Rule 16(f) Sanctions for Violation of Protective Order — Standards — Allocation between Client and Counsel — Delaying Production beyond, and Conducting Discovery after, Cut-Off Date Violates 16(f) — Good Quotes
Rahbarian v. Cawley, 2013 U.S. Dist. LEXIS 171123 (E.D. Cal. Dec. 2, 2013):
The Court heard argument on Plaintiffs' Motion to Reopen Discovery, to Impose Sanctions, and to Obtain a Protective Order to Preserve Evidence, (ECF No. 59), on September 19, 2013. Cyrus Zal appeared for Plaintiffs, and David W. Hamilton appeared for Defendants. Further, a tentative ruling from this Court, granting in part and denying in part Defendants' Motion for Summary Judgment, (ECF No. 64), is also pending. The Court has reviewed the moving papers as well as the complete record in this case, and has considered counsels' representations and arguments at the hearing on Plaintiffs' pending motion. The record shows defense counsel's conduct in this case not only fell below the obligations of discovery, but also professional norms of civility to opposing counsel and candor to the tribunal. Accordingly, and for the reasons that follow, this order issues imposing monetary sanctions in the amount of $999.99 against counsel for Defendants, David W. Hamilton.
Plaintiffs' counsel is not without fault as well, however. As he himself admitted at the hearing on September 19, 2013, once counsel for Defendants offered to allow Plaintiffs' counsel to examine the documents in possession of the California Attorney General's Office, Plaintiffs' counsel should have inspected those documents while Defendants' Motion for Summary Judgment and Plaintiffs' Motion to, inter alia, Reopen Discovery was pending before the Court. Moreover, much of the disharmony that arose in the weeks leading up to the deadline for dispositive motions, and Defendants' filing of the currently pending Motion for Summary Judgment, likely could have been avoided if Plaintiffs' counsel had diligently pursued discovery before the discovery cutoff date. Thus, and for the reasons that follow, the Court does not grant Plaintiffs the relief they seek. Nonetheless, the Court will not punish Plaintiffs for the indolence of Plaintiffs' counsel, and will not issue a final ruling on Defendants' pending Motion for Summary Judgment without affording Plaintiffs an opportunity to examine these documents and present their objections to the Court's tentative ruling, in the manner prescribed in detail below.
Defendants Cawley and Smallwood are DMV investigators who investigated Plaintiffs for suspected embezzlement. Plaintiffs were involved (as owners, employees, or family members of the same) in a car dealership. Defendants suspected that Plaintiffs essentially borrowed money to purchase new cars (to be re-sold to customers) from a financing company called Brasher's, sold the cars to customers, embezzled the sales proceeds, and then declared bankruptcy with more than $4 million missing.
Defendants' investigated Plaintiffs on suspicion of embezzlement; the resulting investigation culminated in a search (pursuant to a search warrant) of Plaintiffs' homes and seizure of Plaintiffs' property, and in an ultimately unsuccessful criminal prosecution. The documents from this criminal prosecution pertain to the decision on Plaintiffs' pending Motion. At the hearing on Plaintiffs' pending Motion, according to statements made by counsel for Defendants, David W. Hamilton dated September 19, 2013, six boxes of bank-record documents pertaining to this criminal investigation remain in the possession of the California Attorney General's Office in Sacramento.
Through this action, Plaintiffs seek damages from Defendants under 42 U.S.C. § 1983 alleging, inter alia, Defendants deceived the magistrate in their search warrant application.
Importantly for decision on Plaintiffs' pending motion, the search warrant application did not include information concerning certain checks that, Plaintiffs claim, were tendered to the financing company, Brasher's, to pay for the cars. These checks became a source of significant contention during the course of discovery, as discussed further below.
Cawley's Deposition on March 14, 2013
At Plaintiffs' deposition of Defendant Cawley, Plaintiffs' counsel apparently confronted Defendant Cawley with evidence of the above-referenced checks which, Plaintiffs contend, had been tendered to Brasher's as payment for various new cars, and a heated exchange ensued. According to Plaintiffs' counsel, after the deposition, counsel for Defendants, David W. Hamilton "requested the deposition room be cleared of all parties except himself," Plaintiffs' counsel, "and the court reporter. Attorney Hamilton then proceeded to make a statement on the record that he entitled 'Statement of Counsel Regarding Federal Rule of Civil Procedure 11.'" (Decl. Cyrus Zal in Supp. of Pl.'s Mot. ¶ 10, ECF No. 61.)
