Opinion
00 Civ. 4598 (SAS) (THK)
November 15, 2001
James D. McConnell, Jr., Esq., Hargarves Costigan, P.C., New York, New York.
William Costigan, Esq., Costigan Co., P.C. New York, New York.
MEMORANDUM OPINION AND ORDER
This action, for breach of contract, ERISA violations, violations of the New York Labor Law, unjust enrichment, and disregard of the corporate form, arises out of claims that Defendant William F. Costigan, an attorney who is the sole controlling shareholder of the Defendant Yaw firm, Costigan Co., P.C., failed to pay compensation and other benefits and debts to the Plaintiff attorneys who were employed by his firm (and who are also his brother and cousins). The case was referred to me by the Hon. Shira A. Scheindlin, United States District Judge, for resolution of discovery disputes and for settlement. Presently before the Court is Plaintiffs' application for sanctions, arising out of Defendants' failure to comply with discovery orders issued by the Court.
BACKGROUND
In February 2001, Plaintiffs sought the Court's assistance in securing responses to their document request, which had been outstanding since December 18, 2000. On March 15, 2001, the Court conferred with the parties, and Defendants committed to producing the requested documents later that day. However, further delays ensued and, although some documents were subsequently produced, Plaintiffs claimed that the production was still not complete. The parties exchanged communications about their discovery disputes in April and May, and then sought further assistance from the Court.
On June 20, 2001, a conference was held with the parties in order to address outstanding discovery issues. At that conference, the Court ordered Defendants to provide, by July 21, 2001: (1) documents responsive to a number of Plaintiffs' December 18, 2000 requests for production of documents; (2) responses to some of Plaintiffs' April 13, 2001 requests for admissions; and (3) responses to certain interrogatories promtulgated by Plaintiffs on April 27, 2001. (Hearing Transcript("Hearing Tr."), June 20, 2001. On July 31, 2001, Plaintiffs advised the Court that they had received none of the required discovery, and they sought relief for Defendants' failures. (Letter of John P. McConnell, July 31, 2001.) Defendants failed to respond to Plaintiffs' request for relief and, after being instructed to submit a response by the Court, Defendants submitted a letter to the Court in which they stated that they intended to hand-deliver the required material to Plaintiffs' counsel on August 16, 2001. (Letter of William F. Costigan, Aug. 15, 2001.) Notwithstanding that representation to the Court, no discovery material was hand-delivered to Plaintiffs on August 16, 2001. Instead, amended responses to the requests to admit and interrogatories were telefaxed to Plaintiffs on August 20; in addition, Defendants advised Plaintiffs that the documentary discovery had been mailed to them on August 20, 2001. Plaintiffs reiterated their request for sanctions. (Letter of John P. McConnell, Aug. 24, 2001.)
By letter dated August 28, 2001, Plaintiffs advised the Court that late in the day of August 24, 2001, Defendants' documents were hand-delivered to them; however, the document production was incomplete, and Plaintiffs once again sought sanctions. (Letter of James D. McConnell, Jr., Aug. 28, 2001.) Again, no response was received from Defendants.
In response to a request from the Court for an update on the state of discovery, on October 1, 2001, Plaintiffs informed the Court that the documents they had reported missing from the production on August 28, 2001, had still not been produced by Defendants. Specifically, they had not received most of the Defendant firm's 1994 payroll records, its 1994 check register, and its 401(k) remittance forms for 1994 and 1995. Plaintiffs requested that Defendants' Answer be stricken and that a default judgment be entered as to Defendants' liability, or in the alternative, that other relief be provided. (Letter of John P. McConnell, Oct. 1, 2001.) Defendants, once again, did not respond to Plaintiffs' submissions to the Court.
There thus remained little doubt that Defendants should be sanctioned because of their long-standing dereliction in producing responsive discovery; indeed, Defendants all but conceded that sanctions were justified by their failure to respond to any of Plaintiffs' letters and requests for sanctions. Nevertheless, because of the Court's concern that any sanctions imposed be tailored to Defendants' discovery failures, the Court scheduled a conference with the parties. At that conference, on October 31, 2001, for the first time since the entry of the Court's June 20 Orders, Defendants' counsel took the position that any responsive documents that had not been produced may have been either inadvertently destroyed or lost.
