Seaman v. National Collegiate Student Loan Trust 2007-2

Background

These consolidated putative class actions concern plaintiffs’ allegations that the defendants used false or deceptive affidavits to obtain state-court default judgments. The relevant dispute involved a Transworld Systems, Inc. employee, identified as Employee A, who had signed an affidavit supporting a default-judgment application against Sandra Tabar.

Plaintiffs served a deposition notice for Employee A. Transworld and Employee A moved to quash the subpoena, citing Employee A’s stress-induced epilepsy. Magistrate Judge Barbara C. Moses denied that motion but provided accommodations, including a remote deposition, a four-hour limit, and reasonable breaks. Transworld and Employee A objected to that ruling, and the district court overruled their objections on February 16, 2021.

During the six months after Transworld filed its objections, Employee A suffered a stroke and resigned from Transworld. Transworld did not disclose those changed circumstances to the plaintiffs, Judge Moses, or the district court during that period. After the district court overruled the objections, Transworld disclosed additional information and Employee A moved for a renewed order allowing a deposition by written questions. Plaintiffs agreed to that format, and Judge Moses ordered the deposition to proceed on written questions.

Magistrate Judge’s Sanctions Order

Plaintiffs moved for sanctions based on Transworld’s delay in disclosing the stroke. They sought adverse evidentiary inferences, costs, and attorneys’ fees. Judge Moses granted the sanctions motion in part, awarding plaintiffs attorneys’ fees and other expenses reasonably incurred in opposing Transworld’s and Employee A’s objections to the earlier deposition order. She relied on Federal Rules of Civil Procedure 16(f) and 37(b), and 28 U.S.C. § 1927.

Judge Moses found that Transworld deliberately withheld information about Employee A’s serious medical event. She concluded that the nondisclosure forced plaintiffs to litigate on the basis of outdated facts, required the district court to decide objections that had become obsolete, unnecessarily multiplied the proceedings, and further delayed the deposition.

District Court’s Review

Under Rule 72(a), the district court reviewed the objections to this nondispositive pretrial order under a deferential standard. It could change the order only if it was clearly erroneous or contrary to law. A clearly erroneous finding is one that leaves the reviewing court firmly convinced that a mistake was made.

Sanctions Under Rules 16(f) and 37(b)

Transworld argued that sanctions under Rules 16(f) and 37(b) were unavailable because it had not violated a court order. The district court agreed with that objection. It explained that sanctions under those provisions require an applicable court order. Judge Moses had treated Transworld’s failure to disclose the changed circumstances as an indirect violation of the July 17, 2020 order and Federal Rule of Civil Procedure 45(d)(3)(A)(iv), which concerns when a court must quash or modify a subpoena because it creates an undue burden.

The district court held that Rule 45(d)(3)(A)(iv) addresses the court’s duties, not a party’s duties, and therefore could not support sanctions against Transworld. The court sustained Transworld’s objections to the sanctions imposed under Rules 16(f) and 37(b).

Sanctions Under 28 U.S.C. § 1927

Section 1927 allows sanctions against an attorney who unreasonably and vexatiously multiplies proceedings. The court stated that this requires a finding of bad faith. It rejected Transworld’s argument that its counsel lacked sufficient information about Employee A’s condition and had not acted in bad faith.

The court found that counsel knew by at least August 2020 that Employee A had experienced a medical event serious enough to require resignation. Because counsel had placed Employee A’s medical condition at issue, counsel could not withhold relevant information from the plaintiffs and the court. The court found no clear error in Judge Moses’s determination that counsel intentionally withheld the information in bad faith and unnecessarily multiplied the proceedings.

Disposition

The court sustained Transworld’s objections to the extent Judge Moses imposed sanctions under Rules 16(f) and 37(b). It overruled Transworld’s objections to the extent Judge Moses imposed sanctions on Transworld’s counsel under 28 U.S.C. § 1927.