Opinion
No. 02 Civ. 0795 (CBM).
April 29, 2005
MEMORANDUM OPINION AND ORDER
Defendant requests that this court set aside Magistrate Judge Peck's December 20, 2004 order entering an adverse inference instruction against defendant as a sanction for failure to produce Board of Director minutes and related materials to plaintiff. For the reasons set forth below, defendant's request is DENIED.
I. The Parties
Plaintiff, Lyondell-Citgo Refining, LP ("LCR"), is a limited partnership with its principal place of business in Houston, Texas, where it owns a crude oil refinery. Defendant Petroleos de Venezuela, S.A. ("PDVSA"), is the national oil company of Venezuela, and defendant PDVSA-Petroleo, S.A. ("Petroleo"), is a wholly owned subsidiary of PDVSA.
II. Background
In response to a dispute concerning the discovery of Board of Director minutes, reports and presentations, Magistrate Judge Peck issued an order on October 1, 2004 requiring defendant to produce to plaintiff all Board of Director minutes, reports and presentations for the period between January 1, 1998 to December 31, 2002. See 10/1/04 Tr. at 37.
On October 15, 2004, Magistrate Judge Peck clarified the order, stating that he "was not ordering defendant to produce irrelevant — using `irrelevant' in a discovery sense — Board of Director minutes." Rather, because the court "could no longer rely on PDVSA or its counsel to search those board minutes," he gave plaintiff the "unusual opportunity" to search the minutes directly for relevant and responsive documents. See 10/15/04 Tr. at 2-3. Magistrate Judge Peck noted that he was providing such relief to plaintiff because defendant was responding to discovery requests "on the 11th hour, if not the 13th hour . . . that had been pending for months with respect to the board minutes." Id. at 3. Finally, Magistrate Judge Peck stated that "the whole purpose of this was that the Court could not trust defendant's review of this material and, therefore, it was giving the plaintiff the authority to review it and determine what was responsive to its document requests and relevant to the litigation and take only such material." Id. at 5.
Defendant objected to Magistrate Judge Peck's order on the grounds that it was overly broad and contrary to the principle of relevance as set forth in Federal Rule of Civil Procedure 26(b)(1). Defendant also argued that it had made a good faith effort to produce all relevant and responsive documents, and that it should not have to comply with the order as it will be subject to criminal penalties in Venezuela if the materials at issue are disclosed.
On November 19, 2004, this court affirmed Magistrate Judge Peck's discovery order of October 1, 2004 over defendant's objection. Given the highly deferential standard of review for a Magistrate's ruling as to a non-dispositive matter, the liberal discovery regime as articulated by the Second Circuit, and the balancing test required to determine the reasonableness of foreign discovery, this court found that Magistrate Judge Peck did not clearly err in ruling as he did. See Lyondell-CITGO Refining, LP v. Petroleos de Venezuela, S.A. and PDVSA-Petroleo, S.A., 2004 WL 2698218, at *1 (S.D.N.Y. Nov. 19, 2004).
On November 22, 2004, in light of the November 19, 2004 opinion issued by this court, Magistrate Judge Peck ordered the parties to submit a joint letter proposal, or two different proposals if necessary, as to the appropriate next steps regarding review and production of PDVSA Board minutes and related documents by November 29, 2004. Each party submitted a proposal, and on November 30, 2004, Magistrate Judge Peck issued an order finding each proposal deficient and setting forth a plan by which PDVSA Board minutes and related documents would be reviewed and produced. Specifically, he ordered defendant to "make all Board minutes and related Board documents available in hard copy, and electronic database, for review by plaintiff's counsel." See 11/30/04 Order. He further stated that if the aforementioned plan set out by the court was not followed by defendant, "this Court will not give PDVSA another chance, and sanctions will be entered." Id.
