Securities And Exchange Commission v. Sells et al

Filing 112

ORDER GRANTING MURAWSKI'S MOTION FOR DISCOVERY SANCTIONS 93 by Magistrate Judge Nathanael M. Cousins.(nclc2, COURT STAFF) (Filed on 9/30/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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SECURITIES AND EXCHANGE

11 COMMISSION,
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Case No. 11-cv-04941 CW (NC)
Plaintiff,

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v.

14 CHRISTOPHER SELLS and TIMOTHY
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ORDER GRANTING MURAWSKI’S
MOTION FOR DISCOVERY
SANCTIONS
Re: Dkt. No. 93

MURAWSKI,
Defendants.

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In this securities action alleging fraud in revenue recognition, defendant Murawski

19 seeks discovery sanctions of $6,942.50 against the SEC. The sanctions motion follows
20 Murawski’s successful motion to compel responses to three interrogatories. Those
21 interrogatories requested information provided to the SEC by three third-party witnesses
22 interviewed by the SEC in 2010. The central question presented is whether the SEC’s
23 objections to the requested discovery were “substantially justified.” The Court finds that
24 the SEC’s objections were not substantially justified because the Court had previously
25 overruled similar objections in this case. As a result, the Court grants the sanctions motion
26 and orders the SEC to pay $6,942.50 in expenses incurred by Murawski in making the
27 motion to compel.
28 //
Case No. 11-CV-4941 CW (NC)
ORDER GRANTING DISCOVERY
SANCTIONS

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Murawski’s sanctions motion requires a straightforward application of the Federal

2 Rules of Civil Procedure. Under Rule 37(a)(5)(A), if the Court grants a motion to compel
3 discovery, the Court “must” require the party whose conduct necessitated the motion to pay
4 to the moving party the reasonable costs, including attorney’s fees, incurred in making the
5 motion. Here, the undersigned Magistrate Judge granted Murawski’s motion to compel
6 three interrogatory responses, finding that Murawski had presented more than adequate
7 reasons to justify production of the requested information. Dkt. No. 91, Feb. 4, 2013 order.
8 The SEC objected to the order. Chief District Court Judge Claudia Wilken upheld the
9 order. Dkt. No. 106. The SEC is the party whose conduct necessitated the motion.
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Rule 37, however, sets forth three exceptions to the loser “must pay” sanctions rule.

11 The Court “must not” order payment if: (i) the movant filed the motion before attempting in
12 good faith to obtain the disclosure or discovery without court action; (ii) the opposing
13 party’s nondisclosure, response, or objection was substantially justified; or (iii) other
14 circumstances make an award of expenses unjust.
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Here, based on the declarations submitted by Murawski’s counsel, the Court finds

16 that Murawski attempted in good faith to obtain the discovery before filing the motion to
17 compel.
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The deciding question is whether the SEC was “substantially justified” in objecting to

19 the interrogatories on the basis of the work-product doctrine. Here, the Court finds that the
20 SEC’s objections were not justified. The SEC asserts that any sanction would “amount to a
21 punishment for good faith compliance with this Court’s prior, August 31 Order.” Dkt. No.
22 98 at 12. In the August 31 order, the Court granted in part and denied in part an earlier
23 motion to compel by Murawski arising from his requests for documents, interrogatories and
24 admissions. Dkt. No. 66. The Court disagrees that anything in the August 31 order can be
25 interpreted to support the SEC’s blanket work-product privilege assertions for the three
26 third-party witnesses subject to the second motion to compel. In the August 31 order, the
27 Court found that Murawski “may use searching interrogatories to reveal the facts in the
28 possession” of the SEC. Id. at 7 (internal quotations omitted). The Court overruled the
Case No. 11-CV-4941 CW (NC)
ORDER GRANTING DISCOVERY
SANCTIONS

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w
ct
n
J
rs
ws,
rogatory num
mber 2.
1 SEC’s work-produc objection as to the Jessica Ayar interview in interr
ee
atories that are the subj of the m
a
ject
motion for s
sanctions ar similar to
re
o
2 The thre interroga
ber
ause
urt
on
’s
oduct
3 interrogatory numb 2. Beca the Cou had already ruled o the SEC’ work-pro
n
rrogatories seeking inf
formation fr
rom witness interviews the SEC was
s
s,
4 assertion as to inter
bstantially ju
ustified” to repeat its previously o
p
overruled o
objection.
5 not “sub

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Fi
inally, as to whether an award of expenses w
n
e
would be “un
njust,” the C
Court finds that

arises
ng
s
se
ances would be just. T sanctio motion a
d
This
ons
7 awardin sanctions under thes circumsta
e
otion to com filed by Murawsk on some of the same discovery issues.
mpel
b
ki
e
y
8 from the second mo
ion
ve
ful
nteract dupli
icative and inefficient
9 A sancti can serv as a usefu mechanism to coun
n.
er,
enses requested here, $
$6,942.50, a proporti
are
ional to the
10 litigation Moreove the expe
0
n.
urt
at
a
ime
s)
11 violation The Cou finds tha both the attorney’s ti spent (13.75 hours and the rate
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$460 and $5 per hou for two ex
525
ur
xperienced attorneys a a reputabl San Fran
at
le
ncisco
12 billed ($
2
m)
otion to com are rea
mpel
asonable. T Court d
The
disagrees with Muraws
ski’s
13 law firm on the mo
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ntention tha the SEC also violate Rule 37(b by failing to answer the
at
a
ed
b)
g
r
14 final con
4
kt.
failure
15 interrogatories. Dk No. 93 at 8, n.2. If this were a motion arising from a bad faith f
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ply
ourt
0
e
ough medici
ine.
16 to comp with a co order, a $6,942.50 penalty would not be strong eno
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In sum, the Court finds that the SEC interrog
n
C
t
C’s
gatory objections were not substa
e
antially

d
he
eviously ov
verruled sim
milar objecti
ions. The e
expenses
18 justified because th Court pre
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ed
onable. The Court ther
e
refore grant the sancti
ts
ions motion and orders the
n
19 submitte are reaso
9
p
wski
.50
1
this
Any
may
20 SEC to pay Muraw $6,942. within 14 days of t order. A party m object to this
0
ut
ourteen day of the dat it is filed Fed. R. C P. 72(a)
ys
te
d.
Civ.
).
21 order, bu must do so within fo
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IT IS SO OR
T
RDERED.

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Date: Septem
mber 30, 201
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____
__________
__________
_____
Nath
hanael M. C
Cousins
Unit States M
ted
Magistrate J
Judge

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Case No. 11-CV-494 CW (NC)
41
)
ORDER GRANTING DISCOVE
R
ERY
SANCTI
IONS

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