Commercial Litigation and Arbitration

Sanctions — General Objections Not Improper — Rule 37(c)(1) Inapt as to Lawyers — No Privilege Log for Post-Filing Communications — Parent Company Not Responsible for Subsidiary’s Sins — Improper for One Judge to Recharacterize Ruling of Another

From Grider v. Keystone Health Plan Central, Inc., 2009 U.S. App. LEXIS 19642 (3d Cir. Sept. 1, 2009):

[Rule 26(g) — Substantial Justification and General Objections.]

Rule 26(g) provides that an attorney will be sanctioned for noncompliance with that rule "[i]f without substantial justification a certification is made in violation of the rule." Fed. R. Civ. P. 26(g)(3) (emphasis added) (2000). There is nothing in Judge Gardner's opinion that discusses or expressly considers the contours of this standard or explains the ways in which Appellants' legal positions were not substantially justified. This standard is entirely absent in the opinion.

For instance, Judge Gardner found improper Keystone's general objection "to the production of a privilege log regarding documents prepared or created after [its] current counsel were retained." .... However, Judge Gardner never explained the legal basis for his conclusion that such an objection was improper. Likewise, the opinion noted "[o]ther examples of improper general objections," citing discovery responses from all three corporate Defendants. The legitimacy of a general objection turns on the objection and its context. The Federal Rules do not prohibit general objections, but if the general objection is interposed in an attempt to insulate from discovery a large quantity of material that includes otherwise discoverable material when only some of the material may be protectible, the objection is inconsistent with the aim of discovery and may well be the subject of sanction. See generally 7 James Wm. Moore et al., Moore's Federal Practice § 33.171 (Matthew Bender 3d ed.). The opinion accompanying the September 28 Order did not explain why the general objections in this case were improper. Nor did the Court explain why these general objections were not "substantially justified," an explanation required by the language of the Rule. ***

[Footnote 22] Although we agree with Amicus that a rule requiring creation of an ongoing log of all post-complaint privileged communications would have a chilling effect on the attorney-client relationship, we do not read the District Court's opinion as stating such a rule. We underscore that a privilege log may not be required for communications with counsel that take place after the filing of a law suit. See James W. Quinn, Mindy J. Spector & John P. Mastando III, Responding to Document Requests, 2 Bus. & Com. Litig. Fed. Cts. § 21:41 (Robert L. Haig, ed., 2d ed. 2006) ("[I]n most litigations, counsel will agree to omit from the privilege log documents created by outside or in-house counsel after the litigation has commenced.")

[Footnote 23] This court has not addressed the "substantial justification" standard, but we note that in Tolerico v. Home Depot, Chief Judge Vanaskie, of the United States District Court for the Middle District of Pennsylvania, stated:

"Substantial justification" for the failure to make a required disclosure has been regarded as justification to a degree that could satisfy a reasonable person that parties could differ as to whether the party was required to comply with the disclosure request. The test of substantial justification is satisfied if there exists a genuine dispute concerning compliance.

205 F.R.D. 169, 175-76 (M.D. Pa. 2002) (internal citation and quotations omitted); see also 6 Moore's Federal Practice, § 26.154 [2][a] ("An objective standard is applied in determining whether sanctions are to be applied under Rule 26(g). . . . [T]he issue is whether the attorney or party who signed the certification conducted a reasonable inquiry into the facts supporting the disclosure or discovery document.").

*** [Counsel Not Subject to Rule 37(c)(1) Sanction..]

To the extent that the Order sanctioned the attorneys and law firms under Rule 37(c)(1), it was legal error.

Although we have not before had occasion to address the applicable scope of Rule 37(e)(1) sanctions, the Second and Seventh Circuits have expressly declined to sanction attorneys under this rule. In Apex Oil Co. v. Belcher Co. of N.Y., Inc., 855 F.2d 1009, 1014 (2d Cir. 1988), the court stated that, "[b]y its express terms, Rule 37(c) applies only to a party." In addition, the Apex court continued, "we must infer from the other subsections of Rule 37 expressly providing for the imposition of sanctions against a party's attorney that the drafters intended to omit attorneys from the coverage of subsection (c)." Id. In reaching the same conclusion in Maynard v. Nygren, 332 F.3d 462 (7th Cir. 2003), the Seventh Circuit noted that the "Fed.R.Civ.P. 37(c) advisory committee's note to the 1970 amendment [to Rule 37(c)] requires 'that the party improperly refusing the admission pay the expenses of the other side in making the necessary proof at trial.'" Id. at 470 (emphasis added).... We find the reasoning of the Second and Seventh Circuits persuasive and hold that Rule 37(c)(1) does not permit sanctions against counsel. Accordingly, we will vacate all Rule 37(c)(1) sanctions against the Attorney Appellants.

[Parent Corporation Not Automatically Responsible for Discovery Misconduct of Subsidiary.]

[Footnote 24] In addition, Judge Gardner erred as a matter of law insofar as he concluded that Capital was responsible for Keystone's production after Spring 2004 when it bought out Highmark.... We are aware of no authority for the proposition that a parent corporation, simply by virtue of ownership, may be held responsible for its subsidiary's alleged discovery violations.

[Joint Defense Agreement Does Not Permit Imputation of One Lawyer’s Misconduct to Another.]

The mere fact that Defendants had entered into a joint-defense agreement did not support imputation of the actions of one party's attorney to another party or its attorney. Although the court may have permissibly concluded that the Defendants engaged in a concerted effort to impede discovery, in specifically outlining the bases for each legal ground for sanctions the Court was required to describe the sanctionable conduct of each with such specificity as to ensure that one Defendant was not sanctioned for the acts of another. ***

[T]he imposition of sanctions requires an individualized analysis that was not consistently employed ***.

[Improper for One Judge to Recharacterize the Ruling of Another.]

Notwithstanding that Magistrate Judge Rapoport expressly stated that he "did not consider the admonition to be a sanction," ... Judge Gardner "conclude[d] that [the admonishment] was a sanction." ***

It is unusual, if not inappropriate as we note hereafter, for one judge to recharacterize the action of another judge. ***

Stradley argues persuasively that Judge Gardner's determination was based on a misreading of Langer. Its brief states, "Langer holds that, if sanctions are warranted, then a reprimand can constitute such a sanction. Langer does not hold, however, that the converse is also true — namely, that if a party is reprimanded, then that party has been sanctioned." ... We agree.

***Langer does not hold that an admonishment is always a sanction and, therefore, Judge Rapoport did not err in stating that his admonishment was not a sanction. We believe it was inconsistent for Judge Gardner to have stated, on the one hand, that Magistrate Judge Rapoport's decision was neither erroneous nor contrary to law and, on the other hand, to have overturned one of Judge Rapoport's legal conclusions. Moreover, as we held in Snow Machines, Inc. v. Hedeo, Inc., "it is simply improper for one judge to . . . conclude that another judge did not intend to order what []he in fact ordered." 838 F.2d 718, 727 (3d Cir. 1988).

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