Inherent Power Sanctions for Failing to Return Confidential Information as Required by Settlement Agreement and in Violation of Court Order — Jurisdiction to Sanction via Subpoena under Rule 45
Johnson v. Hankook Tire Mfg. Co., 2011 U.S. App. LEXIS 20868 (5th Cir. Oct. 13, 2011):
This matter arises from an attorney's improper retention of confidential materials after settlement of a case in a Texas state court. The appellant, Wesley Todd Ball (Ball), represented various plaintiffs in a case which was settled with the appellees, Hankook Tire America Corporation et. al., (Hankook) in February, 2009. Through discovery, Ball obtained various documents and confidential materials including a plant inspection video and photographs that belonged to Hankook. The settlement incorporated a confidentiality agreement, which required Ball to return all confidential materials to Hankook at its request. In February, 2009, Hankook requested the return of the materials at the end of the action; Ball failed to properly return the materials after the settlement of the case. Ball posted Hankook-related information on his website and in August, 2010, a plaintiff's attorney in the instant case, which is pending in the Northern District of Mississippi, caused a subpoena to be issued from the Southern District of Texas commanding Ball to produce or permit copying of the videotape depicting an inspection conducted at a Hankook facility in Korea. Ball sent correspondence to Hankook informing it of his intention to comply and that Ball still retained the confidential materials. Hankook moved to quash. Ball communicated that he intended to implead the materials with a Texas court; later in a district court hearing, the court ordered Ball to produce all confidential materials by December 2, 2010. The district court sanctioned Ball for failure to obey court orders and misrepresentations made to the court. We AFFIRM. ***
Ball is a licensed attorney in the State of Texas who represented various plaintiffs in a suit against Hankook in Morales-Cota et. al. v. Hankook Tire America Corp. et. al. The case settled in February, 2009. Ball obtained a plant inspection of the Hankook manufacturing facilities during the Morales-Cota action and also acquired various materials through discovery, including a videotape, photographs, and other proprietary information. The materials were subject to a confidentiality agreement. Under the agreement, Ball agreed to return all confidential materials when the settlement was funded. And Hankook made requests for the return of these materials at the conclusion of the lawsuit. Hankook received a letter from Ball dated August 26, 2010, stating that Ball was subpoenaed on August 23 by the district court to produce and permit the inspection and copying of the videotape that Ball had in his possession. Ball sent a second correspondence on August 30, 2010 that reiterated his intent to comply with the federal subpoena and confirmed that he possessed a copy of the plant video, pictures of the plant taken during inspection, and a host of other documents produced during litigation. Ball asserted that he would keep all of these materials at his office per the agreement.
The following day, Hankook filed a motion to quash the subpoena and for a protective order in the Southern District of Texas because Ball had no lawful right to possession or distribution of Hankook's confidential materials. It asserted that Ball is neither a party nor an attorney for any parties in the current Veronica Johnson suit. And he was served with a subpoena because he made it publicly known through his website that Ball obtained the right to inspect the plant in Korea and offered information to similarly situated plaintiffs. The Honorable Keith P. Ellison entered an Order granting the motion to quash without prejudice. A second subpoena dated September 27 sought production of the videotape related to the inspection of the plant. On October 1, 2010, Ball sent correspondence to Mr. Skip Lynch, plaintiff's attorney in the instant action, stating that "Considering the previous letters and motions to quash, I intend to implead the information into the registry of the 280th District Court," where the Morales-Cota case was tried. However, Ball did not deposit the materials with this court. Hankook filed a second motion to quash the subpoena on the basis that Ball had no lawful right to possess or distribute Hankook's confidential materials.
