Sun River Energy, Inc. v. Nelson et al
Filing
337
OPINION AND ORDER granting in part and denying in part 325 Motion for Reconsideration, and granting 326 Motion for Judgment, by Chief Judge Marcia S. Krieger on 7/30/14.(dkals, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Honorable Marcia S. Krieger
Civil Action No. 11-cv-00198-MSK-MEH
SUN RIVER ENERGY, INC.,
Plaintiff,
v.
ERIK S. NELSON;
STEVE STEPHENS; and
CORAL CAPITAL PARTNERS, INC.,
Defendants.
______________________________________________________________________________
OPINION AND ORDER GRANTING, IN PART, AND DENYING, IN PART, MOTION
FOR RECONSIDERATION AND DIRECTING ENTRY OF JUDGMENT
______________________________________________________________________________
THIS MATTER comes before the Court pursuant to the Plaintiff’s Motion for
Reconsideration (# 325) of an October 23, 2013 oral Order (# 317) awarding attorney fees to the
Defendants against the Plaintiff’s present and former counsel, the Defendants’ response (# 328),
and the Plaintiff’s reply (# 329); and the Defendants’ motion (# 326) seeking to reduce that
award of attorney fees to an enforceable judgment.
The instant issue arises collaterally from the substantive claims in this suit. Plaintiff Sun
River Energy, Inc. (“Sun River”) commenced this action against the Defendants, and the
Defendants asserted certain counterclaims. As found by the Magistrate Judge’s March 7, 2013
Recommendation (# 278), in its initial Rule 26 disclosures in April 2011, Sun River, through its
counsel, Mr. Csajaghy, represented that Sun River had no insurance policies that would cover the
acts underlying the Defendant’s counterclaims. (Fed. R. Civ. P. 26(a)(1)(A)(iv) requires
unsolicited disclosures of any such insurance policies). Sun River supplemented its Rule 26
1
disclosures on various dates in April and May 2011, but continued to maintain that Sun River
had no insurance coverage available for the counterclaims.
In August 2012, the Defendants came to believe that, contrary to Sun River’s prior
representations, Sun River might actually have had insurance coverage for the counterclaims.
Defense counsel wrote two letters to Sun River’s counsel (then both Mr. Csajaghy and Mr.
Pennington) requesting that Sun River re-visit the question of available insurance. Mr. Casjaghy
eventually responded in writing, again, that no such coverage existed. The Defendants made
another request in early October 2012, and Sun River, through Mr. Csajaghy, again denied the
existence of any insurance.
Shortly thereafter, the Defendants moved to compel production of any Sun River
insurance policies, and it was then, for the first time, that Sun River (through Mr. Pennington,
Mr. Csajaghy having recently withdrawn from Sun River’s representation) revealed the existence
of a directors & officers policy that could have applied to some of the counterclaims. (The
coverage had since lapsed, preventing the Defendants from making a claim against the policy.)
The Defendants moved for sanctions (# 254) against Sun River under Fed. R. Civ. P.
37(b)(2)(A) and 37(c), in the form of dismissal of Sun River’s claims and default judgment
against Sun River on the Defendants’ counterclaims. The Court referred the motion to the
Magistrate Judge, who conducted an evidentiary hearing into the matter at which both Mr.
