Opinion
No. 06 Civ. 52 (JGK)(KNF).
August 18, 2006
AMENDED MEMORANDUM and ORDER
This Memorandum and Order has been amended to make clear that when the word "defendants" is used throughout this writing, it refers only to defendants: NCC Sportswear Corp., Charles Sobel and Robert Cesaria.
Plaintiff Nanjing Textiles Import Export Corp., Ltd. ("Nanjing") has made a motion for sanctions to be imposed by the Court on the defendants, their attorney Marc Gross ("Gross") and Gross's law firm, based upon allegations of: (1) attorney misconduct; and (2) willful failure to comply with an order of the Court.
The plaintiff's motion is brought pursuant to Fed.R.Civ.P. 30 and 37, and 28 U.S.C. § 1927.
The defendants oppose the plaintiff's motion and have made a cross-motion for the Court to: (a) impose sanctions on the plaintiff; and (b) seal portions of the record. The defendants' motion is premised on allegations that the plaintiff's counsel engaged in misconduct and disclosed the defendants' confidential information willfully. The parties' respective motions are addressed below. Attorney Misconduct
Based upon the written submissions made by the parties concerning attorney misconduct, the Court has determined that a hearing should be held in order to assess fully the pertinent facts and circumstances. The hearing will be held in courtroom 20A, 500 Pearl Street, New York, New York, on August 21, 2006, at 10:30 a.m.
With respect to the remaining issues raised by the parties' respective motions, the Court finds the following:
Fed.R.Civ.P. 37
Fed.R.Civ.P. 37 grants to a court broad discretionary authority to impose a sanction(s) upon a party to a litigation that has breached its discovery obligations. See Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.3d 99, 113 (2d Cir. 2002). Fed.R.Civ.P. 37 is flexible in that it directs a court to make such orders "as are just." Therefore, a court is not limited to imposing any particular sanction for a party's failure to comply with its discovery obligations. In addition to the authority conferred on a court by Fed.R.Civ.P. 37, a court also has the inherent power to impose a sanction on a party for misconduct in discovery. See DLC Management Corp. v. Town of Hyde Park, 163 F.3d 124, 135-36 (2d Cir. 1998).
Failures to produce relevant information during discovery are to be analyzed on a case-by-case basis because such failures typically occur "along a continuum of fault — ranging from innocence through the degrees of negligence to intentionality."Reilly v. Natwest Markets Group, Inc., 181 F.3d 253, 267 (2d Cir. 1999) (quoting Welsh v. United States, 844 F.2d 1239, 1246 [6th Cir. 1988]).
The Plaintiff's MotionFailure to Disclose Defendants' Financial Statements and Rental Records
During a telephonic conference with the Court on March 15, 2006, defendants were directed to disclose financial statements and rental records covering a period of six months. Thereafter, the defendants provided the plaintiff with an income statement dated September 30, 2005 ("NCC's Financial Statement"). To date, the defendants have not provided rental records to the plaintiff.
The plaintiff contends that the defendants disobeyed, willfully, the Court's March 15, 2006 directive that required them to make specific disclosures pertinent to the defendants' solvency. The Court has reviewed NCC's Financial Statement; it does not comport with the Court's directive to produce financial statements relevant to NCC's solvency. Absent disclosure of items such as a balance sheet, a statement of cash flow, and/or a statement of retained earnings, the Court finds that an income statement, such as the one produced by the defendants, cannot reasonably be used to evaluate a corporation's solvency. In addition to the paucity of information disclosed through NCC's Financial Statement, the defendants have not disclosed to the plaintiff any rental records. The defendants have not provided any justification for their failure to comply fully with the Court's directive.
Therefore, within ten (10) days of the date of this Order, the defendants shall disclose to the plaintiff: (a) NCC's financial statements, including but not limited to its balance sheets, statements of cash flow, and statements of retained earnings, for the past year; and (b) all rental/lease records for the defendants' place of business, for the past ten months. Inasmuch as the defendants have provided no justification for their failure to comply with the Court's March 15, 2006 directive, the plaintiff's motion for sanctions is granted. In accordance with Fed.R.Civ.P. 37, the defendants shall pay the costs and reasonable attorney's fees the plaintiff incurred in preparing this portion of its motion. Data respecting the relevant costs and fees should be provided by the plaintiff to the defendants expeditiously. Any challenge by the defendants to the reasonableness of the amounts claimed by the plaintiff should be provided to the Court for resolution.
Although the plaintiff has urged that the appropriate sanction for the defendants' misconduct would be for the Court to find certain facts to be established for the purpose of this litigation, the Court finds that such a sanction is not warranted at this time.
The Defendants' Motion Improper Disclosure of NCC's Financial Statement and Defendants' Salaries
The defendants contend that counsel to the plaintiff disclosed the defendants' confidential financial and salary information to the public, willfully. On April 21, 2006, the Court directed the plaintiff, in writing, "to safeguard NCC's Financial Statement from public dissemination." However, on May 26, 2006, counsel to the plaintiff filed the instant motion and included a copy of NCC's Financial Statement as Exhibit A to Mohamad Akbik's affidavit ("Akbik Affidavit"). NCC's Financial Statement is now available to the public, through the court's Public Access to Court Electronic Records system ("PACER"). The plaintiff's counsel contends that the complained of action did not violate the April 21 protective order issued by the Court because the document was disclosed "for the purposes of the case" and not "for competitive or business purposes." The Court disagrees.
The Court finds that counsel to the plaintiff should be sanctioned for attaching NCC's Financial Statement to publicly filed motion papers. Therefore, counsel to the plaintiff shall pay the costs and reasonable attorney's fees the defendants incurred in preparing this portion of their cross-motion. Data respecting the relevant costs and fees should be provided by the defendants to the plaintiff expeditiously. Any challenge by the plaintiff to the reasonableness of the claimed by the defendants should be provided to the Court for resolution. Furthermore, the defendants' request, that the Court seal NCC's Financial Statement, is granted. The Clerk of Court for this judicial district is directed to seal Exhibit A to the Akbik Affidavit that was filed on May 26, 2006.
Improper Disclosure of Defendants' Salaries
In addition to NCC's Financial Statement, the defendants contend that Akbik, one of the attorney's representing the plaintiff, disclosed, improperly, information about the defendants' annual salaries during the March 31, 2006 conference held by the Honorable John G. Koeltl. Based on the submissions made by the parties, the Court finds that Akbik did not engage in any improper conduct during his appearance before Judge Koeltl. The defendants' request for sanctions against the plaintiff for Akbik's statements on March 31, 2006, is denied.
Akbik stated that "[w]e know Cesaria and Sobel are getting their salaries of several hundred thousand dollars." See Exhibit N to the Declaration of Marc Gross dated March 31, 2006.
SO ORDERED.