Opinion
03 Civ. 7752 (RMB)(KNF).
November 21, 2006
REPORT and RECOMMENDATION
I. INTRODUCTION
Your Honor has requested that I determine whether: (a) a default judgment should be entered against the defendants for their failure to comply with various discovery orders issued during the pretrial discovery phase of this litigation; and (b) the plaintiff should recover the reasonable costs and attorney's fees he has incurred as a result of the defendants' misconduct.
II. BACKGROUND
In 1999, the plaintiff entered into an agreement with defendant Sogevalor, S.A. ("Sogevalor"), an investment bank, to provide consulting services to defendant Redheads, Inc., in exchange for a monthly fee and the reimbursement of all the out-of-pocket expenses he might incur in connection with his performance under the parties' agreement. The plaintiff maintains he performed under the parties' agreement. However, in December 1999, the defendants began to fall behind in their payment obligations. Nevertheless, the plaintiff contends he continued to perform under the parties' agreement until September 2001, because he received assurances that he would be paid in full. Through the instant action, the plaintiff sought to recover for the uncompensated services he provided to the defendants between 1999 and 2001.
Defendant Redheads, Inc. did not appear in the action; a default judgment was entered against it in April 2004.
In March 2004, the defendants moved to dismiss the plaintiff's complaint, pursuant to Fed.R.Civ.P. 12(b)(6), because they maintained the plaintiff's pleading failed to state a claim upon which relief could be granted by the court. The defendants argued that the plaintiff's claims were barred by the applicable Statute of Frauds. The motion was later denied, as moot.
In December of 2004, the plaintiff asked the court, via correspondence, to enter a default judgment against the defendants, because they failed to appear for their depositions by the date the Court had fixed for them to do so. By order dated February 24, 2005, the court directed the plaintiff to make a formal motion for the relief he sought and fixed dates for the parties' submissions in connection with that motion. The plaintiff complied and moved formally for a default judgment against the defendants, due to their failure to attend their depositions or to disclose documents to the plaintiff for inspection. The plaintiff's motion was denied by your Honor without prejudice to his making a motion anew, pursuant to Fed.R.Civ.P. 37(d) and 55, in the event the defendants failed to adhere to a deposition schedule that the undersigned magistrate judge was directed to prepare.
Thereafter, in October 2005, the plaintiff made a motion for a default judgment, pursuant to Fed.R.Civ.P. 37, "based on the defendants' willful disregard of their discovery obligations and the Orders of this Court." On February 9, 2006, that motion was dismissed without prejudice because your Honor was not certain, based on the record before the court at that time, that the defendants' failure to meet their discovery obligations was the result of bad faith conduct on their part. Therefore, your Honor indicated that a new motion for a default judgment could be made by the plaintiff if the defendants failed "to produce, by March 1, 2006: (i) documentary evidence that [defendant] Matteuzzi and [defendant] Oechslin are, in fact, subject to 'travel restrictions imposed abroad' that have prevented them from attending the scheduled depositions in New York; (ii) a description of the legal nature (with citations) of such restrictions, supported by counsel's declaration as to Swiss law; (iii) an explanation of the time and dates such restrictions went into effect and when they end; and (iv) specific evidence that the documents sought by plaintiff in connection with Dumont and Sogevalor are no longer available to them." The defendants were admonished that compliance with the above directive would be their "final opportunity to avoid default." In addition, the court required the defendants' counsel to submit to the court "a separate verification that client statements and/or submissions [made to the court by March 1, 2006,] are accurate."
In a letter dated February 28, 2006, the defendants submitted documents to the court that prompted the plaintiff to renew his default judgment motion. After assessing the material the defendants submitted to the court, your Honor concluded, and explained to the parties in a May 9, 2006 order denying the plaintiff's renewed motion for a default judgment, that "Defendants have provided some explanation for their failure to comply with discovery during the earlier stages of the case. Defendants have not, however, shown that they are unable to participate in meaningful discovery at this point in time and going forward." Nevertheless, the court dismissed the plaintiff's motion and ordered the defendants to fulfill their discovery obligation by July 28, 2006. The court admonished the defendants that if they failed to appear for depositions or to disclose requested documents to the plaintiff by that date, or failed to comply with discovery orders issued by the undersigned magistrate judge, the plaintiff would be free to submit, for the court's consideration, a default order pursuant to Fed.R.Civ.P. 37, including a request for the costs and attorney's fees reasonably incurred by him.