In this "Statement of Counsel," Hamilton accused Plaintiffs' counsel of attempting to use evidence he knew was "fraudulent," and Hamilton threatened Plaintiffs' counsel with Rule 11 sanctions:
MR. HAMILTON: You can Title this Statement of Counsel Regarding Federal Rule of Civil Procedure 11.
. . . . I now have an understanding, I think, . . . that you intend to offer in this lawsuit . . . these checks that you've shown us in this depositions--in these depositions, and claim that these were given to Brasher's and Brasher's actually [had been] paid for the vehicles, and that perhaps for mysterious reasons of their own maybe Brasher's didn't cash them all or didn't cash any of them and just held them.
And I just want to let you know and put you on notice that if you do this we are going to be able to prove that this evidence you plan to offer is fraudulent . . . .
So if you present this evidence, we are going to be able to prove that this is bad faith evidence and probably fraudulent evidence when we got to trial.
Now, I have a lot of experience in Federal Court. I don't know whether you have much experience there. I think you should before you do this think very carefully about Federal Rule Civil Procedure 11 and look up the Case Law on Rule 11 before you take that step.
I mean, you may be under the impression that, oh, well, if you lose this case and you get attorney fees, not a problem because your clients can't pay it or hidden their assets, or whatever.
Rule 11 allows the judge to impose attorney fees on you, and the last I looked, attorneys with my level of experience are being awarded in the range of $600 an hour for the work they do in civil rights cases. I have a lot of civil rights experience.
And so if we are forced to go to trial and prove that your evidence is in bad faith and fraudulent, that's a violation of Rule 11, and we'll be asking Judge Burrell to award us Rule 11 sanctions against you personally . . . .
[I]f you want go forward with [this evidence], you're entitled to do that, but I want you to be on notice here that this could cost you hundreds of thousands of dollars, you personally, because this story you presented makes absolutely no sense.
(Dec. Zal, Ex. 1, Statement of Counsel re Fed. R. Civ. P. 11, at 3:1-7:8, ECF No. 61-1 (emphasis added).)
Ensuing Correspondence Between Counsel
After this deposition, Plaintiffs' and Defense' counsel exchanged a series of letters. In a letter dated March 21, 2013, Plaintiffs' counsel demanded that Defendants:
produce . . . copies forthwith of all the documents in [the possession of the California Attorney General's Office] that are required by Rule 26(a) to be produced and/or that were required to be produced pursuant to the demand for production of documents served on defendants, including but not limited to, all documents that were part of the criminal action prosecuted by your office against Paiman Rahbarian and Shayan Rahbarian, as well as all documents that were produced to Mr. Morgester by Klaus Kolb.
(Decl. Zal, Ex. 2, Letter to David W. Hamilton from Cyrus Zal, Mar. 21, 2013, at 6, ECF No. 61-1.) Mr. Morgester was the California Deputy Attorney General involved in the criminal prosecution who signed off on the search warrant application, and Klaus Kolb was the criminal defense lawyer who assisted the Rahbarians in the criminal prosecution which was ultimately dismissed.
After the discovery cutoff date had passed and after Defendants filed a motion for summary judgment (ECF No. 24) (which remains pending), Hamilton sent Zal a letter, dated May 1, 2013, in which Hamilton stated as follows:
[Y]ou persist in proffering this bogus evidence to the Court. It is beyond me how you could possibly believe that those uncashed checks have any evidentiary value in this action. . . . But in the interest of accommodating your requests we are willing to make [the criminal prosecution file of Deputy Attorney General Morgester] available to you.
This offer, however, comes with conditions. We have five banker's boxes full of paper records . . . . However, we see no reason why the defense should bear the cost of reproducing these irrelevant records to the plaintiffs.
(Decl. Zal, Ex. 5, Letter to Cyrus Zal from David W. Hamilton, May 1, 2013, at 1-2, ECF No. 61-1.)