Csajaghy and Mr. Pennington testified. Based on that testimony, the Magistrate Judge found that
the Plaintiff’s attorneys had not engaged in “intentional misrepresentation” about the availability
of insurance, but that “neither attorney every took a serious look at whether there was applicable
insurance . . . and simple believed that [any] policy would not be relevant.” The Magistrate
Judge found that Mr. Pennington, acting as Sun River’s in-house counsel at the time the initial
2
Rule 26 disclosures were made in 2011, was aware of the existence of the directors & officers
policy, but “made the assumption, without looking at the policy, that it would not apply.” He
also spoke to Mr. Csajaghy about the policy at that time, but, again, neither of them bothered to
read the policy. In 2012, after Mr. Pennington had entered an appearance on Sun River’ s behalf
in this action, Mr. Pennington was asked by an employee about whether the policy would apply
to the counterclaims, and Mr. Pennington “looked at the declarations page but did not
consciously apprehend that there was coverage.” Mr. Csajaghy testified that he simply referred
questions about Sun River’s insurance coverage to Mr. Pennington. Finding that Sun River
itself had no resources, the Magistrate Judge recommended that this Court enter default judgment
against Sun River on the Defendants’ counterclaims pursuant to Fed. R. Civ. P. 37(c)(1).1
Sun River filed Objections2 (# 279) to the Recommendation. This Court addressed those
Objections orally at the Final Pretrial Conference on July 16, 2013 (# 294). Although upon de
novo review, the Court agreed with the Magistrate Judge’s findings that Sun River’s counsel had
rendered “deficient performance” in failing to assess and disclose the insurance policy, the Court
disagreed with the Magistrate Judge’s conclusion that Sun River itself was culpable for that
failure.
Finding that the injury to the Defendants was primarily monetary – i.e. the attorney fees
expended in bringing the motion for sanctions – the Court granted sanctions to the extent that
Mr. Pennington and Mr. Casjaghy would be personally liable to the to Defendants for the costs
1
Notably, the body of the Magistrate Judge’s Recommendation addressed the operation of
Fed. R. Civ. P. 37(b)(2)(a)(iv), rather than Rule 37(c)(1). Nothing in the Recommendation
purports to explain the shift in the rule being considered between the analysis and the conclusion.
2
Although the Objections purported to take issue with certain factual findings by the
Magistrate Judge, Sun River’s contentions regarding the facts do not materially differ from the
Magistrate Judge’s findings.
3
of making that motion. (Subsequent proceedings (# 317) before the Court resulted in the
conclusion that the amount in question was $ 20,435.00.)
On November 20, 2013, Sun River – or, more accurately, Mr. Csajaghy and Mr.
Pennington – filed the instant Motion for Reconsideration (# 325) of the sanctions imposed
against them, arguing: (i) Rule 37 does not provide a means by which the Court can impose a
sanction against counsel; (ii) that the Court cannot issue sanctions against counsel without first
making a finding that counsel acted “without substantial justification” under Rule 26(g)(3), and
no such finding was made here; (iii) that an award of sanctions against counsel “would be
incongruent with the circumstances of the matter” because Mr. Pennington was acting as Sun
River’s in-house counsel, not trial counsel, at the time of the erroneous Rule 26 disclosures, and
thus, any sanction should run against Sun River itself; and (iv) that Mr. Csajaghy was not present
at the Final Pretrial Conference, and thus, was not given an opportunity to be heard before the
Court elected to impose sanctions against him personally. Citing Ms. Csajaghy and Mr.
Pennington’s delay in making the payment ordered by the Court, the Defendants moved (# 326)
for entry of judgment in the amount of the fees against Mr. Csajaghy and Mr. Pennington.
Mr. Csajaghy and Mr. Pennington’s motion allows the Court an opportunity to clarify
and expand upon the basis for its ruling. The Defendants’ motion for sanctions initially invoked
Rule 37(b)(2)(A), which provides that “If a party or a party’s officer . . . fails to obey an order to
provide or permit discovery . . . , the court where the action is pending may issue further just
orders” including (but not limited to) dismissal or entry of default judgments, holding the
offender in contempt, etc. Rule 37(b)(2)(C) makes clear that “in addition to the orders above, the
court must order the disobedient party, the attorney advising that party, or both to pay the
reasonable expenses, including attorney fees, caused by the failure, unless the failure was
4
substantially justified.” Although the body of the Magistrate Judge’s Recommendation initially
cited that rule, the “Conclusion” section of the Recommendation instead cited Rule 37(c)(1),
which provides that “if a party fails to provide information . . . as required by Rule 26(a) . . . the
court, on motion and after giving an opportunity to be heard may order payment of the
reasonable expenses, including attorney’s fees, caused by the failure [and] impose other
appropriate sanctions.” Fed. R. Civ. P. 37(c)(1)(A), (C). The Court finds that sanctions were
properly imposed against Mr. Csajaghy and Mr. Pennington under both Rule 37(b) and Rule
37(c).