Defendants also claimed that Plaintiffs had not complied with the Court's June 20 directive to produce certain discovery, and they sought an order requiring such production. As indicated at the October 31 conference, Defendants have waived their right to such relief, inasmuch as the Court ordered the discovery by July 21, 2001, and the deadline for completion of discovery passed months ago; nevertheless, Defendants never contacted Plaintiffs or the Court with regard to this claim, and they waited until October 31, the day the Court addressed their own discovery failures, to raise this issue for the first time. Moreover, Plaintiffs contend that, in July, they provided all of the required discovery to Defendants.
DISCUSSION
Plaintiff's motion for sanctions is brought under Rule 37 of the Federal Rules of Civil Procedure, which provides the framework for the imposition of sanctions for failure to comply with a court'sdiscovery orders. The Rule provides that a court may make such orders in regard to a discovery failure "as are just," including (1) an order deeming certain facts to be established, or precluding a party from submitting certain evidence or opposing its adversary's claims; (2) an order striking out pleadings or rendering a judgment by default; (3) an order of contempt; and (4) an order requiring the disobedient party to pay the reasonable expenses, including attorney's fees, caused by the disobedient party's failure. See Fed.R.Civ. p. 37(b)(2). "Rule 37 sanctions must be applied diligently both to penalize those whose conduct may be deemed to warrant such a sanction, [and] to deter those who might be tempted to such conduct in the absence of a deterrent." Roadway Express, Inc. v. Piper, 447 U.S. 752, 763-64, 100 S.Ct. 2455, 2463 (1980) (quoting Nat'l Hockey League v. Metro. Hockey Club, 427 U.S. 639, 643, 96 S. Ct. 2778, 2781 (1976)); see also Cine Forty-Second St. Theatre Corp. v. Allied Artists Pictures Corp., 602 F.2d 1062, 1066 (2d Cir. 1979).
The discovery process in this proceeding has been unnecessarily protracted. Although Plaintiffs' initial discovery requests were overbroad and somewhat redundant, Defendants' responses to those requests have been totally inadequate and untimely. The Court spent a great deal of time with the parties on June 20, attempting to focus the parties on those requests that were most pertinent; nevertheless, despite the passage of four months, Defendants have failed to comply with Court orders requiring responses to even a limited number of Plaintiffs' requests. Moreover, Defendants have simply ignored Plaintiffs' communications with the Court seeking relief and sanctions because of Defendants' discovery failures. Although they now contend that the documents they have not produced may have been either lost or destroyed, this eleventh-hour claim does not excuse their violation of this Court's orders, or otherwise justify their dilatory conduct.
Had the Court not taken the initiative of scheduling a conference with the parties before imposing sanctions, it would still be faced with a record of Defendants' four-month silence in response to Plaintiffs' repeated requests-for sanctions because of Defendants' long-term discovery failures. At no time since March 15, 2001, when Defendants committed to producing the requested documents, or since June 20, when the Court ordered that certain discovery be produced, have Defendants advised either Plaintiffs or the Court that they were incapable of complying with Plaintiffs' requests or with the Court's orders. Indeed, at the June 20 conference, Defendants were specifically instructed that if the documents in issue could not be located within 30 days, they were to advise Plaintiffs and the Court of that fact, and provide an explanation and date by which they would comply. (Hearing Tr. at 35.) They never did so. Even in their untimely letter of August 15, they simply stated that they had assembled the responsive documents, and acknowledged their delay in complying with the Court's orders; they neither disputed their violation of the June 20 Orders, opposed the relief requested by Plaintiffs, nor claimed that they were unable to comply.