In response, Plaintiffs' counsel requested that Defendants' counsel "join in a stipulation to take defendants' MSJ hearing off calendar until plaintiffs have had a reasonable opportunity to review the additional documents that were improperly not previously produced by defendants in response to plaintiffs' discovery demands," and to allow Plaintiffs "to take further depositions of defendants" and "DG Morgester." (Decl. Zal, Ex. 6, Letter to David W. Hamilton from Cyrus Zal, May 22, 2013, at 8, ECF No. 61-1.) Moreover, Plaintiffs' counsel stated, "If we do not receive written confirmation . . . that you will stipulate to taking defendants' MSJ motion off calendar, we will file a motion to compel the inspection . . . , and we will seek monetary and other sanctions against defendants." (Id. at 9.) Defense counsel refused to take Defendants' Motion for Summary Judgment off calendar, contending Plaintiffs' "arguments for delaying the summary judgment hearing and reopening discovery are baseless." (Decl. Zal, Ex. 7, Letter to Cyrus Zal from David W. Hamilton, May 23, 2013, at 2, ECF No. 61-1.) Regarding Plaintiffs' discussion of a motion for monetary sanctions, Hamilton stated: "Finally, I will not respond yet again to your baseless and intemperate remarks about Rule 11 sanctions. I frankly do not have time to waste responding to your inaccurate and hysterical ranting: please do not burden me with any more correspondence on that subject." (Id.)
Plaintiffs moved for sanctions, a protective order, and an order reopening discovery, and the Court heard argument on this motion, as discussed below.
Under Rule 16(f), federal courts are empowered to impose sanctions, including those authorized by Rule 37(b)(2)(A)(ii)-(vii), if a party or its attorney "fails to obey a scheduling or other pretrial order." "Rule 16 . . . give[s] courts very broad discretion to use sanctions where necessary to insure not only that lawyers and parties refrain from contumacious behavior, already punishable under the various other rules and statutes, but that they fulfill their high duty to insure the expeditious and sound management of the preparation of cases for trial." Matter of Baker, 744 F.2d 1438, 1440 (10th Cir. 1984) (en banc). "A scheduling order 'is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril.'. . . Disregard of the order . . . undermine[s] the court's ability to control its docket, disrupt the agreed-upon course of the litigation, and reward the indolent and the cavalier." Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 610 (9th Cir. 1992) (citation omitted). Moreover, the Local Rules of this district adopt the professional conduct rules of California, and California Rules of Professional Conduct, Rule 5-100(A) states: "A member shall not threaten to present . . . administrative . . . charges to obtain an advantage in a civil dispute."
Footnote 4. "Administrative charges" as used in this provision are defined to mean "the filing or lodging of a complaint with a federal, state, or local government entity which may order or recommend . . . the imposition of a fine . . . ." Cal. Rules Prof'l Conduct R. 5-100(B).
Sanctions under Rule 16 and sanctions for violation of this Court's local rules of conduct may issue without a finding of bad faith, see Lucas Auto. Eng'g, Inc. v. Bridgestone/Firestone, Inc., 275 F.3d 762, 769 (9th Cir. 2001) (affirming district court's imposition of sanctions even though the conduct "was not intentional"); Washburn v. Morgado, 332 F. App'x 380, 383 (9th Cir. 2009), and these sanctions may issue if a party reluctantly complies with discovery obligations well after the discovery deadline, Miltope Corp. v. Hartford Cas. Ins. Co., 163 F.R.D. 191, 194-95 (S.D.N.Y. 1995). For example, in Miltope Corporation v. Hartford Casualty Insurance Co., the court imposed a $1,000 fine "payable to the Clerk of the Court" because a party fulfilled its discovery obligations well after the discovery cutoff date. Id. at 194. The court reasoned "sanctions for violation of discovery and scheduling orders 'must be applied diligently both "to penalize those whose conduct may be deemed to warrant such a sanction, and to deter those who might be tempted to such conduct in the absence of such a deterrent."'" Id. (alteration omitted) (quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 763-64, 100 S. Ct. 2455, 65 L. Ed. 2d 488 (1980)); see also Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse § 37(B)(2) (5th ed. 2013) ("Under . . . Rule 16(b)(3), for example, a scheduling order may set a date by which parties are 'to complete discovery.' . . . This has been held to permit the imposition of sanctions against the party for discovery abuse . . . even in the absence of a prior order to compel." (citing McLeod, Alexander, Powel & Apffel, P.C. v. Quarles, 894 F.2d 1482, 1485 (5th Cir. 1990))).