A. Rule 37(b)(2)
Turning first to Rule 37(b)(2), the event triggering the Court’s power to sanction under
this rule is the action by a “party or a party’s officer” to “fail[ ] to obey an order to provide or
permit discovery.” Fed. R. Civ. P. 37(b)(2)(A).
1. Necessity of an Order
Because an “order to provide . . . discovery” is the sine qua non for an award of
sanctions under Rule 37(b)(2), some commentators have observed that “[w]hen the discovery
procedure is initially set in motion by the parties themselves without court order, the party
seeking discovery must first obtain an order under Rule 37(a) requiring the recalcitrant party . . .
to make the discovery sought; it is only a violation of this order that is punishable under Rule
37(b).” Wright, Miller et al, Federal Practice and Procedure, Civil 3d, § 2282.
The production of Sun River’s insurance coverage was a component of the automatic
disclosures exchanged by the parties under Rule 26(a)(1) without court intervention, and the
Defendants never subsequently sought, much less obtained, an order directing Sun River to
produce the insurance policies. An argument could be made that no predicate court order
5
directing disclosure of those policies exists to permit an award of sanctions under Rule 37(b)(2).
However, courts have recognized that a Scheduling Order (or, in some jurisdictions, a “Rule 16
Order”) that incorporates the terms of Rule 26(a) can itself be considered “an order to provide . .
. discovery” and can support an award of Rule 37(b)(2) sanctions, in and of itself. See Hathcock
v. Navistar Intern. Transp. Corp., 53 F.3d 36, 40 (4th Cir. 1995); see also Olcott v. Delaware
Flood Co., 76 F.3d 1538, 1556 (10th Cir. 1996) (finding Supplementary Scheduling Order
embodying parties’ discovery agreement was a discovery order sufficient to permit Rule 37(b)(2)
sanctions for its noncompliance); Advisory Committee comments to 1980 Amendment to Rule
37(b)(2) (“The amendment provides that the sanctions available for violation of other court
orders respecting discovery are available for violation of the discovery conference order”).
Here, the Magistrate Judge entered a Scheduling Order on April 7, 2011 (# 29) that
included a report of the parties’ Rule 26(f) conference and their mutual representation that they
would make “Initial Rule 26(a)(1) disclosures . . . by April 6, 2011.” The Scheduling Order can
thus be understood as the Court ordering the parties to make complete Rule 26(a) disclosures by
that April 2011 date. 3 Obviously, Sun River did not make that portion of its Rule 26(a)(1)
disclosures relating to its insurance coverage until nearly 18 months after the deadline in the
Scheduling Order, and thus, its failure to do so was a violation of the Scheduling Order, itself an
“order to provide . . . discovery” sufficient to warrant sanctions under Rule 37(b)(2).
2. Target of sanction
If Sun River’s failure to make full Rule 26(a)(1) disclosures is viewed as permitting a
3
Rule 37(b)(2) seems to anticipate this very line of reasoning, as it expressly notes that “an
order under Rule 26(f)” can be the type of predicate order permitting an award of sanctions.
Rule 26(f) recites the parties’ obligation to jointly confer and develop a discovery plan, including
deadlines for completion of Rule 26(a)(1) disclosures. Logically, then, Rule 37(b)(2)’s provision
for imposing sanctions based on a party’s non-compliance with an “order under Rule 26(f)” can
encompass a party’s failure to make a timely and complete Rule 26(a)(1) disclosure.
