3E Mobile, LLC v. Global Cellular, Inc., Case No. 14–cv–1975 (EGS)

222 F.Supp.3d 50

3E MOBILE, LLC, Plaintiff/Counterclaim Defendant

v.GLOBAL CELLULAR, INC., Defendant/Counterclaimant

Case No. 14–cv–1975 (EGS)

United States District Court, District of Columbia.

Signed December 22, 2016

Alexander F. Guminski, Sommer Law Group, PC, Pittsburgh, PA, for Plaintiff/Counterclaim Defendant.

John P. Jett, Joshua C. Hess, Stephen E. Hudson, Kilpatrick Townsend & Stockton LLP, Atlanta, GA, Peter M. Boyle, Kilpatrick Townsend LLP, Washington, DC, for Defendant/Counterclaimant.

MEMORANDUM OPINION

Emmet G. Sullivan, United States District Judge

This matter comes before the Court on Global Cellular Inc.'s ("Global") motion to sanction 3E Mobile, LLC ("3E") for its failure to comply with its discovery obligations. Due to 3E's failure to produce documents or respond to certain interrogatories until months after the close of discovery, Global asks this Court to treat as established certain facts, preclude 3E from introducing contrary evidence or argument, and order 3E to pay Global's attorneys' fees. Global Mem. Supp. Mot. for Sanctions ("Global's Mem. Supp."), ECF No. 41 at 1. Upon consideration of the motion, the response and reply thereto, the applicable law, and the entire record, Global's motion will be GRANTED in part and DENIED in part .

I. BACKGROUND

A. Procedural History

3E is a manufacturer of cell phone protective cases and Global is a provider of cell phone accessories. In 2013, Global and 3E settled an intellectual property lawsuit that resulted in a Manufacturing Agreement ("Agreement") under which Global promised to make monthly advance payments to 3E in return for 3E's agreement to manufacture products for Global or source products from Global's manufacturers. Global's Mem. Supp., ECF No. 41 at 4. Although Global made the required advance payments during the first six months of the Agreement, 3E failed to produce any of the products Global ordered. See Mem. Op., ECF No. 21 at 3. When Global brought 3E's inaction to the attention of management, 3E executives advised Global to stop making payments. Id. Nonetheless, when Global halted the payments, 3E brought suit claiming that Global breached the Agreement. Compl., ECF No. 1. Global filed a counterclaim for the payments it had already made to 3E, citing 3E's failure to manufacture the products as required by the Agreement. See Answer and Countercl., ECF No. 5. On August 11, 2015, this Court denied 3E's motion to dismiss Global's counterclaim due to 3E's untenable interpretation of the Agreement which would have allowed 3E to collect Global's advance payments without incurring any obligation to produce the products Global ordered. Mem. Op., ECF No. 21 at 9. The parties then proceeded to discovery.

B. The Parties' Discovery Efforts

On September 11, 2015, Global served its first set of document requests and interrogatories. Global's Mem. Supp., ECF No. 41 at 6. After the parties agreed to stay discovery pending an ultimately unsuccessful mediation, the Court set a fact discovery deadline of August 24, 2016. See Stipulated Revised Scheduling Order, ECF No. 33. On April 29, 2016, Global served a second set of interrogatories and document requests on 3E. Global's Mem. Supp., ECF No. 41 at 7. Because 3E changed counsel before its discovery responses were due, Global agreed to extend the deadline for 3E to respond to Global's first and second rounds of discovery requests to June 2, 2016 and June 3, 2016 respectively. Id. 3E did not respond to either set of discovery requests by June 3, 2016. Id. at 8. After an extended back and forth between counsel and repeated time extensions granted by Global (which 3E consistently ignored), 3E produced written discovery responses on July 19, 2016 in response to Global's first set of discovery requests.¹ Id. at 9. 3E's corresponding document production consisted of approximately 115 pages. Id. Global's numerous letters inquiring as to 3E's failure to respond to Global's second set of discovery requests went unanswered. Id. at 10.

On August 1, 2016, Global filed a motion to compel 3E to produce all responsive, non-privileged documents and respond to Global's second set of interrogatories. Mot. to Compel, ECF No. 38. 3E never filed an opposition and the Court granted the motion.

Minute Entry of December 22, 2016. On August 24, 2016, fact discovery closed pursuant to the Court's scheduling order. At that time, 3E still had not responded to Global's second set of discovery requests. Global's Mem. Supp., ECF No. 41 at 11. On September 30, 2016, more than a month after the close of discovery and after all depositions had been conducted, 3E responded to Global's second set of discovery requests and produced 1,151 pages—i.e. , over nine times as many pages as 3E had produced before depositions took place. Id. Global identified a number of deficiencies in 3E's untimely production, including that 3E omitted all email attachments, neglected to produce specific documents acknowledged in depositions, and withheld "confidential" but non-privileged documents that should have been produced pursuant to the protective order governing this case. Id. at 12–14. In an effort to remedy these deficiencies, 3E made a supplemental production of 597 additional pages on November 11, 2016. See Letter of Nov. 11, 2016, ECF No. 45–1; Global's Mot. for Oral Hearing, ECF No. 46 at 1.