On December 13, 2004, defendant informed Magistrate Judge Peck that it would be unable to comply with the November 30, 2004 order, on the grounds that Venezuelan law prohibited it from granting access to its Board of Director minutes and related documents. In response, Magistrate Judge Peck ordered an adverse inference, stating:
This Court has previously ruled, and been affirmed by Judge Motley, that the material is relevant. The only other issue is re `culpable state of mind.' In light of these discovery disputes, the Court finds PDVSA's refusal to allow plaintiff's counsel to review the Board material for relevant entries is sufficiently culpable. Indeed, there is no proof that the Ministry was properly informed of this Court's rulings since PDVSA still refers to the material as not relevant. . . . Accordingly, for PDVSA's continued disobeying of Court orders the sanction of an adverse inference is appropriate.See 12/13/04 Order. Magistrate Judge Peck further ordered counsel for both parties to agree on the exact words of the inference or to submit counter-proposals by December 16, 2004.
On December 20, 2004, after reviewing the parties' submissions for the adverse inference instruction, Magistrate Judge Peck entered the following adverse inference:
PDVSA has refused to produce Board of Director minutes and related documents to plaintiff despite Court orders to do so. The trier of fact may infer from this that such documents are unfavorable to PDVSA, and favorable to plaintiff, and the trier of fact may give the strongest weight to the evidence already in the case in favor of plaintiff. The trier of fact may consider any evidence presented by PDVSA to explain why it did not produce the Board of Directors material.See 12/20/04 Order.
On December 23, 2004, defendant filed an objection to Magistrate Judge Peck's order entering an adverse instruction against defendant. Defendant asserts that Magistrate Judge Peck clearly erred in entering an adverse inference, as defendant did not exhibit the requisite culpable state of mind to warrant such a severe sanction. Defendant further argues that the documents withheld from plaintiff are not relevant to the litigation.
III. Standard of Review
Rule 72(a) of the Federal Rules of Civil Procedure and the Federal Magistrates Act, 28 U.S.C. §§ 636(b)(1)(A) (2002) provide this court with the standard by which to review Magistrate Judge Peck's discovery-related ruling. Pretrial discovery matters are generally considered nondispositive of the litigation. See Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522 (2d Cir. 1990). Both the rule and the statute state that, as to non-dispositive matters, a district court shall reverse a Magistrate Judge's order only where it has been shown that the order is "clearly erroneous or contrary to law." 28 U.S.C. § 636(b)(1)(A) (1988); Fed.R.Civ.P. 72(a). Elaborating on the "clearly erroneous" standard, the Supreme Court has held that a finding is "clearly erroneous" if the reviewing court is "left with the definite and firm conviction that a mistake has been committed." Easley v. Cromartie, 532 U.S. 234, 242 (2001) (quoting United States v. United Gypsum Co., 333 U.S. 364, 395 (1948)). Indeed, "[w]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. City of Bessemer City, 470 U.S. 564, 574 (1985) (citing United States v. Yellow Cab Co., 338 U.S. 338, 342 (1949)). Pursuant to this highly deferential standard of review, a magistrate judge is "afforded broad discretion in resolving discovery disputes and reversal is appropriate only if their discretion is abused." Derthick v. Bassett-Walker Inc., 1992 WL 249951, at *8 (S.D.N.Y. Sept. 23, 1992). Thus, a party seeking to overturn or modify a discovery order bears a heavy burden.
IV. Discussion
Rule 37(b)(2) of the Federal Rules of Civil Procedure provides in pertinent part, "If a party . . . fails to obey an order to provide or permit discovery . . . the court in which the action is pending may make such orders in regard to the failure as are just." Fed.R.Civ.P. 37(b)(2). Where the nature of the alleged breach of a discovery obligation is the non-production of evidence, "a district court has broad discretion in fashioning an appropriate sanction, including . . . to proceed with a trial and give an adverse inference instruction." Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 107 (2d Cir. 2002). The legal standard for the imposition of an adverse inference instruction is essentially the same whether the party controlling the evidence destroyed it or simply failed to produce it. Id. See also Creative Res. Group of New Jersey, Inc. v. Creative Res. Group, Inc., et al., 212 F.R.D. 94, 105 (E.D.N.Y. 2002). An adverse inference instruction may be entered upon a showing that the party having control over the evidence failed to produce it although obligated to do so, had a culpable state of mind, and that the missing evidence was relevant to a claim or defense of the aggrieved party. Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 107 (2d Cir. 2002).