In this case, the Court's Rule 16 scheduling order prescribed that all "discovery shall be completed by April 27, 2012," (ECF No. 14), and this discovery cutoff date was later extended until March 8, 2013, (ECF No. 33). Nonetheless, it was not until May 1, 2013--well after the discovery cutoff date and after Plaintiff's opposition to Defendant's Motion for Summary Judgment was due--that Defendants offered to allow Plaintiffs to inspect five (or six) banker's boxes full of potentially relevant documents. These documents were from the criminal prosecution of Paiman and Shayan Rahbarian, plaintiffs in this action, for essentially the same conduct at issue in this civil case. Moreover, California Deputy Attorney General Hamilton's conduct in discovery--accusing Plaintiffs' counsel of offering "fraudulent" and "bogus" evidence (certain uncashed checks) and threatening Plaintiffs' counsel with "hundreds of thousands of dollars" in sanctions against him "personally," when the California Attorney General's Office apparently possessed documentary evidence of these checks since 2009 -- is just the type of "contumacious behavior" Rules 16 and 37 prohibit. Baker, 744 F.2d at 1440. Further, although the Court expresses no opinion of the matter, counsel for Defendants' threats may very well have run afoul of California Rule of Professional Conduct 5-100(A), and thereby the local rules of this Court. Cf. Lopez v. Banuelos, No. 1:11-cv-466 AWI JLT, 2013 U.S. Dist. LEXIS 127656, 2013 WL 4815699, at *1,8-9 (E.D. Cal. Sep. 6, 2013) (Ishii, J.) (finding that the following threats contained in an email from a California Deputy Attorney General, as counsel for the defendants, constitute a violation of Cal. Rules of Prof'l Conduct R. 5-100, and Local Rule 180(e) thereby: "If [the section 1983 plaintiff] sets foot in California, I bet he never leaves as there is a very real chance he will be arrested. We do intend to have both federal and state law enforcement present during the trial.").
Further, counsel for Defendants' attitude persisted at the hearing on Plaintiffs' Motion for Sanctions and to Reopen Discovery. ***
[T]he Court need not, and does not, make an express finding of bad faith, since counsel for Defendants' conduct violated this Court's Rule 16 scheduling order. See Lucas, 275 F.3d at 769; see also Martin Family Trust v. NECO/Nostalgia Enters. Co., 186 F.R.D. 601, 604 (E.D. Cal. 1999) ("Both courts and commentators agree that sanctions may be imposed for a party's unexcused failure to comply with a Rule 16 order, even if that failure was not made in bad faith." (collecting sources)).
In sum, the conduct of counsel for Defendants in this case violated Rule 16's prohibition of "contumacious behavior" and violated counsel's "duty to insure the expeditious and sound management of the preparation of cases for trial." Baker, 744 F.2d at 1440. Therefore, sanctions in this case are warranted, and the Court must decide what manner of sanctions are appropriate.
Plaintiff asks for issue sanctions, monetary sanctions totaling $26,600 against Defendants Cawley and Smallwood and their attorney David W. Hamilton (compensating Plaintiffs for Plaintiffs' counsel time in bringing Plaintiffs' pending motion), and a protective order to preserve the Search Warrant and its "Attachment A." However, the Court is cognizant of the fact that Plaintiffs' counsel exhibited a marked lack of diligence in discovery and also violated this Court's Rule 16 scheduling order mandating that discovery be completed by March 8, 2013, (ECF No. 33). Specifically, the record reveals that Plaintiffs continued to conduct discovery in this case after the discovery cutoff date. For example, it appears that Plaintiffs waited until the discovery cutoff date elapsed to depose Defendant Cawley, who appears to be a key witness in this case. Moreover, Plaintiffs' request to reopen discovery does not adequately explain why Plaintiffs waited nearly three years after the date on which the Rule 16 scheduling order issued, September 28, 2010, (ECF No. 14), before finally deposing key witnesses in March of this year. See Chance v. Pac-Tel Teletrac Inc., 242 F.3d 1151, 1161 n.6 (9th Cir. 2001) (observing that a court may deny "further discovery if the movant has failed diligently to pursue discovery in the past." (emphasis added)).