As a result of 3E's actions, Global asks the Court to: (1) order 3E to pay Global's attorneys' fees related to its motion to compel and motion for sanctions; (2) treat certain facts as established; and (3) preclude 3E from introducing contrary evidence or argument. Global's Mem. Supp., ECF No. 41 at 1–2.

II. LEGAL STANDARDS

A. The Court's Power to Sanction Discovery Misconduct

"[D]istrict court judges enjoy wide discretion in managing the discovery process." Shatsky v. Syrian Arab Republic , 312 F.R.D. 219, 223 (D.D.C. 2015) (quotation marks omitted). The Federal Rules of Civil Procedure provide federal courts with the authority to police the parties' conduct during discovery. In particular, Rule 37(b) authorizes federal courts to impose sanctions when a party fails to obey a discovery order. Fed.R.Civ.P. 37(b). Authorized sanctions under Rule 37 include, but are not limited to, designating facts as established for the purpose of the action, entering a default judgment, and ordering the payment of attorney's fees and expenses. Id. In situations where a party has committed discovery abuses but Rule 37 does not apply, a court may issue appropriate sanctions under its inherent power. Shepherd v. Am. Broadcasting Cos., Inc. , 62 F.3d 1469, 1474 (D.C. Cir. 1995).²

The Court of Appeals for the District of Columbia Circuit divides sanctions into two categories: penal sanctions and issue-related sanctions. Id. at 1478. "When selecting the appropriate sanction, the Court must properly calibrate the scales to ensure that the gravity of an inherent power sanction corresponds to the misconduct." Davis v. D.C. Child & Family Servs. Agency , 304 F.R.D. 51, 60 (D.D.C. 2014). The choice of an appropriate sanction is "necessarily a highly fact-based determination based on the course of the discovery process leading up to the sanction[.]" Bonds v. D.C. , 93 F.3d 801, 804 (D.C. Cir. 1996). A court's use of its power to sanction misconduct "should reflect our judicial system's strong presumption in favor of adjudication on the merits." Shepherd , 62 F.3d at 1475.

B. Penal Sanctions

Penal sanctions include dismissals, default judgments, contempt orders, awards of attorneys' fees, and imposition of fines. For those sanctions that "are fundamentally penal—dismissals and default judgments, as well as contempt orders, awards of attorneys' fees, and the imposition of fines—the district court must find clear and convincing evidence [ ] of the predicate misconduct." Id. at 1478. With regard to the Court's ability to use its inherent power to award attorneys' fees and impose fines, the Court must find clear and convincing evidence of bad faith. Parsi v. Daioleslam , 778 F.3d 116, 131 (D.C. Cir. 2015). Bad faith "may be found where a party, confronted with a clear statutory or judicially-imposed duty towards another, is so recalcitrant in performing that duty that the injured party is forced to undertake otherwise unnecessary litigation to vindicate plain legal rights." Am. Hosp. Ass'n v. Sullivan , 938 F.2d 216, 220 (D.C. Cir. 1991) (quotation marks omitted).

C. Issue–Related Sanctions

Issue-related sanctions include adverse evidentiary determinations—such as adverse findings of fact, considering an issue established for the purpose of the action and adverse inferences—and precluding the admission of evidence. Shepherd , 62 F.3d at 1475. A court can impose issue-related sanctions after finding by a preponderance of the evidence that the alleged misconduct occurred. Id. at 1478 (reasoning that issue-related sanctions are "fundamentally remedial rather than punitive" and can be imposed "whenever a preponderance of the evidence establishes that a party's misconduct has tainted the evidentiary resolution of the issue").

With regard to the misconduct giving rise to the sanction, courts have routinely found that an adverse inference instruction is appropriate when a preponderance of the evidence establishes that the conduct was negligent. See, e.g. , Residential Funding Corp. v. DeGeorge Fin. Corp. , 306 F.3d 99, 108 (2d Cir. 2002) (reasoning that the "culpable state of mind" factor for adverse evidentiary determination is satisfied by showing that evidence was destroyed either knowingly or negligently "because each party should bear the risk of its own negligence")(citations omitted); Chen v. District of Columbia , 839 F.Supp.2d 7, 12 (D.D.C. 2011) ("To justify the issuance of an adverse inference instruction, the spoliation of evidence need not be purposeful ... negligent spoliation may suffice.")(citations omitted). Although penal and issue-related sanctions are distinct categories, an issue-related...