. S15C-05-006 RFS
02-14-2017
Re: Nancy Hammer v. Howard Medical, Inc., Howard Industries, Inc.
RICHARD F. STOKES JUDGE Nancy Hammer
P.O. Box 492
Nassau, Delaware 19969 Dennis L. Schrader, Esq.
R. Eric Hacker, Esq.
Morris James Wilson Halbrook & Bayard, LLP
107 W. Market Street
P.O. Box 690
Georgetown, Delaware 19947 Upon Plaintiff's Motion to Compel Discovery.
Granted in Part.
Upon Plaintiff's Motion for Contempt and for Sanctions.
Denied for Contempt. Dear Parties:
This is a breach of an agreement suit to pay commissions by Nancy Hammer ("Hammer") against Howard Medical, Inc. and Howard Industries, Inc. ("Howard"). On or about July 1, 2016, Hammer filed her Second Request for Production of Documents ("RFP") from Howard. On October 20, 2016, Hammer filed both a Motion to Compel and a Motion for Contempt and Sanctions relating to Howard's failure to produce certain documents.
Only items 3 and 4 of the RFP are in dispute. Item 3 sought production of all invoices from Howard to health care providers with which Hammer had dealings "for period commencing March 1, 2013 ending December 31, 2015." Item 4 sought production of all cancelled checks made payable to Howard for "period commencing March 1, 2013 and ending December 31, 2015."
Defs.' Resp. Pl.'s Mot. Compel Disc. & Pl.'s Mot. Contempt Sanctions, Ex. A, docket entry 185.
Id.
Significantly, Hammer provided a sample for reference to each item. As for item 3, the sample invoice was for Howard Industries, Inc. to a vendor named Westmorland Hospital Excela. There was a net balance due for five items separately shipped with associated information. The subtotal due was $516,614.78 and, after payment of two checks, the net balance due was $16,614.78. The invoice reflects a typical open account between a vendor and a supplier. As to item 4, there is a sample check is from a different vendor, Ohio Valley General Hospital in the amount of $24,932.84 which was deposited in a Howard Industries account # 6400143732.
The RFP is a carefully prepared document. There is no ambiguity. Despite the clarity of the words "invoices and checks," Hammer has sought to expand the scope by adding additional categories informally in various emails to Howard's counsel. Her demand is for separate documents including purchase orders and order confirmations above and beyond the invoices and checks detailed in the RFP. Howard contends that the expanded scope is beyond the RFP. Moreover, in any event, that Howard has voluntarily supplied additional documents beyond invoices and checks.
The RFP does not call for more document production. Hammer's claim in paragraph 1 of her Motion for Contempt is misstated. At all times Howard reserved its objection and never agreed to be bound by any obligation to produce documents beyond invoices and checks for the defined time period like the sample attached to the RFP.
Pl.'s Mot. Contempt Sanctions 2.
At the time of response, on or about August 1, 2016, Howard requested that Hammer enter a protective order as the items would implicate its economic interests. Hammer refused. The subject of a protective order was discussed during the August 5, 2016 hearing. Hammer was advised that the arrangement would not prejudice her and that should a dispute arise about confidentiality the Court could decide the matter. On more than one occasion, Hammer has incorrectly stated that the Court advised that the documents be released to her first for her review before an order would be entered. Howard provided Hammer with an inventory of these documents.
Transcript of August 5, 2016 Hearing at 35.
Id.at 36.
Id.
Thereafter, Howard moved for a protective order on August 8, 2016. By written submissions on August 29, 2016, Howard submitted the invoices and more before the expiration of the discovery period on August 31, 2016. The submissions were by email and later by regular mail. Hammer contended that the PDF electronic format in a zip file could not be opened on her computer. This contention is not persuasive as zip files can be easily opened. Howard offered to and did produce hard copies. Howard opened the zip files and emailed them to Hammer as well.
See decision on Motion for Protective Order of even date.
Defs.' Collective Resp. Pl.'s Mot. Compel Disc. Pl.'s Mot. Contempt Sanctions, Ex. E.
Concerning the documents produced, at the Court's request, Howard provided information with the Court by letters dated December 30, 2016, January 24, 2017, and February 7, 2017. Hammer had the opportunity to comment, including a letter filed on February 3, 2017. Given the nature of the letter, Howard was asked to respond which it did by its letter of February 7, 2017. Hammer was advised that no further submissions would be permitted.
Letter from Dennis L. Schrader and R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (Dec. 30, 2016)(on file with Delaware Superior Court); Letter from R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (Jan. 24, 2017)(on file with the Delaware Superior Court); Letter from R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (Feb 7, 2017)(on file with the Delaware Superior Court).
