Opinion
00 Civ. 2935 (RMB)(KNF)
May 4, 2004
MEMORANDUM and ORDER
I. INTRODUCTION
Before the Court is the defendants' motion for discovery sanctions, made pursuant to Fed.R.Civ.P. 37. By their motion, defendants seek: (1) an order directing plaintiff to produce for deposition its accountant, Price Waterhouse Coopers ("PWC"), (2) the production of a memorandum, which plaintiff claims is a privileged communication, prepared by one of plaintiff's witnesses, and (3) sanctions in the amount of § 50,000 against plaintiff and its counsel. Plaintiff opposes the motion. For the reasons set forth below, the motion is granted in part and denied in part.
II. BACKGROUND
In January 2003, counsel for plaintiff Marathon Ashland Petroleum LLC ("MAP") informed the defendants, Equili Company, L. P. and Equili Company II, L. P. (collectively "Equili"), and the Court that certain documents, which may have been produced previously, had recently come to the attention of certain employees of MAP. All discovery in this action was to have been completed on June 21, 2002. On January 14 and January 24, 2003, the pertinent documents were produced to the defendants. Thereafter, on January 29, 2003, defendants reexamined Todd Russell ("Russell"), a MAP employee, who had been deposed previously, on June 25, 2002, concerning, inter alia, a spreadsheet he had prepared in anticipation of the deposition of Gary Peiffer ("Peiffer"), MAP's Senior Vice President for Financing. The spreadsheet, entitled "Ocean Tanker Operating Cash Flows," has been marked as defendants' Exhibits 463, 463A and 506. The spreadsheet indicates, among other things, that the vessels at issue in this litigation had an operating loss in 1998 of § 2,057,764.
At his first deposition, in June 2002, Russell was questioned by the defendants concerning whether revenue generated by MAP's own use of the vessels (called by defendants "intra-company" revenue and by plaintiff "intercompany" revenue), was included in the total vessel revenue reflected in the spreadsheet he had prepared. Russell testified as follows:
Q: Do you know whether intercompany rental revenues are accounted for here?
A: I don't believe that intercompany revenue is included in there.
Q: Do you have any idea how much the intercompany revenue might have been for the years `98 through 2000?
A: As I prepared this document, I believe on the underlying documents where these numbers were sourced from, I believe I had determined the relet revenue, within the company revenues, I believe I had quantified that, but I have to look.
Q: Do you know where that would be accounted for on this spread sheet?
A: I don't think those are on this spreadsheet. I believe what I have here is a third-party presentation.
Q: What do you mean by a third-party presentation?
A: Outside of the company, transactions outside of the company.
When he was reexamined, on January 29, 2003, Russell stated that intercompany revenues were, in fact, included in the total vessel revenue reflected in the spreadsheet he had prepared, and that his "[p]rior testimony was incorrect." The defendants contended that if the revenue reflected in the spreadsheet did not include intercompany revenue, and if such revenue was, as defendants estimate based on certain documents, approximately § 3 million, then it is reasonable to conclude that the vessels did not operate at a loss in 1998, as MAP has maintained. However, Peiffer in his deposition of August 1, 2002, stated that he believed the total revenue reflected in the spreadsheet prepared for him by Russell did include intercompany revenue. In addition, David Bibler ("Bibler"), an accountant employed by MAP, also testified, on June 26, 2002, that he believed intercompany revenue was included in the total vessel revenue for 1998.
In March 2003, the defendants initiated the instant motion for sanctions. They contended that they had been prejudiced by plaintiff's late production of documents and by Russell's change in testimony, and that both his testimony and the spreadsheet prepared by him should be precluded. The defendants also contended that testimony by other witnesses concerning the spreadsheet should be precluded, because the defendants could not cross-examine those witnesses. In response, the plaintiff argued that testimony concerning the spreadsheet was given by numerous witnesses before Russell's renewed deposition of January 2003, and that defendants had given no valid reason why the exhibits or testimony concerning them should be precluded.
The defendants also maintained that paragraph 36 of plaintiff's Local Civil Rule 56.1 statement, submitted in support of plaintiff's summary judgment motion, should be stricken. That portion of plaintiff's statement asserted that "MAP had an operating loss for the Vessels in 1998 of § 2,057,764." According to defendants, given Russell's change in testimony, and the initially differing testimony of Peiffer and Bibler, plaintiff could not present the spreadsheet and its calculations as facts about which there was no material dispute. In response, the plaintiff argued that the loss amount reflected in paragraph 36 of its Local Civil Rule 56.1 statement was supported by other documents and should not be stricken.
The defendants also claimed that, because of Russell's change in testimony, they required additional discovery. Consequently, defendants sought an order directing plaintiff to produce for deposition a representative of its accountant, PWC. Defendants also moved to compel production of a memorandum, dated January 27, 2003, which was prepared by Russell prior to his renewed deposition. In response, plaintiff argued that deposition of a representative of PWC was unwarranted under the circumstances and that the memorandum prepared by Russell was a privileged communication drafted for MAP's counsel and, thus, need not be disclosed. Finally, the defendants claimed that they were entitled to § 50,000 in sanctions against MAP and its counsel, as well as attorney's fees and expenses in connection with the renewed depositions taken in January 2003.
