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

Background

Management Registry, Inc. (MRI) brought claims against A.W. Companies, Inc., Allan K. Brown, Wendy Brown, and Milan Batinich after a corporate acquisition went wrong. The parties had extensive disputes over discovery—the exchange of information before trial—for nearly two years.

The court had ordered the defendants to produce electronic records in a specified manner. The opinion describes repeated problems, including missing documents, corrupt files, missing or defective metadata, improper labeling, and failures to comply with discovery orders. MRI filed multiple motions to compel discovery and sought sanctions. The magistrate judge awarded MRI fees, recommended additional sanctions against attorney Alexander Loftus under 28 U.S.C. § 1927, and recommended a jury instruction concerning the defendants’ discovery conduct.

Defendants’ objections

The defendants argued that sanctions were unwarranted, excessive, cumulative of other sanctions, and unsupported because their discovery problems resulted from technical issues rather than intentional misconduct. They also argued that Loftus had not unreasonably multiplied the proceedings, had not acted in bad faith, and had not received adequate notice or an opportunity to respond. Finally, they challenged the proposed jury instruction because the court had not identified a particular damaging document that the defendants withheld.

Court’s analysis

The court held that eventual production of required documents did not excuse the defendants’ repeated failures to comply with discovery orders. It also found that the defendants, rather than MRI, were responsible for coordinating the technical efforts needed to correct the production problems. The court found no clear error in the magistrate judge’s Rule 37 sanctions and affirmed the sanctions orders.

The court separately reviewed the recommended sanctions against Loftus. Section 1927 permits an award of fees against an attorney who unreasonably and vexatiously multiplies court proceedings. The court found that Loftus had notice of the possible sanctions, received the magistrate judge’s recommendation, and had an opportunity to object. It concluded that his persistent and unprofessional conduct, including improper discovery motions, failure to follow court instructions, and conduct involving the production of financial documents, justified sanctions.

The court also concluded that the defendants’ repeated discovery failures left it without confidence that all required documents had been produced. It therefore approved an instruction that the defendants failed to cooperate in discovery, from which the jury may infer that they attempted to conceal information that would not have helped their position.

Disposition

The court overruled the defendants’ objections, adopted the magistrate judge’s reports and recommendations, and affirmed the sanctions orders. It awarded MRI $86,018.93 in attorney’s fees and expenses under Federal Rule of Civil Procedure 37, payable jointly and severally by the defendants and Alexander Loftus. It additionally awarded MRI $25,000 in attorney’s fees and expenses against Loftus under § 1927. At trial, the jury must be instructed that the defendants failed to cooperate in discovery and may infer from that fact that they attempted to conceal unfavorable information.