6
sanction under Rule 37(b)(2), the next question is who may properly be subject to such a
sanction.
Rule 37(b)(2)(C) expressly provides that, when the sanction takes the form of an award
of attorney fees, that sanction may be imposed against “the disobedient party, the attorney
advising that party, or both.” This is sufficient to warrant the sanction imposed against Mr.
Csajaghy, who was acting as Sun River’s counsel of record at the time the defective Rule 26
disclosures were made.
The more difficult question is whether Mr. Pennington, serving as Sun River’s in-house
counsel at the time of the disclosures, can also be the subject of a Rule 37(b)(2) sanction. This
exposes a curious ambiguity in Rule 37(b)(2). As noted above, the rule authorizes sanctions
when “a party or a party’s officer, director, or managing agent . . . fails to obey” a discovery
order. Fed. R. Civ. P. 37(b)(2)(A) (emphasis added). However, the remedies available to the
Court in imposing such a sanction are either preclusive in nature ( thus imposed only on the
offending party), see Fed. R. Civ. P. 37(b)(2)(A)(i)-(vi), or, if monetary, may be imposed against
“the disobedient party” or “the attorney advising that party.” Fed. R. Civ. P. 37(b)(2)(C). The
question presented, then, is whether a “disobedient party” subject to monetary sanctions in Rule
37(b)(2)(C) may include the “officer, director, or managing agent” responsible for the discovery
violation, or whether the monetary sanction must be imposed against the named party.
In dicta, the 8th Circuit in Isaacson v. Manty, 721 F.3d 533, 538 (8th Cir. 2013), makes a
passing observation that “the rulemakers have authorized courts to sanction not only attorneys,
law firms, and parties but also the individual officers of parties.” However, Issacson does not
cite any case in which a court has levied an officer or director of a party, rather than against the
party itself, and this Court’s research has similarly located no such case. Moreover, although the
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Rule appears to attempt to strike at disobedient corporate officers, allowing a court to impose
sanctions on those officers personally raises difficult questions of personal jurisdiction and due
process, among other things.4 In addition, reading Rule 37(b)(2)(C) reference to “the disobedient
party” to include a corporate officer or director would require the Court to give an idiosyncratic
meaning to the word “party” (particularly in light of the Rule’s subsequent reference to the
attorney advising that party,” as the attorney advising a corporate party may not necessarily be
advising the corporate officers or directors as well). See also Advisory Committee comments to
1970 Amendment of Rule 37(d) (acknowledging the “rare instances when a corporation is unable
through good faith efforts to compel a director to make discovery,” but assuming that a court is
unlikely to grant sanctions in such instance, suggesting that sanctions against the director him- or
herself are not authorized). Although Mr. Pennington subsequently became Sun River’s attorney
of record in this case, and thus became clearly amenable to sanctions under Rule 37(b)(2)(C), he
did so only after Sun River had already violated the discovery order.
Accordingly, the Court cannot conclude that monetary sanctions may be directed at Mr.
Pennington under Rule 37(b)(2) for Sun River’s initial failure to comply with its Rule 26(a)
disclosure requirements, but a sanction under that rule against Mr. Csajaghy was appropriate.
3. Substantial justification
Finally, Rule 37(b)(2)(C) permits monetary sanctions for attorney fees for discovery
violations “unless the failure was substantially justified.” The 10th Circuit appears to suggest that
“substantially justified” inquiry is based on the same factors that the Magistrate Judge considered
(and this Court adopted) when discussing Ehrenhaus v. Reynolds, 965 F.2d 916 (10th Cir. 1992),
4
Those concerns are not necessarily present here, as Mr. Pennington subsequently entered
an appearance in this action as Sun River’s counsel. Thus, there is no question that the Court has
the necessary jurisdiction over Mr. Pennington to impose a sanction.
