Jenkins v. Xpresspa Group, Inc.

Background

The underlying case concerns an earn-out provision in a Stock Purchase Agreement for the sale of Plaintiffs’ business. Plaintiffs alleged that the agreement entitled them to additional payments if certain benchmarks were met and allowed those payments to be accelerated if three conditions occurred.

The sanctions motion concerned a deposition under Federal Rule of Civil Procedure 30(b)(6), which requires a corporation to designate a person to testify about information known or reasonably available to the organization. The parties agreed that no current XpresSpa employee had firsthand knowledge of the listed subjects. They therefore entered a court-approved stipulation treating the testimony of Andrew Perlman and Anastasia Nyrkovskaya as corporate-representative testimony and limiting the subjects for a later corporate deposition to five topics. The stipulation also provided that the corporate representative would not have to answer further questions on a subject if he testified that he had no information beyond the existing record, which included documents and the earlier deposition transcripts.

XpresSpa designated Bruce Bernstein, its Chairman of the Board, as the corporate representative. His deposition lasted about four hours and produced a transcript of more than 140 pages. Bernstein testified that he searched for people with personal knowledge of Plaintiffs or the agreement but found no one. He had prepared with counsel for about 90 minutes and reviewed some documents, but he had not read Perlman’s or Nyrkovskaya’s deposition transcripts. Plaintiffs challenged his testimony concerning three of the five agreed topics.

Plaintiffs’ Arguments

Plaintiffs sought sanctions under Rules 30(d)(2), 37(b), and 37(d), as well as the court’s inherent authority. They requested reimbursement of the fees and expenses of conducting Bernstein’s deposition and bringing the sanctions motion, along with an order striking XpresSpa’s affirmative defenses.

Plaintiffs argued that Bernstein’s answers were nonresponsive and amounted to XpresSpa’s failure to appear for the deposition. They also argued that his answers showed a lack of good faith. XpresSpa acknowledged that Bernstein sometimes appeared uncertain, could not remember information he had reviewed, and consulted counsel off the record three times to refresh his recollection. XpresSpa nevertheless argued that sanctions were unwarranted.

Court’s Analysis

The court explained that a corporation must make a conscientious, good-faith effort to identify and prepare a witness who can answer fully and directly about information reasonably available to the organization. Sanctions may be imposed for failure to comply with a court order or for failing to appear at a deposition. Courts may treat the production of an unprepared corporate witness as equivalent to a failure to appear, but the deficiencies generally must be serious rather than limited problems with detail. Relevant considerations include the reason for the failure, whether lesser sanctions would work, how long the failure lasted, whether the party was warned, and any prejudice to the other side.

The court rejected Plaintiffs’ claim that XpresSpa failed to appear. Although Bernstein’s answers were not a model of clarity or grammar, the court found them responsive. He testified at length, and Plaintiffs did not challenge his testimony on two of the five topics. The court also found that Plaintiffs could have confronted Bernstein with specific portions of the earlier testimony or documents and asked him to adopt or reject them. Because the parties had agreed that he would not need to testify beyond the existing record, any limited shortcomings did not justify sanctions.

The court also rejected the claim of bad faith. XpresSpa had informed Plaintiffs before the deposition that no current employee had firsthand knowledge and that the corporate representative’s testimony would be based on the produced documents and the earlier depositions. Plaintiffs therefore received the type of testimony XpresSpa had said they should expect. The court found that Bernstein’s inability to answer some questions without counsel’s assistance, and the three instances in which counsel refreshed his recollection, did not interfere with Plaintiffs’ ability to conduct the deposition or obtain substantive testimony. The court further noted that XpresSpa had not received prior judicial warnings about noncompliance or the risk of sanctions.

Ruling

Judge Sarah L. Cave denied Plaintiffs’ sanctions motion. The Clerk of Court was directed to close the motion.