See Letter from Alan Barraclough, Civil Judicial Case Manager to Judge Richard F. Stokes, to Parties (Nov. 3, 2016)(on file with Delaware Superior Court); Letter from Alan Barraclough, Civil Judicial Case Manager to Judge Richard F. Stokes, to Parties (Nov. 18, 2016)(on file with Delaware Superior Court); Letter from Alan Barraclough, Civil Judicial Case Manager to Judge Richard F. Stokes, to Parties (Feb. 3, 2017)(on file with Delaware Superior Court).
Upon review of the information provided, the discovery inventory listed 38 invoices for orders placed with health care vendors. This information was provided to Hammer on August 5, 2016. Further, Howard provided five payment records responsive to item 4 in the RFP. The payment records were supplied in lieu of checks as Howard contended it did not possess or have control of the checks.
Moreover, on August 29, 2016, Howard, reserving the right for a protective order, produced hard copies of 38 invoices responsive to item 3. These invoices track the sample provided in the RFP. Howard also provided payment received reports between March 1, 2013 and December 31, 2015 from Excela Health in the amount of $289,684.14, from Heritage Valley Health Systems in the amount of $558,558.24, from Heritage Valley Heath Systems Beaver in the amount of $519.28, from Heritage Valley Health System Sewickley in the amount of $179.56, and from Ohio Valley General Hospital in the amount of $69,846.11. The foregoing payment received reports were voluntarily tendered by Howard.
Further, on August 31, 2016, Howard voluntarily produced purchase orders and confirmations in PDF format marked confidential. The hard copies come to 79 pages. All of this information provided Hammer with supplemental information on the subject of sales and potential commissions due.
Concerning the inventory, Hammer claims she never requested it. Upon review of the exhibits this contention is not persuasive. Further, Howard responded to her request to learn when Scott Strickland and Bill Salerno left Howard's employment in item 2 of the RFP by providing records. It also produced payroll records. Upon review, Hammer's contention that she did not request them is also not persuasive. As to the payment received reports, Hammer claims they were provided to obfuscate her discovery and to circumvent the discovery process. However, these are business records from which Hammer can derive helpful information to her case. In any event, these records were beyond the scope of the RFP under the RFP, and no consideration will be given to any of Hammer's perceived deficiencies as to these items.
Pl.'s Mot. Compel Disc.; Letter from R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (Feb. 7, 2017)(on file with Delaware Superior Court).
Letter from R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (Feb. 7, 2017)(on file with Delaware Superior Court).
Again, at the Court's request, Howard's February 7, 2017 letter was written to respond to Hammer's letter of February 1, 2017. Hammer was instructed that no further submissions by her would be considered. Hammer's letter of February 5, 2017 will be filed, but not considered. The letter represents a pattern where Hammer files unsolicited letters of responses to responses, despite being instructed otherwise. See Letter from Alan Barraclough, Civil Judicial Case Manager to Judge Richard F. Stokes, to Parties (Nov. 3, 2016)(on file with Delaware Superior Court); Letter from Alan Barraclough, Civil Judicial Case Manager to Judge Richard F. Stokes, to Parties (Nov. 18, 2016)(on file with Delaware Superior Court); Letter from Alan Barraclough, Civil Judicial Case Manager to Judge Richard F. Stokes, to Parties (Feb. 3, 2017)(on file with Delaware Superior Court).
After review, Howard complied with item 3 of the RFP. Any delay was precipitated by Howard's interest in requesting a protective order. This motion was made good faith, although it was not ultimately successful.
RFP item 4 requested checks. Howard objected that it did not possess or control them in its filings of August 29, 2016. No checks were produced provided until December 19, 2016. Howard's argument was that Hammer would have to obtain the checks from the custodian of the banks where the vendors maintained accounts. However, Howard's bank, Regions Bank, retained copies of the checks deposited in Howard's account. Hammer stated that Howard also had copies of the checks in its regular accounting records. This assertion was based on her anecdotal experiences where questions regarding vendors' payments had arisen. Howard denied that it had regularly supplied copies of checks in that situation. The question cannot be decided on the grounds of possession as the record is not developed on that point. Rather the question can be resolved by reviewing the case law on control.
Defs.' Collective Resp. Pl.'s Mot. Compel Disc. Mot. Contempt Sanction, Ex. C.
Letter from R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (December 19, 2016)(on fde with Delaware Superior Court).