8
namely: (i) the degree of prejudice to the Defendants caused by Sun River’s noncompliance, (ii)
disruption of the judicial process; (iii) Sun River’s culpability for the violation; and (iv) the
ability to cure the prejudice. See Woodworker’s Supple, Inc. v. Principal Mut. Life Ins. Co., 170
F.3d 985, 993 (10th Cir. 1999). It is not necessary for the Court to repeat or re-weigh those
factors here; it is abundantly clear that Mr. Csajaghy’s failure to disclose the existence of Sun
River’s insurance policies was not “substantially justified.” The record amply reflects that Mr.
Csajaghy was aware that Sun River had insurance policies, but that he elected not to examine the
policies to ascertain the scope of coverage. No impediment prevented him from doing so, and
thus, he is entirely culpable for that failure. As previously addressed by the Court, that failure
worked actual (albeit unquantifiable) prejudice on the Defendants and on the Court system.
Thus, because Mr. Csajaghy’s failure to disclose the policies was not substantially justified,
monetary sanctions were properly imposed on him under Rule 37(b)(2).
B. Rule 37(c)
The Court finds that Rule 37(c) justifies the sanctions imposed. That rule provides that
any party’s failure to provide discovery required by Rule 26(a) or 26(e) may result in the
imposition of sanctions, including the payment of the other side’s relevant attorney fees. There
is no dispute that Mr. Csajaghy was responsible for Sun River’s initial failure to make complete
Rule 26(a) disclosures. Mr. Pennington subsequently entered the case on Sun River’s behalf,
knowing that Sun River had insurance policies that had not been disclosed, yet Mr. Pennington
did not take timely steps to supplement Sun River’s disclosures as required by Rule 26(e), even
after the Defendants expressly requested in writing in August 2012. Thus, both counsel engaged
in conduct warranting sanctions under Rule 37(c).
Mr. Pennington and Mr. Csajaghy argue that any sanction under Rule 37(c) must run
9
against Sun River itself, not its counsel, citing cases such as Grider v. Keystone Health Plan
Central, Inc., 580 F.3d 119, 141 (3d Cir. 2009). There, the court held that the language in Rule
37(c) refers only to sanctions directed against a party, prohibiting the imposition of sanctions
under that rule against counsel. Citing Apex Oil Co. v. Belcher Co. of N.Y., 855 F.2d 1009, 1014
(2d Cir. 1988) and Maynard v. Nygren, 332 F.3d 462, 470 (7th Cir. 2003).
The 10th Circuit has not addressed this question of whether monetary Rule 37(c)
sanctions can be imposed against counsel, rather than against a party, nor have most other courts.
The few that have, such as Grider, Apex, or Maynard, have generally held that sanctions under
Rule 37(c) may not be imposed against counsel. However, having carefully reviewed these
cases, the Court finds them unpersuasive.
Both Maynard and Grider rely heavily on Apex for support, so this Court begins there. In
Apex, the trial court awarded sanctions to the plaintiff based on the defendant’s denial of four
requests for admission. (Presumably, the defendant did not ultimately contest the four factual
matters at trial.) The trial court assessed the sanctions against the defendant’s attorneys, but on
appeal, the Second Circuit reversed, finding that “by its express terms, Rule 37(c) applies only to
a party.” 855 F.2d at 1015. The court went on to note that “other subsections of Rule 37
expressly provid[e] for the imposition of sanctions against a party’s attorney,” making it illadvised to construe Rule 37(c) to offer that same remedy tacitly. Id.