In the interval since the defendants initially filed their sanctions motion, the parties have resolved four of the matters in dispute. As a result, the defendants no longer seek: (a) the preclusion of MAP's use of Exhibits 463, 463A and 506, (b) the preclusion of MAP's use of the testimony of any witnesses concerning these documents, (c) attorney's fees and expenses (MAP has paid defendants § 10,651.50 in attorney's fees and § 54.69 in expenses), or (d) the striking of certain portions of MAP's Local Civil Rule 56.1 statement, in light of a ruling by the assigned district court judge concerning the parties' respective summary judgment motions. Thus, the only issues that remain unresolved are whether: (1) the plaintiff should be directed to produce its accountant, PWC, for deposition, (2) the plaintiff should be directed to produce Russell's memorandum of January 27, 2003, and (3) the defendants are entitled to § 50,000 in sanctions against plaintiff and its counsel.
III. DISCUSSION
"Rule 37 of the Federal Rules of Civil Procedure sets forth the Court's procedures for enforcing discovery and sanctioning misconduct."Handwerker v. A T T Corp., 211 F.R.D. 203, 208 (S.D.N.Y. 2002). In its most pertinent part, Fed.R.Civ.P. 37 provides:
If a party fails to make a disclosure required by Rule 26(a), any other party may move to compel disclosure and for appropriate sanctions. . . . For purposes of this subdivision an evasive or incomplete disclosure, answer, or response is to be treated as a failure to disclose, answer, or respond. . . . 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. . . . [T]he court shall require the party failing to obey the order or the attorney advising that party or both to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.
Fed.R.Civ.P. 37(a)(2) (3); (b)(2).
"Even in the absence of a discovery order, a court may impose sanctions on a party for misconduct in discovery under its inherent power to manage its own affairs." Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 106-107 (2d Cir. 2002). An award of sanctions under Fed.R.Civ.P. 37 serves three purposes: "(1) obtaining compliance with discovery orders; (2) ensuring the disobedient party does not benefit from non-compliance; and (3) providing a general deterrent in the particular case and litigation in general." Nieves v. City of New York, 208 F.R.D. 531, 535 (S.D.N.Y. 2002) (citing National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643, 96 S.Ct. 2778, 2781).
Although the court has wide discretion in imposing sanctions, severe sanctions should be imposed only for serious violations, such as when the failure to comply with a court order is due to willfulness, bad faith or gross negligence, rather than an inability to comply or mere oversight.See id. "Non-compliance may be deemed willful when the court's orders have been clear, when the party has understood them, and when the party's non-compliance is not due to factors beyond the party's control."Id. at 536 (quoting Bambu Sales, Inc. v. Ozak Trading Inc., 58 F.3d 849, 852-53 [2d Cir. 1995]) (internal quotation marks omitted).
Deposition of PWC
Equili claims that it needs to depose a representative of MAP's accountant, PWC, in order "to ascertain what losses, if any, MAP incurred in connection with its exit strategy and how any purported loss was treated in MAP's reserves." Specifically, the defendants claim that, when they deposed Russell for the second time in January 2003, he gave "vague and equivocal testimony" about certain assumptions, which had been provided previously to a MAP expert, Augustus Elmer ("Elmer"), in a letter from MAP's counsel dated July 17, 2002. The assumptions, which Russell had helped to prepare, concerned MAP's estimated loss from exiting the operation of the two vessels that are the subject of this litigation, the exit cost accrual reserve that was set up at the time MAP acquired the vessels in January 1998, and whether the vessels had become uneconomic at the time MAP cancelled its vessel charters. The defendants assert that, given Russell's unsatisfactory testimony about the assumptions stated in the July 17, 2002 letter, they need additional discovery from PWC in order to "get straight answers" to their questions on this matter.
The Court does not agree. In the first place, based on a review of the transcript of the renewed deposition of Russell taken on January 29, 2003, the Court finds that his testimony with respect to MAP's estimated loss from exiting the operation of its vessels and its exit cost accrual reserve was neither vague nor equivocal. Moreover, the defendants have had opportunities to seek to depose a representative of PWC previously during the course of this litigation. Indeed, in a letter dated July 29, 2002, counsel for the defendants informed counsel for the plaintiff that "we intend to subpoena MAP's accountants [PWC] concerning the basis for the exit cost reserve and any communications concerning whether the vessels were uneconomic." In his reply, dated July 30, 2002, counsel for the plaintiff stated, inter alia, that the plaintiff would object to any attempt to subpoena PWC, and noted that Peiffer had testified at length about the reserve fund established by MAP to cover the losses it sustained from exiting the operation of the vessels, at a deposition held in November 2000. As plaintiff observes, the defendants did not pursue their aim of compelling production of PWC, and have made no additional attempts to depose PWC until the filing of the instant motion.