A general overview of the issue is helpful. According to Wright's Federal Practice and Procedure, "...Rule 34 provides, in language that has always been in the rule, that discovery may be had of documents and things that are in the 'possession, custody, or control' of a party." The key inquiry turns on whether or not the party had "control" over the information sought. "The concept of 'control' has been construed broadly." If a party has a legal right, authority, or practical ability to obtain the information, even if not in its actual physical control, then the party must produce the information. This point has been reiterated in many cases.
8B Wright, Miller, & Coper, Federal Practice & Procedure § 2210.
In re Flag Telecom Holdings, Ltd. Sec. Litig.,236 F.R.D. 177, 180 (S.D.N.Y. 2006).
Id.
In re NTL, Inc. Sec. Litig,244 F.R.D. 179, 195 (S.D.N.Y. 2007)("The test for production of documents is control not location...Under Rule 34, 'control does not require that the party have legal ownership or actual physical possession of the documents at issues; rather, documents are considered to be under a party's control when that party has the right, authority, or practical ability to obtain the documents from a non-party to the action.'")(internal citations omitted); Prokosch v. Catalina Lighting, Inc.,193 F.R.D. 633, 636 (D. Minn. 2000)("In practice, however, other courts 'have sometimes interpreted Rule 34 to require production if the party has practical ability to obtain the documents from another, irrespective of his legal entitlement to the documents.")(internal citations omitted); U.S. Intern. Trade Com'n v. ASAT, Inc., 411 F.3d 245, 254 (D.D.C. 2005)("Control is defined as the legal right, authority, or ability to obtain documents."); In re Bankers Trust Co.,61 F.3d 465, 469 (6th Cir. 1995)("It necessarily follows, then, that parties in possession of documents forwarded to them by a federal agency have 'possession, custody or control' within the meaning of Rule 34, notwithstanding the fact that the agency by regulation retains ownership and restricts disclosure.").
It is of no consequence that the information sought may be in the possession of a third party who is not party to the suit. "A party may be required to produce documents and things that it possesses even though they belong to a third person who is not a party to the action." However, where a party has assured that he or she will be able to obtain documents, but is then unsuccessful, there is no control. The Court should focus on whether the party made a good faith effort to produce the documents.
8B Wright, Miller, & Coper, Federal Practice & Procedure § 2210.
Searock v. Stripling,736 F.2d 650, 654 (11th Cir. 1984)("...[I]t does not appear from this record that Stripling asserted 'control' over the documents in the sense required for production under Rule 34... We find instead that the primary dispositive issue is whether Stripling made a good faith effort to obtain the documents over which he may have indicated he had control in whatever sense, and whether after making such a good faith effort he was unable to obtain and thus produce them.").
Id.
Further, it is notable that the Court can require a party to fill out a request form in order to obtain documents. Simply having to request information, for example an SEC transcript, will bring the information under the party's control. Also, confidentiality is not a basis on which to deny production. Yet, there are limits to control. "The relationship between the party and the person or entity having actual possession of the document is central in each case...This special relationship [allowing control] exists when a party is able to command release of the documents by the person or entity in actual possession and is usually the result of statute, affiliation, or employment." For example, the relationship between a patient and doctor is not deemed to fall under this special category of control, so medical records are not under a party's control. Thus, as long as the party has the legal right to request bank records from his or her bank (special relationship), he or she will be considered to have control over the documents.
Preservation Products, L.L.C. v. Nutraceutical Clinical, 214 F.R.D. 494, 496 (N.D.Ill. 2003)("The fact that Simmons does not currently have copies in his possession is not significant because he has 'control' of those documents by signing the necessary request form.").
In re Flag Telecom Holdings, Ltd. Sec. Litig.,236 F.R.D. 177, 180 (S.D.N.Y. 2006).
Estate of Young v. Holmes, 134 F.R.D. 291, 294 (D.Nev. 1991).
Clark v. Vega Wholesale, Inc. 181 F.R.D. 470, 472 (D. Nev. 1998).
This subject was discussed at the December 2, 2016 hearing. At that time, Howard agreed Regions Bank had copies of the checks and was willing to provide them. After discussion, the only open issue concerned costs for obtaining the checks. Howard believed a multitude of checks would have to be requested at considerable expense. Howard was to give the Court an estimate of the expense.
Transcript of December 2, 2016 Hearing at 12-13.
On December 19, 2016, Howard advised the Court that the number of checks was less than expected. Checks covered several open items on an account. At that juncture, Howard produced checks for the requested time period, reserving its right for a retroactive protective order.
The Court totaled the value of the checks produced by Howard and compared them to the invoices along with the other voluntarily produced documents. These appear to be slight duplications and prior offsets. The total comes to $926,700.00. If the Agent Management Agreement is genuine (Howard contends it is a forgery), Hammer would be entitled to 10% of that amount, $92,670,000, for her commissions.
