Management Registry, Inc. v. A.W. Companies, Inc.

Background

Management Registry, Inc. brought claims against A.W. Companies, Inc., Allan K. Brown, Wendy Brown, and Milan Batinich after events that followed a corporate acquisition. This order addressed discovery sanctions, not the underlying claims arising from that acquisition.

The parties had litigated discovery issues for almost two years. The court described repeated problems with the defendants’ electronically stored information, including missing documents, corrupt files, missing or defective metadata, and improper or duplicative Bates numbering. The defendants also failed to comply with multiple discovery orders and did not complete required efforts to address technical problems. Management Registry filed several motions to compel and for sanctions.

Magistrate Judge Katherine M. Menendez issued an April 20, 2020 Order and Report and Recommendation addressing sanctions and fee requests. She ordered the defendants to pay $16,018.93 for one motion to compel, $50,000 for violations of discovery orders, and additional fees related to Management Registry’s sanctions motion. She also recommended sanctions against Alexander Loftus under 28 U.S.C. § 1927 and a jury instruction concerning the defendants’ discovery conduct. A supplemental order addressed additional fees and recommended a $25,000 § 1927 sanction against Loftus.

Standards of review

The district court reviewed properly objected-to portions of the magistrate judge’s recommendations de novo, meaning independently. It reviewed nondispositive discovery rulings for clear error or a conclusion contrary to law, a highly deferential standard requiring a definite and firm conviction that a mistake was made.

Rule 37 sanctions

Federal Rule of Civil Procedure 37 permits sanctions when a party fails to obey a discovery order or fails to provide required discovery. The defendants argued that they eventually produced the required documents, that their failures resulted from technical problems, that their conduct was not willful, and that Management Registry had not adequately attempted to resolve the disputes before seeking court intervention.

The court rejected those arguments. It held that eventual production did not excuse repeated violations of court orders and that willful disobedience was not required for the sanctions imposed. The court found that the defendants were responsible for coordinating the technical work needed to correct their production and had failed to do so. It also found that the record contained numerous meet-and-confer efforts, status reports, and communications about the discovery problems.

The court therefore overruled the defendants’ objections and affirmed the Sanctions Order and Supplemental Sanctions Order. It ordered that Management Registry receive $86,018.93 in attorney’s fees and expenses related to the discovery violations and motions to compel, to be paid jointly and severally by the defendants and Alexander Loftus.

Sanctions against Alexander Loftus under § 1927

Section 1927 permits an award of fees against an attorney who unreasonably and vexatiously multiplies proceedings. The defendants argued that Loftus had not acted improperly or in bad faith and that he had not received adequate notice or an opportunity to respond.

The court found that Loftus had been warned about possible § 1927 sanctions, received the magistrate judge’s recommendation, and submitted objections. The court concluded that he therefore received sufficient notice and an opportunity to be heard.

The court also found that Loftus’s conduct included filing motions without reviewing information already produced, failing to follow meet-and-confer requirements, filing a motion to strike a modified sanctions motion, refusing to comply with an order requiring an affidavit about his discovery involvement, and producing documents labeled “Irrelevant Non-Responsive Misc. Invoices.” Considering this conduct together, the court found that Loftus had unreasonably and vexatiously multiplied the proceedings. It ordered Loftus to pay Management Registry an additional $25,000 in attorney’s fees under § 1927.

Adverse jury instruction

The defendants also objected to an adverse jury instruction, arguing that the record did not establish that they withheld any particular damaging document and that the instruction would duplicate other sanctions.

The court found that the defendants’ repeated discovery failures, violations of court orders, and delays left the court without confidence that the defendants had produced all relevant discovery. It adopted the magistrate judge’s recommendation and ordered that, at trial, the jury be instructed that the defendants failed to cooperate in discovery. The jury may infer from that fact that the defendants attempted to conceal information that would not have helped their position.

Disposition

The court overruled the defendants’ objections, affirmed the magistrate judge’s orders, and adopted the Reports and Recommendations. It entered the $86,018.93 fee award against the defendants and Alexander Loftus jointly and severally, entered the additional $25,000 § 1927 fee award against Loftus, and ordered the specified jury instruction.