On October 26, 2010, the court for the Southern District of Texas issued an Order commanding Ball to deliver "all transcriptions and copies in whatever medium of the videotape of an inspection of the Hankook Daejun plant in Korea." Ball delivered the videotape. The court also set a hearing for the motion to quash and protective order for November 2, 2010. In the hearing, Ball asserted that his office did not send back all of the materials but kept them confidential. The court issued an oral Order at the hearing requiring Ball to produce the remaining materials in his possession by December 2, 2010 at 10:00 a.m. It also advised a hearing would be set to confirm the contents of the production. As December 2 passed, Ball did not produce any materials to Hankook and he failed to make appropriate representations that he no longer possessed Hankook's confidential materials or that the materials were destroyed. According to Ball, he had complied with the district court's November 2 Order because he had no more confidential materials to produce. On January 4, 2011, Judge Lynn N. Hughes issued an Order for instant production of confidential materials described in the subpoena or, under oath, describe with specificity how he returned or destroyed them. U.S. Marshals served the subpoena and Ball stated at the time of delivery that he did not have any of the items because they had been destroyed. He provided no further details. ***
Sanctions by the District Court
As a preliminary matter, Ball questions whether the district court has jurisdiction over this issue. Ball contends that the proceedings fall outside of the court's subject-matter jurisdiction. Jurisdiction is proper. The record shows that Ball was required to appear in the district court in accordance with a valid subpoena and Order issued by that court to produce or permit inspection of the videotape or other confidential materials Ball inappropriately possessed. And the court had authority under Fed. R. Civ. P. 45(e) to sanction Ball for failure to obey the subpoena. Thus, Ball's appearance was proper and subsequent hearings and court Orders were all related to Ball's conduct and the confidential materials in his possession.
From early in the federal courts' history it has been understood that "[c]ertain implied powers must necessarily result to our courts of justice from the nature of their institution," powers "which cannot be dispensed with in a court because they are necessary to the exercise of all others." Natural Gas Pipeline Co. of America v. Energy Gathering, Inc., 2 F.3d 1397, 1407 (quoting United States v. Hudson, 7 Cranch 32, 34, 3 L.Ed. 259 (1812). "When inherent powers are invoked...they must be exercised with "restraint and discretion." Gonzalez, 117 F.3d 894, 898 (5th Cir. 1997) (citing Chambers, 501 U.S. at 44). When parties exploit the judicial process, through its inherent powers, a court may sanction conduct beyond the reach of other rules. Natural Gas Pipeline Co., 2 F.3d at 1407.
The record shows that Ball did not obey Orders issued by the district court. ***[T]he record shows that the Order was clear and Ball's failure to comply is sanctionable. See Jim Walter Res. v. Int'l Union, United Mine Workers of America, 609 F.2d 165, 168 (5th Cir. 1980)("[i]ntent is not an issue..."(I)n civil contempt proceedings the question is not one of intent but whether the alleged contemnors have complied with the court's order."").
The district court Order of October 26, 2010 commanded Ball to deliver to the district court all transcriptions and copies in whatever medium of the videotape of the inspection on the Hankook plant. This Order follows a correspondence by Ball dated August 30, 2010, where he asserted his intention to comply with the federal subpoena and made an affirmative declaration that he retained a copy of both the plant inspection video and pictures, among other documents. Ball produced the videotape but failed to return the photographs or explain what happened to the photographs. The district court Order was clear and the date between the court's Order and Ball's correspondence was just short of one month apart. Ball failed to return the confidential photographs and he did not confirm their destruction. Therefore, Ball violated the court's Order and the district court did not abuse its discretion in sanctioning Ball's conduct.
The district court found Ball's inconsistent statements and misrepresentations "troubling." As mentioned above, Ball sent correspondence on August 30, 2011, asserting that he had in fact retained the videotape and confidential photographs along with other materials. This correspondence followed an August 23, 2010 subpoena, which was subsequently quashed, ordering Ball to produce the plant inspection videotape. This subpoena was likely inspired by Ball's advertisement on his website about his opportunity to inspect Hankook's facility. He then dispatched a letter dated October 1, 2010, to various interested parties stating that, "[c]onsidering the previous letters and motions to quash, I intend to implead the information into the registry of the 280th District Court." The only reasonable conclusion from this correspondence is that Ball continued to possess confidential materials that belonged to Hankook as he was fully aware through the subpoenas that the court and a plaintiff in a separate lawsuit sought them. ***
Ball argues that he made inadvertently inconsistent representations and was sloppy in this entire matter. But the record suggests more than mere sloppiness. The Orders from the court were clear, correspondence from Ball was clear, and Ball's misrepresentations to the court were clear. Ball had ample opportunities to simply return the confidential materials but decided against it. His misrepresentations and conduct wasted time and scarce judicial resources. The evidence supports the district court finding that Ball did not act in good faith with interested parties. Because Ball violated district court Orders and made misrepresentations to the court, sanctions are proper. Therefore, we AFFIRM.
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