Howard's position that it did not control and did not have to produce the checks is not persuasive. Under the law, Howard had at least constructive control. The discovery should not have been refused on the basis that Hammer should have to obtain checks from the bank directly. Therefore, Howard did not meet its discovery obligations and in this regard Hammer's point is correct.
While discovery was delayed until December 19, 2016, there was still the pending issue of the protective order. Hammer has not suffered prejudice because the checks have been provided and the voluntary responses of the invoices gave sufficient financial information.
Hammer complains that Howard did not produce the records in an organized way. After review, Howard produced them in accord with Rule 34. Howard correctly summarizes the law:
Letter from Nancy Hammer to Judge Richard F. Stokes (Dec. 23, 2016)(on file with Delaware Superior Court).
"Under Superior Court Civil Rule 34, a producing party may produce documents 'as they are kept in the usual course of business,' or it may produce them in a format organized and labeled according to the categories in the production request. The purpose of this section of Rule 34 is two-fold. First, it ensures that documents are provided in a logical format and to prevent the parties from hiding critical documents though volume or disarray. See Am. Bar Ass'n Section of Litig., Second Report of the Special Committee for the Study of Discovery Abuse, 92 F.R.D. 137, 177-78 (1980)(discussing the initial adoption of this provision for Federal Rule of Civil Procedure 34). Second, it prevents requesting parties from overburdening producing parties by requesting documents in unique or unusual ways. See 8B Charles Alan Wright, et al., Federal Practice and Procedure § 2213 (3d ed. West 2016)(discussing analogous language in Federal Rule of Civil Procedure Rule 34).
Letter from Dennis L. Schrader and R. Eric Hacker, Morris James Wilson Halbrook & Bayard, to Judge Richard F. Stokes (Dec. 30, 2016)(on file with the Delaware Superior Court).
Howard gave Hammer separate electronic files of items 3 and 4 of the RFP, invoices and checks. All documents are together, invoices, checks, and payment records. Hard copy papers of the purchase orders and confirmations were done in the same fashion.
Additionally, Howard argues that Hammer waived her right to file a motion to compel. The Court remarked that Hammer could file a motion at the August 5, 2016 hearing. Hammer waited until October 20, 2016 to file her Motion to Compel. The cited authority is Christian v. Counseling Research Associates, Inc. The subject matter concerned the use of expert reports. The Supreme Court found that if a party did not move forward until an objection to a passed deadline date, then there could be no complaint about later produced reports. While the Motion to Compel was filed in October, Hammer certainly made her objections known at the August hearing. In this context, I do not find Howard's argument to be persuasive.
60 A.3d 1083, 1088 (Del. 2013).
In sum, I find there was substantial justification to withhold discovery pending resolution of the protective order through the discovery cutoff date of August 31, 2016. Howard had a reasonable belief that an order would be entered and acted accordingly. When the discovery cutoff passed, Howard provided the invoices, seeking to have the protective order made retroactive. Hammer's claims to not receiving or being able to open the zip files are not persuasive.
In Hammer's letter filed on February 3, 2017, she claims checks were not provided for certain invoices listed in paragraph 4. Howard contends that those checks where not within the time period requested in the RFP. Howard should file an affidavit to confirm that point and no further action will be taken.
Letter from Nancy Hammer to Judge Richard F. Stokes (Feb. 3, 2017)(on file with Delaware Superior Court).
While Howard's position on control of the checks was misplaced, the checks were later supplied. There was a delay of approximately four and a half months. Hammer had to file the Motion which resulted in the belated production of the checks. While there was a discovery violation, Howard's conduct does not rise to the level of contempt. An order to compel for production of checks is appropriate, but the production has rendered it moot.
Black's Law Dictionary defines contempt as "conduct that defies the authority or dignity of a court or legislature. Because such conduct interferes with the administration of justice, it is punishable by fine or imprisonment." Black's Law Dictionary (9th ed. 2009), available at Westlaw BLACKS (emphasis added). --------
As the documents have been provided, only the check portion of the dispute is sanctionable. In that regard, an offset can be made against Hammer's obligations to Howard for her discovery violations. Hammer shall submit an affidavit on or before March 3, 2017 and Howard shall reply on or before March 13, 2017 on the amount.
IT IS SO ORDERED.
Very truly yours,
/s/_________
Richard F. Stokes, Judge Cc: Prothonotary
Nancy Hammer
Dennis Schrader, Esq.
R. Eric Hacker, Esq.