Defendant argues that it has not exhibited a culpable state of mind, and that the Board of Director materials unreviewed by plaintiff are irrelevant to this litigation. The court addresses each of these arguments in turn.
As stated above, Magistrate Judge Peck found that defendant possessed a culpable state of mind based on a series of discovery disputes that has arisen during the course of this litigation, some of which are outlined above, and on which this court has spoken in several previous opinions. Defendant argues that it does not possess a culpable state of mind because its noncompliance with Magistrate Judge Peck's discovery orders stems not from bad faith, gross negligence, or simple negligence, but rather from the fact that it is prohibited by Venezuelan law from disclosing confidential and classified information contained in the Board of Director minutes and related documents. (Def's Objection to Magistrate Judge's Orders Entering Adverse Inference Instruction Against Def. at 3-4).
The Second Circuit has held that a "case-by-case-approach to the failure to produce relevant evidence [is] appropriate because [s]uch failures occur along a continuum of fault — ranging from innocence through the degrees of negligence to intentionality."Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108 (2d Cir. 2002) (quoting Reilly v. Natwest Markets Group Inc., et al., 181 F.3d 253, 267 (2d Cir. 1999)). "A finding of bad faith or intentional misconduct is not a sine qua non to sanctioning a spoliator with an adverse inference instruction." Reilly v. Natwest Markets Group Inc., et al., 181 F.3d 253, 268 (2d Cir. 1999). Indeed, "It makes little difference to the party victimized by the destruction of evidence whether that act was done willfully or negligently. The adverse inference provides the necessary mechanism for restoring the evidentiary balance. The inference is adverse to the destroyer not because of any finding of moral culpability, but because the risk that the evidence would have been detrimental rather than favorable should fall on the party responsible for its loss." Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 108 (2d Cir. 2002) (quoting Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 75 (S.D.N.Y. 1991)).
In the instant case, defendant has consistently refused to produce the Board of Director minutes and related documents despite repeated orders to do so. Though defendant asserts that it is prohibited by Venezuelan law from providing the documents, this court noted in a previous opinion affirming Magistrate Judge Peck's order to produce these documents that defendant has failed to meet the standard for asserting such executive privilege. Defendant neither provided precise or certain reasons for asserting confidentiality, nor did it confine the assertion of privilege to a narrow set of documents. Lyondell-CITGO Refining, LP v. Petroleos de Venezuela, S.A. and PDVSA-Petroleo, S.A., 2005 WL 356808, at *3 (S.D.N.Y. Feb. 15, 2005). Moreover, the detrimental effect of defendant's failure to produce documents on plaintiff is the same regardless of defendant's reasons for refusing to produce them. The adverse inference ordered by Magistrate Judge Peck restores the evidentiary balance. Magistrate Judge Peck did not clearly err in entering an adverse inference instruction against defendant.
Defendant further argues that the Board of Director minutes and related materials unreviewed by plaintiff are irrelevant to this litigation. This court has previously found that the documents at issue are indeed relevant to this litigation. See Lyondell-CITGO Refining, LP v. Petroleos de Venezuela, S.A. and PDVSA-Petroleo, S.A., 2004 WL 2698218, at *3 (S.D.N.Y. Nov. 19, 2004) (finding that the documents in question "are likely to bear on a central issue in the case"). The court's opinion on the relevance of these documents remains unchanged. This court agrees with, and affirms, Magistrate Judge Peck's finding that the Board of Director minutes and related documents are relevant.
V. Conclusion:
Defendant has failed to show, as it must, that Magistrate Judge Peck's December 20, 2004 order entering an adverse inference instruction against defendant was "clearly erroneous" or "contrary to law." Magistrate Judge Peck's order of December 20, 2004, is therefore hereby affirmed over defendant's objection.
SO ORDERED.