It is important to recognize that the court in Apex was interpreting a version of Rule 37(c)
that has since been substantially amended. In 1993, Congress amended and restyled Rule 37 in
several ways, including substantial revisions to Rule 37(c). At the time Apex was decided, the
entirety of Rule 37(c) consisted of what is now found at Rule 37(c)(2), and to this day, that
provision does indeed provide that “the party who failed to admit [shall] pay the reasonable
10
expenses” occasioned by that failure. However, the 1993 revision added a new provision to Rule
37(c), namely Rule 37(c)(1), which does not mimic rule 37(c)(2)’s sentence structure or
grammar. Under the new Rule 37(c)(1), the Court “may order payment of the reasonable
expenses caused by the [discovery] failure.” The new rule’s construction resorts to the passive
voice, leaving the direct object of the verb “order” unspecified – precisely who is to make the
ordered payment is not expressly stated. This stands in sharp contrast to Rule 37(c)(2)’s use of
the active voice, making clear that “the party who failed to admit [shall] pay.” Thus, Apex
persuasively establishes that sanctions may not be imposed against counsel under Rule 37(c)(2),
but that reasoning is neither on point nor persuasive with regard to this Court’s consideration of
sanctions against Mr. Pennington and Mr. Csajaghy under Rule 37(c)(1).
That same problem is apparent in Maynard. There, the plaintiff withheld an adverse
medical report during discovery, producing it shortly before trial and only after the defendant
had learned of its existence through other channels. The defendant sought monetary sanctions
(among other things) jointly against the plaintiff and his counsel under Rule 37(c)(1), and the
court granted that request. On appeal, the plaintiff’s counsel challenged the sanction imposed
against him personally, arguing that Rule 37(c) does not permit sanctions against counsel.
Although decided after the 1993 change to the Rule, Maynard assesses the issue by examining
Apex; Insurance Benefit Administrators v. Martin, 871 F.2d 1354, 1360 (7th Cir. 1989), another
case decided prior to 1993; and the Advisory Committee’s comments to the 1970 revision of
Rule 37, all without ever acknowledging (much less quoting) the 1993 revision that created Rule
37(c)(1), the basis on which the trial court had imposed the sanction. This omission is curious,
insofar as both Apex and Martin both involved sanctions for refusing to admit uncontested facts,
the very conduct Rule 37(c)(2) is directed at, whereas Maynard involved the type of withholding
11
of discoverable information that the 1993 revision adding Rule 37(c)(1) was supposed to address.
Given these curious deficiencies and reliance upon outdated precedent, this Court is reluctant to
afford Maynard any persuasive value.
That leaves Grider., a case in which the trial court sanctioned defense counsel under Rule
37(c)(1) for numerous discovery failures, and counsel appealed. The Court of Appeals
acknowledged that the sanction in question was based on Rule 37(c)(1), and the court quoted the
pertinent language. Id. at 140. It then stated that “we have not before had occasion to address
the applicable scope of Rule 37(e)(1) [sic] sanctions,” but observed that the Second and Seventh
Circuits had, in Apex and Maynard respectively. Id. at 141. The court quoted briefly from those
two cases, then went on to note that “the Wright & Miller treatise, citing Apex, also states that
Rule 37 does not permit sanctions against the party’s attorney.” Id. at 141. The pertinent section
of Federal Practice and Procedure citing Apex is § 22905 of the Third Edition, entitled “Failure to
Admit Under Rule 36,”6 which, unsurprisingly, addresses the operation of Rule 37(c)(2). Thus,
much like Maynard, Grider apparently fails to recognize that the 1993 Amendments to Rule 37
significantly changed the operative language of the Rule, and that preexisting interpretations of
Rule 37(c)(2)’s language are not necessarily persuasive in the context of Rule 37(c)(1). For
these reasons, this Court finds the reasoning in Apex, Maynard, or Grider unpersuasive with
regard to the question of whether sanctions can be imposed on counsel under Rule 37(c)(1).
5
Grider cites to § 2990 of Federal Practice and Procedure. This appears to be a
typographical error, as is its initial reference to sanctions being imposed under Rule 37(e)(1),
rather than 37(c)(1), as there is no Rule 37(e)(1).
6
As Federal Practice and Procedure states when discussing the new version of the Rule,
“Rule 37(c)(1) authorizes the full panoply of Rule 37(b)(2) sanctions short of contempt.” Id. at §
2289.1. It goes on to acknowledge that “Rule 37(c)(1) authorizes the court to require payment of
reasonable expenses, including attorneys’ fees,” but notably, does not contend that such
sanctions cannot be imposed on counsel or cite to cases such as Apex or Grider.