Plaintiffs' document request has been outstanding since December 2000. The Court's Scheduling Order (Scheindlin, J.) required Defendants to produce documents responsive to Plaintiffs' requests by January 29, 2001. (Scheduling Order, Nov. 29, 2000, ¶ 3(b).) A further Order of this Court required Defendants to produce the documents in issue by July 21, 2001. At this point, whether those documents have in fact been lost, destroyed, or simply not produced, need not be determined, and does not merit the expenditure of further resources by the Court. Defendants' belated excuse simply exacerbates, rather than justifies, their non-compliance. Had Defendants taken their discovery obligations seriously, they would have determined many months ago whether or not they had responsive documents and, if they did not, they were obligated to make reasonable efforts to secure them. For example, if a portion of the firm's check register was found to be missing, Defendants could have secured comparable documentation from their bank, in the form of checking statements and canceled checks. Similarly, copies of remittance forms that accompanied 401(k) contributions could have been secured. Instead, Defendants simply stonewalled and mislead Plaintiffs and the Court into believing that they were in the process of producing responsive documents. Accordingly, there is little doubt that Defendants should be sanctioned for their violation of this Court's orders. See Fed.R.Civ.P. 37(b).
Defendants' counsel stated at the October 31 conference that the documents in issue may have been lost or destroyed in 1999, when he changed his office location. If true, this might disprove conscious spoliation of evidence, since this action was not initiated until the following year; however, this equivocal and untimely claim does not justify Defendants' long-standing discovery failures and their utter lack of responsiveness to Plaintiffs' communications with the Court about those discovery failures.
Plaintiffs have requested that Defendants' Answer be stricken, that a default judgment be entered, and that they be reimbursed for the costs and expenses incurred in attempting to secure responses to their discovery requests. The Court declines to strike Defendants' Answer or to enter a default judgment against Defendants. The Court finds, however, that there are appropriate, alternative sanctions.
Rule 37 vests a district court with wide discretion in imposing sanctions. See Nat'l Hockey League, 427 U.S. at 643, 96 S.Ct. at 2781;Bobal v. Rensselaer Polytechnic Inst., 916 F.2d 759, 764 (2d Cir. 1990);Outley v. City of New York, 837 F.2d 587, 590 (2d Cir. 1988); Baba v. Japan Travel Bureau Int'l, Inc., 165 F.R.D. 398, 402 (S.D.N.Y. 1996). Although the sanctions Plaintiffs seek are provided for in Rule 37(b)(2)(C), entry of a default judgment and/or dismissal of a party's claims are the harshest sanctions in the Court's arsenal, see Cine Forty-Second St. Theatre Corp., 602 F.2d at 1066, and generally should be reserved for those instances where there has been willfulness or bad faith in discovery, and where less severe alternatives would not be effective. Cf. Bobal, 916 F.2d at 764 ("[D]ismissal with prejudice is a harsh remedy to be used only in extreme situations."). In determining whether a default judgment should be entered, the following factors are relevant:
(a) willfulness or bad faith on the part of the noncompliant party; (b) the history, if any, of noncompliance; (c) the effectiveness of lesser sanctions; (d) whether the noncompliant party had been warned about the possibility of sanctions; (e) the client's complicity; and (f) prejudice to the moving party.Am. Cash Card Corp. v. ATT Corp., 184 F.R.D. 521, 524 (S.D.N Y 1999);see also Yucyco. Ltd. v. Ljubljanska Banka D.D., No. 96 Civ. 4274 (DC), 2001 WL 699135, at *4 (S.D.N.Y. June 20, 2001); New Pac. Overseas Group (USA) Inc. v. Excal Int'l Dev. Corp., No. 99 Civ. 2436, 99 Civ. 3581 (DLC), 2000 WL 377513, at *7 (S.D.N.Y. Apr. 12, 2000) (the five factors used to determine whether to impose the sanction of default include the duration of the party's failures, whether the party has received notice of the potential sanctions, the prejudice to the party seeking relief arising from the noncompliant party's actions, due process considerations, and the efficacy of lesser sanctions).