Furthermore, the defendants have not provided any new information which would warrant permitting a deposition of plaintiff's accountant at this time. As of May 2002, Equili was aware that Elmer's testimony concerning, among other things, whether the subject vessels were uneconomic would be based on the spreadsheet prepared by Russell. At that time, the defendants demanded an opportunity to depose Russell regarding the contents of the spreadsheet and the assumptions that were to be provided to Elmer for the purposes of his expert testimony. Plaintiff, after first opposing the demand, subsequently agreed to it. Russell was then deposed on June 25, 2002, and, as discussed earlier, was again deposed on January 29, 2003. Russell's January 2003 deposition represented the most recent of several occasions upon which the defendants have been in a position to obtain relevant information concerning MAP's accounting procedures and any related subjects. Given the opportunities defendants have had to pursue discovery on this issue, including the opportunity to seek to depose a representative of PWC, and the absence of any new information which would warrant directing plaintiff to make its accountant available for deposition at this time, the Court has determined that deposition of PWC is unwarranted. Accordingly, this branch of the defendants' motion for sanctions is denied.
Russell Memorandum
Equili seeks the production of a memorandum prepared by Russell for MAP's counsel prior to his renewed deposition in January 2003. According to the defendants, in light of Russell's change in testimony at his renewed deposition, the memorandum, which plaintiff claims is a privileged communication, is not deserving of protection and should be disclosed.
The purpose of the attorney-client communication privilege is to protect only those confidential communications exchanged between an attorney and his or her client that are necessary for the client to obtain and the attorney to provide informed legal advice. The privilege, designed to facilitate openness and full disclosure between the attorney and the client, shields from discovery advice given by the attorney as well as communications from the client to the attorney. See,e.g., Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677 (1981).
A review of the plaintiff's privilege log shows that this document was a communication between Russell and counsel for the plaintiff concerning this litigation. Therefore, the Court finds that the document is covered by the attorney-client privilege. Furthermore, the Court finds that the defendants have not provided a convincing reason why the document is not deserving of protection and should be produced. Accordingly, the defendants' motion to compel production of the Russell memorandum is denied.
Monetary Sanctions
The defendants claim that plaintiff has disregarded the Court's discovery orders by producing documents after the discovery deadline. According to the defendants, they have been prejudiced by this belated discovery, as well as by Russell's change in testimony during his renewed deposition. Consequently, defendants contend, they are entitled to sanctions in the amount of § 50,000 against the plaintiff and its counsel.
Plaintiff acknowledges that the January 2003 document production occurred after the end of discovery in this action. Plaintiff maintains, however, inter alia, that the documents were produced pursuant to MAP's duty under Fed.R.Civ.P. Rule 26(e) to supplement prior responses and that, although some of the documents had been produced previously, "it appeared more expedient to produce them without waiting for the time needed to review the files to make this determination." However, as the defendants point out, plaintiff has failed to establish, by Bates number identification or some other suitable method, that any of the documents produced in January 2003 were produced previously.
Furthermore, this is the second time in the course of this litigation that the plaintiff has produced relevant documents belatedly. Thus, in the Spring of 2002, the plaintiff produced 36 boxes of accounting documents and voyage files which should have been produced earlier pursuant to the Court's order of August 16, 2001, directing the plaintiff to disclose all non-privileged documents in response to the defendants' document requests. Accordingly, in July 2002, the plaintiff was directed to pay the reasonable expenses, including attorney's fees, incurred by the defendants in connection with the reexamination of certain individuals necessitated by the late document production.
The plaintiff's failure to comply with a discovery order for the second time and its inability to provide a reasonable explanation for the failure, persuades the Court that this is an appropriate case for sanctions. However, the Court finds that the amount of sanctions sought by the defendants, that is, § 50,000, is excessive under the circumstances.
The parties have resolved the principal issues raised by the defendants in their sanctions motion, namely, whether Russell's change in testimony during his January 2003 deposition necessitated: (i) the preclusion of MAP's use of the spreadsheet prepared by Russell and the testimony of any witnesses concerning that document, and (ii) the striking of certain portions of MAP's Local Civil Rule 56.1 statement, submitted in support of its motion for summary judgment. Moreover, the plaintiff has already paid § 10,651.50 in attorney's fees and § 54.69 in expenses incurred by the defendants in connection with the renewed or additional depositions that were occasioned by the January 2003 document production. Therefore, under the circumstances, the Court finds that a lesser sanction will serve the discovery rule's purposes of obtaining compliance with discovery orders, ensuring the plaintiff does not benefit from non-compliance and providing a general deterrent. Accordingly, pursuant to Fed.R.Civ.P. 37, plaintiff shall pay to defendants a monetary sanction of § 3,500.
IV. CONCLUSION
For the reasons set forth above, the defendants' motion for sanctions is granted in part and denied in part. The defendants' motion for monetary sanctions is granted to this extent: plaintiff is ordered to pay to the defendants sanctions in the amount of § 3,500. The defendants' motion to compel production of plaintiff's accountant, PWC, for deposition is denied. Further-more, the defendants' motion to compel production of the Russell memorandum also is denied.
SO ORDERED.