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This Court finds that the proper interpretation of Rule 37(c)(1) warrants the conclusion
that sanctions under that rule may be imposed upon counsel where appropriate. When defining
how monetary sanctions can be imposed, the drafters of Rule 37(c)(1)(A) did not adopt the
existing specific, active-voice language of that Rule (i.e. the language of the current Rule
37(c)(2)), instead choosing an unspecific, passive-voice direction to assess sanctions. Just as
courts read statutes in pari passu, concluding that drafters intend the same phrase to have a
consistent meaning each time it is used identically in a statute or rule, see U.S. v. Ajoku, 718 F.3d
882, 890 (9th Cir. 2013), the opposite conclusion is valid as well: the decision of the drafters to
use a different construction in Rule 37(c)(1)(A) from the existing language of Rule 37(c)(2)
suggests that the drafters intended the two sections to have different meanings. As noted above,
the text of Rule 37(c)(1)(A) is broader and less specific than that of Rule 37(c)(2), suggesting
that the power to sanction is broader under the former than under the latter. Moreover, the Court
notes that the general trend in Rule 37 is to permit sanctions against counsel where the court
deems appropriate. See Fed. R. Civ. P. 37(a)(5)(A), (a)(5)(B), (b)(2)(C). Although Rule 37(c)(2)
stands in sharp contrast by its plain language, the Court is inclined to read the more broadlywritten Rule 37(c)(1)(A) consistently with the general trend of the remainder of the Rule and the
general trend towards granting trial courts flexibility in crafting suitable sanctions for discovery
misconduct. See generally Advisory Committee notes to 1993 Amendment to Rule 37(c) (“the
rule provides the court with a wide range of sanctions . . . [that] can be imposed when found to
be warranted after a hearing”).
Accordingly, in the absence of controlling or persuasive authority to the contrary, this
Court finds that sanctions may be imposed against counsel under Rule 37(c)(1)(A) if, in its
discretion, the Court deems appropriate. Here, for the reasons previously stated by the
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Magistrate Judge in his Recommendation and the Court in adopting that Recommendation in
part, the Court finds that Mr. Pennington and Mr. Csajaghy, as the counsel who were aware of
the existence of the insurance policies but who chose not to disclose or even examine them, are
the proper subjects of a sanction requiring payment of the Defendants’ attorney fees in bringing a
motion for sanctions. The misconduct was unambiguously that of Mr. Pennington and Mr.
Csajaghy, not that of Sun River, and thus, the sanction should be borne by them.
C. Remaining contentions
The sole remaining argument by Mr. Csajaghy is that the Court entered the sanction
against him without first giving him an opportunity to be heard. Mr. Csajaghy withdrew as
counsel for Sun River on October 16, 2012, shortly after the failure to disclose the insurance
policies came to light.
The Court acknowledges that Mr. Csajaghy was no longer counsel to Sun River at the
time of the Final Pretrial Conference, and thus, was not present when the Court elected to
convert the Magistrate Judge’s recommendation of default against Sun River to a monetary
sanction against Sun River’s counsel. However, the Court is not convinced that Mr. Csajaghy has
been deprived of a meaningful opportunity to be heard.
Mr. Csajaghy testified in person at the evidentiary hearing convened by the Magistrate
Judge on the Defendants’ motion for sanctions, and thus, had a full opportunity to present his
version of events. His testimony at that hearing also acknowledged his contemporaneous
awareness of the Defendants’ motion for sanctions (which included all sanctions that applied.)
Although that motion did not request sanctions directed at Mr. Csajaghy personally, it did
request relief under Rule 37(b)(2), which includes a provision for the mandatory award of
attorney fees, possibly against counsel personally. Fed. R. Civ. P. 37(c)(2)(B). Admittedly, the
14
Magistrate Judge did not recommend sanctions against Mr. Csajaghy personally, and thus, Mr.