On August 23, 2006, the plaintiff renewed his Fed.R.Civ.P. 37 motion for a default judgment. The plaintiff alleged that the defendants refused, consistently, to comply with their discovery obligations in violation of court orders. The plaintiff also alleged the defendants violated the court's order of February 9, 2006, by not explaining their respective failures to appear for depositions. The plaintiff noted that the travel restrictions on defendant Rodolfo Oechslin ("Oechslin"), about which the court had previously been made aware, expired on March 22, 2005, and that an arrest warrant, issued in Lugano, Switzerland, for defendant Paolo Matteuzzi ("Matteuzzi"), about which the court had also been made aware, standing alone, did not impose any travel restrictions on him. Moreover, according to the plaintiff, the defendants violated the May 9, 2006 order of the court by failing to explain why they were unable to appear for their depositions or to produce requested documents. The plaintiff also alleged that the defendants' counsel violated the court's May 9, 2006 order by failing to submit a verification to the court indicating that the defendants' submissions in response to the court's February 9, 2006 order were accurate. In addition, the plaintiff asserted that the defendants' counsel had acted in concert with them to mislead the court and, furthermore, had aided the defendants willingly in their "scheme" to deprive the plaintiff of the remedy he seeks.
The defendants oppose the plaintiff's most recent motion for a default judgment. They maintain that Oechslin is constrained to remain in Switzerland because of his concern that his entry into the United States might implicate him in a criminal investigation that is ongoing in this country and that Matteuzzi is unable to travel to the United States because of the arrest warrant discussed above. Counsel to the defendants asserts that he was unable to verify the submissions his clients made in response to the court's February 9, 2006 order because he is not representing the defendants in connection with proceedings pending abroad and has limited information about those proceedings. Furthermore, according to the defendants' counsel, since he has communicated the court's orders to his clients, he should not be held responsible for their failure to comply with those orders.
III. DISCUSSION
Fed.R.Civ.P. 26 permits parties to a litigation to obtain discovery regarding any matter that is not privileged if it is relevant to the claim or defense of any party. To obtain the discovery they want, the parties to a litigation are free to use the various discovery tools made available to them through the Federal Rules of Civil Procedure. Those discovery tools include, among others, depositions, (see Fed.R.Civ.P. 30), and inspections of documents and other data compilations (see Fed.R.Civ.P. 34). When a party fails to comply with its discovery obligations, an aggrieved party may lodge a protest with the court and request that a sanction(s) be imposed for the adversary party's misconduct.
Fed.R.Civ.P. 37 grants a court broad discretion and authority to impose sanctions upon a party to a litigation that has failed to fulfill its discovery obligations. See Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 113 (2d Cir. 2002). Fed.R.Civ.P. 37 provides that a court may make such orders "as are just" when it determines that a sanction(s) should be imposed on a litigant who has disobeyed a discovery order(s) or has otherwise failed to meet its discovery obligations. Sanctions imposed by a court under Fed.R.Civ.P. 37 have a threefold purpose: (1) to prevent a party from benefitting from its own failure to comply with its discovery obligations; (2) to seek compliance with an order that has been issued; and (3) to deter a specific litigant and litigants in general from failing to comply with discovery obligations. See Update Art, Inc. v. Modiin Publ'g, Ltd., 843 F.2d 67, 71 (2d Cir. 1988).
Among other things, a court may, as a sanction under Fed.R.Civ.P. 37, render a judgment by default against a party that has failed to comply with a discovery order. Litigants must remember that it is important for a party to an action to comply with its discovery obligations and, in particular, to comply with discovery orders issued by a court because "compliance is necessary to the integrity of our judicial process. A party who flouts such orders does so at his peril." Update Art, Inc., 843 F.2d at 73.