Defendant Costigan, representing both himself and his law firm, is in fact the primary Defendant in this action. He has willfully disregarded Court orders and has shown complete indifference to communicating with the Court and his adversaries, as he is obligated to do as part of the discovery and litigation process. Nevertheless, in the instant action, the entry of a default judgment would be unduly harsh and excessive in relation to the scope of Defendants' noncompliance and the prejudice resulting to Plaintiffs. See New Pac. Overseas Group, 2000 WL 377513, at *6 ("The sanctions imposed must be just and must relate to the particular claim to which the discovery order was addressed.").
The specific documents Plaintiffs have not received from Defendants are the Defendant firm's check register for 1994; the firm's payroll records for 1994, with the exception of those for June 14 and 30, 1994; and 401 (k) account contribution remittance forms for 1994 and 1995. These documents are only pertinent to Plaintiffs' Second Claim for Relief, for violations of duties imposed by ERISA, and relate to only a limited period for which Plaintiffs seek ERISA relief. Defendants have produced in discovery comparable documents for the period 1996-98, which represents the most significant period, both factually and legally, for Plaintiffs' ERISA claims. Thus, any prejudice Plaintiffs might suffer as the result of Defendants' failure to produce the ordered documents is limited to only a small segment of their claims.
Specifically, Plaintiffs claim that although they authorized the Defendant firm to defer designated amounts from their compensation for deposit to their respective 401(k) retirement accounts, the deferred compensation was not segregated from the firm's other accounts, was used for Defendants' benefit, and was not timely remitted to the Plaintiffs' retirement accounts.
Moreover, a less draconian sanction than a default judgment is available to effectively address Defendants' noncompliance. Rule 37 provides that the Court may "refus[e] to allow the disobedient party to support or oppose designated claims . . . or prohibit (I the party from introducing designated matters in evidence." Fed.R.Civ.P. 37(b)(2)(B); see also Daval Steel Prods. v. M/V Fakredine, 951 F.2d 1357, 1367 (2d Cir. 1991) ("Although an order granting a claim and precluding a party from presenting evidence in opposition to it is strong medicine, such orders are necessary on appropriate occasion to enforce compliance with the discovery rules and maintain a credible deterrent to potential violators."). Given the relatively limited scope of Defendants' failure to produce documents, in relation to the totality of Plaintiffs' claims, an order precluding Defendants from opposing, on factual grounds, Plaintiffs' ERISA claims covering the period 1994-95, is a more tailored and proportionate remedy than a complete default.
Defendants contend that at least a portion of Plaintiffs' ERISA claim is barred by the statute of limitations, and it is not the Court's intention to preclude them from advancing such an argument in a motion for summary judgment. Nor would Defendants' failure to produce the documents in issue prejudice Plaintiffs in opposing a motion for summary judgment brought on such grounds.
In addition, Defendants shall pay to Plaintiffs the costs and attorney's fees incurred in securing the relief provided by the Court.See Nat'l Hockey League, 447 U.S. at 763, 100 S.Ct. at 2462-63 ("Both parties and counsel may be held personally liable for expenses, "including attorney's fees, ' caused by the failure to comply with discovery orders."); New Pac. Overseas Group, 2000 WL 377513, at *10. Specifically, Plaintiffs shall be compensated for the time expended in corresponding with Defendants and the Court since the June 20 conference, in order to secure compliance with the Court's June 20 Order. If the parties cannot agree on reasonable compensation, Plaintiffs' counsel shall, by November 29, 2001, submit proof through affidavits (and time records), of the time spent on its efforts since June 20 to secure compliance with the Court's rulings; its hourly billing rates for the attorneys who contributed to this effort (along with a summary of their legal experience); and support for any other costs related to the enforcement effort. Defendants shall have five days from service of the submission to submit a response.
CONCLUSION
For the foregoing reasons, Defendants shall be precluded from submitting evidence in opposition to Plaintiffs' ERISA claim for the period 1994 through 1995, and shall compensate Plaintiffs for the costs and fees incurred in attempting to secure compliance with the Court's June 20 Order.
All other pretrial activity has been completed and, as agreed to at the October 31 conference, the parties shall promptly contact Judge Scheindlin's Chambers with respect to a pre-motion conference.
So ordered.