Therefore, in light of Plaintiffs lack of diligence in pursuing discovery in this matter, the Court will not grant Plaintiffs the relief they seek. Moreover, contrary to Plaintiffs' conclusory assertions of document destruction of "Attachment A" -- for which they offer no proof nor show why "Attachment A" is material – there is no evidence that the parties themselves, Defendants Cawley and Smallwood, are at fault for their attorney's behavior in this case. As a leading treatise observed, "[m]onetary sanctions are commonly used when counsel, rather than the client, is the offender and it would not be fair in the circumstances to tax the client with his or her lawyer's [conduct]. Counsel, instead, is personally charged." Joseph, supra, § 38 (citing Simpson v. City of Philadelphia, 660 F. Supp. 951, 952 (E.D. Pa. 1987) (imposing a monetary sanction of $500 on defendants' attorney of record, reasoning: "The Rules require a minimum standard of professionalism. The conduct of defendants' attorney in this case falls below that standard.")). Therefore, the Court finds that a monetary sanction in the amount of $999.99 against attorney of record for Defendants, David W. Hamilton, and not the parties themselves, is the proper sanction for Defendants' violation of the Rule 16 scheduling order. Baker, 744 F.2d at 1442 ("If the fault lies with the attorney, that is where the impact of sanction should be lodged. If the fault lies with the clients, that is where the impact of the sanction should be lodged.").
Further, the Court finds that Plaintiffs have not shown that a reopening of discovery is warranted, in light of Plainfiffs' counsel's lack of diligence in pursuing discovery and Plaintiffs' own violation of the Rule 16 scheduling order. See Miltope, 163 F.R.D. at 195 ("[P]arties and counsel ignore discovery orders and deadlines at their peril. There is no excuse for failing to comply with discovery deadlines, and if an extension is necessary, it must be sought before expiration of the deadline."). Accordingly, the Court will not award Plaintiffs attorneys' fees or expenses, and instead orders counsel for Defendants to pay the fine to the Clerk of the Court. Nonetheless, the Court is reluctant to punish Plaintiffs themselves for the indolence of their attorney. See Baker, 744 F.2d at 1442. Accordingly, the Court will allow Plaintiffs 30 days to investigate the contents of the boxes and to file objections to the Court's tentative ruling on Defendants' Motion for Summary Judgment in the manner prescribed below.
A. Additional 30 Days to Investigate Contents of Boxes
In light of the Defendants' failure to produce documents which may be pertinent to Plaintiffs' opposition to Defendants' pending motion for summary judgment, Plaintiffs are HEREBY GRANTED 30 days from the date this order issues to investigate the contents of the boxes of evidence from the criminal prosecution which are in the possession of the California Attorney General's Office as referenced in the hearing.
Plaintiffs may then file any such further objections to the Court's tentative summary judgment ruling (ECF No. 64) Plaintiffs deem appropriate no later than 45 days after the date on which this order issues. The objections must establish a genuine dispute of material fact precluding summary judgment on Plaintiffs' judicial-deception claim for damages under 42 U.S.C. § 1983 (or other claim or claims) (showing both intent or recklessessness to mislead the magistrate and materiality of the omitted information). The objections must include specific citations to attached exhibits indicating a genuine dispute of material fact arises from newly discovered evidence.
Alternatively, Plaintiffs may file a motion under Federal Rule of Civil Procedure 56(d) that includes a sworn declaration by Plaintiffs' counsel that "specifically identifies . . . relevant information" "essential to justify [Plaintiffs'] opposition" and that explains (with citations to attached exhibits containing documentary evidence from the above-referenced boxes) counsel's factual "basis for believing that the information sought actually exists." Emp'rs Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Clorox Co., 353 F.3d 1125, 1129 (9th Cir. 2004).
The scope of the above-described objections or motion is limited to the contents of the boxes of documents described in this order and in the possession of the California Attorney General's Office. Plaintiffs are admonished that the Court will not consider arguments or evidence in the above-described objections that were also contained in their prior opposition brief, objections to the tentative ruling, or other filing with this Court. The prior filings will be considered and will suffice.
If Plaintiffs elect to file the above-described objections or a motion under Rule 56(d), Defendants may file an opposition no later than 60 days after the date on which this order issues.
To the extent Plaintiffs sought additional relief through their motion, such as the reopening of discovery and the issuance of a protective order, Plaintiffs' Motion (ECF No. 59) is DENIED.
The Court GRANTS IN PART Plaintiffs' motion for sanctions and imposes a monetary sanction of $999.99 to be paid to the Clerk of the Court by defense counsel David W. Hamilton within 14 days of the issuance of this order. The sanction is personal to counsel, and is not to be borne by his clients. The check shall be made payable to "Clerk of the Court, U.S. District Court for the Eastern District of California."
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