In the case at bar, the defendants have failed to obey numerous court orders issued during the pretrial discovery phase of the litigation that were necessitated by the defendants' failure to comply with their discovery obligations. The defendants' discovery failures prompted the plaintiff to request repeatedly that an order be issued by the court directing that a default judgment be entered against the defendants. On multiple occasions, your Honor resisted the plaintiff's entreaties and, instead of ordering the entry of a default judgment, offered the defendants several opportunities to cure their disclosure deficiencies and to attend a deposition(s) at which the plaintiff might secure information he believed was needed to prosecute the action appropriately. The defendants' proffered reasons for failing to attend their respective depositions: fear of a criminal investigation underway in the United States and a foreign arrest warrant, upon close scrutiny by the court, failed to persuade your Honor that the defendants had a good faith basis for failing to meet their discovery obligations.
The plaintiff has requested, once again, that a default judgment be entered against the defendants. The Court is mindful that rendering a judgment by default, pursuant to Fed.R.Civ.P. 37, is a harsh sanction. It should be used sparingly, since it results in the termination of an action without an adjudication of the merits of the claim(s) asserted by the plaintiff. However, "[a]lthough entry of a default judgment is an extreme measure, discovery orders are meant to be followed." Bambu Sales, Inc. v. Ozak Trading Incorporated, 58 F.3d 849, 853 (2d Cir. 1995).
Based on the record as a whole, the Court finds that the defendants' failure to comply with numerous court orders directing them to meet their discovery obligations was willful and that the period the defendants have been out of compliance with their discovery obligations and the orders of the court has been extensive, covering approximately two years. This has prejudiced the plaintiff in his effort to prosecute this action efficiently and effectively. The defendants have been admonished by your Honor repeatedly to come into compliance with their discovery obligations. As noted above, the defendants failed repeatedly to do so. The Court concludes that, in the circumstance of the instant case, the imposition of a sanction other than the entry of a default judgment would be to no avail.
Litigants, as well as their counsel, may be sanctioned under Fed.R.Civ.P. 37 when discovery obligations are not satisfied. In the instant case, counsel to the defendants was directed by your Honor to provide a legal basis, premised on Swiss law, for the failure of the defendants to travel from abroad to the United States so that they might be deposed. This directive was embodied in the order of the court dated February 9, 2006. Counsel to the defendants never made that submission to the court. In addition, counsel to the defendants was directed to submit a separate verification to the court respecting the accuracy of statements and submissions that the defendants were required to make to the court. Counsel failed to follow the court's directive. According to the defendants' counsel, the requisite verification was not provided to the court because he was not engaged to represent the defendants in connection with legal proceedings abroad and, thus, lacked sufficient information to prepare the verification. While it may be true that the defendants' domestic counsel did not represent them in connection with foreign proceedings, nothing prevented domestic counsel from consulting with his counterpart(s), counsel to the defendants in the foreign proceedings, or obtaining such information as domestic counsel believed was necessary to familiarize himself with the foreign proceedings so that he could comply with the court's order by preparing and delivering to the court the requisite verification. The failure of counsel to the defendants to comply with two directives of the court, warrants the imposition of a sanction.
IV. RECOMMENDATION
For the reasons set forth above, the Court recommends that, pursuant to Fed.R.Civ.P. 37, your Honor render a judgment by default against the defendants and also sanction counsel to the defendants for failing to comply with two court directives. Should your Honor adopt the recommendation, I shall schedule an inquest for the plaintiff to prove the damages and reasonable costs and attorneys fees he has incurred.
V. FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have ten (10) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Richard M. Berman, 40 Foley Square, Room 201, New York, New York 10007, and to the chambers of the undersigned, 40 Foley Square, Room 540, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge Berman. FAILURE TO FILE OBJECTIONS WITHIN TEN (10) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir. 1993);Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992); Wesolek v. Canadair Ltd., 838 F.2d 55, 57-59 (2d Cir. 1988); McCarthy v. Manson, 714 F.2d 234, 237-38 (2d Cir. 1983).