Csajaghy arguably might not have anticipated that the Court could adopt the Recommendation in
part, but shift the focus of sanctions to counsel. Thus, it may be fair to say that, when converting
the recommended sanction to Mr. Pennington and Mr. Csajaghy personally, the Court deprived
Mr. Csajaghy of the opportunity to be heard on the legal aspects of that decision.
However, were the Court to vacate the award of sanctions against Mr. Csajaghy and
reopen the matter to allow him an opportunity to be heard on the legal issues, the situation would
be precisely what is presented now. Mr. Csajaghy has asked to be heard and has presented
certain arguments as to the legal propriety of awarding sanctions, and as set forth above, the
Court has considered and rejected those arguments. It is not clear whether Mr. Csajaghy’s
request to be heard is intended to encompass only those issues raised in his motion, or whether
he has held back additional factual or legal arguments in anticipation of a further opportunity to
present them. Mr. Csajaghy’s motion suggests that he desires “the opportunity to advise the
court in detail regarding the circumstances leading to Defendants’ motion,” but does not
elaborate, much less make a proffer or supply an affidavit attesting to the relevant matters.
Certainly, the “circumstances leading to Defendants’ motion” were explored in detail in Mr.
Csajaghy’s testimony before the Magistrate Judge, both as to Mr. Csajaghy’s initial discussions
with Mr. Pennington about the existence of the policies and Mr. Csajaghy’s correspondence with
the Defendants’ counsel in August and October 2012. Thus, it is unclear, even at this time, what
additional information or arguments Mr. Csajaghy would present were he to be given an
additional opportunity to be heard.
Mr. Csajaghy has now had an opportunity to be heard on at least two occasions, at least
once as to the facts (the hearing before the Magistrate Judge), and once as to the law (the instant
15
motion). See generally Advisory Committee comments to 1993 Amendments to Rule 37(a)(4)
(“’affording an opportunity to be heard’ [makes] clear that the court can consider such questions
on written submissions as well as on oral hearings”). Having now afforded him that opportunity,
the Court finds the situation unchanged from its prior observations: Mr. Csajaghy
unambiguously violated Rule 26(a), is fully culpable for that violation, the violation worked a
financial prejudice on the Defendants in the form of attorney fees incurred in seeking sanctions,
and it is appropriate to hold Mr. Csajaghy, rather than Sun River, personally responsible for
those financial losses because the failure was the result of Mr. Csajaghy’s failure to review and
assess known information, rather than concealment of that information from him by a client.
Accordingly, the Court has reconsidered the assessment of sanctions against Mr. Csajaghy in
light of his request to be heard, and the Court has considered the arguments raised in his motion,
but upon such reconsideration, nevertheless finds that the imposition of sanctions against Mr.
Csajaghy is appropriate on the terms previously identified.
D. Entry of judgment
The Defendants request that the Court reduce its sanction to a judgment against Mr.
Pennington and Mr. Csajaghy, so as to expedite the collection of the sanction. Mr. Pennington
and Mr. Csajaghy did not respond to this motion, and in the absence of an objection, the Court
grants the motion.
For the foregoing reasons, the Plaintiff’s Motion for Reconsideration (# 325) is
GRANTED IN PART, insofar as the Court has reconsidered its award of sanctions in light of
the arguments raised therein, and DENIED IN PART, insofar as, upon such reconsideration, the
Court nevertheless finds that the sanctions were properly imposed. The Defendants’ motion for
judgment (# 326) is GRANTED and the Clerk of the Court shall enter in favor of the Defendants
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and against Mr. Pennington and Mr. Csajaghy, jointly and severally, in the amount of $ 20,435.
Dated this 30th day of July, 2014.
BY THE COURT:
Marcia S. Krieger
Chief United States District Judge
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