Durham Commercial Capital Corp. v. Connolly, Geaney, Ablitt and Willard, P.C. et al

Filing 178

ORDER denying 158 Select Portfolio Servicing, Inc.'s motion for sanctions. By May 19, 2017, Durham Commercial Capital Corp. must produce a corporate representative to testify about the documents at issue. The court cancels the final pretri al conference scheduled for May 1, 2017, and removes the case from the May trial calendar. The Court will reschedule the conference and set the case for trial by further order. The Court denies Durham's request for sanctions. Signed by Magistrate Judge Patricia D. Barksdale on 4/28/2017. (BGK)

United States District Court
Middle District of Florida
Jacksonville Division
DURHAM COMMERCIAL CAPITAL CORP.,
Plaintiff,
V.

NO. 3:14-CV-877-J-34PDB

SELECT PORTFOLIO SERVICING, INC.,
Defendant.

Order Denying Defendant’s Motion for Sanctions
Before the Court is Select Portfolio Servicing, Inc.’s (SPS’s) motion for
sanctions under Federal Rule of Civil Procedure 37(c)(1). Doc. 158. Durham
Commercial Capital Corp. opposes the motion. Doc. 168. SPS asks the Court to
prevent Durham from using recently disclosed documents at trial, strike the
complaint, or limit Durham to presenting evidence “in accordance with the express
dollar amount and payment date range” in the complaint and initial disclosures. Doc.
158 at 12–19. The Court heard argument on the motion on April 17. Doc. 171.
Background 1
Durham filed the complaint in July 2014. Doc. 1. In the sole claim against SPS,
it alleges SPS knowingly and wrongfully paid the law firm Connolly, Geaney, Ablitt,

1The

Court incorporates the discussion of the background of this case in the Court’s
previous orders, Docs. 119, 143, and includes only the background necessary to decide SPS’s
motion for sanctions.

1

& Willard, P.C. (“CGAW”), instead of it on certain accounts receivable Durham had
purchased from CGAW. 2 Doc. 1 ¶¶ 21–33.
In December 2014, Durham served initial disclosures identifying documents it
may rely on: (1) the factoring agreement between Durham and CGAW; (2) the notice
of assignment Durham had sent SPS; (3) a July 2014 letter from Durham’s counsel
to SPS; (4) checks from SPS to CGAW (or its predecessor) and Durham; (5) invoices
from CGAW to SPS; (6) correspondence between CGAW and Durham regarding a
draft amendment to the factoring agreement; (7) Durham’s business records of
amounts SPS paid to Durham; and (8) records of amounts SPS paid to CGAW “over
[the] Notice of Assignment.” Doc. 144-1 at 2–3. Under a section titled “Computation
of damages,” Durham stated:
Between December 4, 2013[,] and April 21, 2014, [SPS] wrongfully paid
to [CGAW], rather than paying Durham, monies to satisfy certain
Accounts purchased by Durham, totaling $1,104,086.23 (the
“Wrongfully Paid Accounts”). [SPS] owes Durham and Durham has
suffered damages in the sum of $1,104,086.23 on the Wrongfully Paid
Accounts exclusive of prejudgment interest.
Doc. 144-1 at 3.
During discovery, SPS served interrogatories and requests for production
seeking a list of accounts CGAW had assigned to Durham, evidence relating to
accounts Durham had purchased from CGAW, evidence relating to accounts CGAW
had repurchased from Durham, and evidence supporting Durham’s damages
calculation. Doc. 158 at 4–6. To most, Durham responded the evidence sought was
irrelevant; to requests for evidence supporting its damages calculations, it responded,

2Durham

also alleges SPS “currently owes $329,619.18 on additional accounts … for
which [it] has not remitted payment.” Doc. 1 ¶¶ 27, 29–31, 33. Durham has since stated it is
not pursuing damages for unpaid accounts in light of CGAW’s pending bankruptcy
proceedings. See Doc. 103 at 5 n.2; Doc. 127 at 6 n.3; Doc. 144-1 at 3 n.1.

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Durham’s damages really require[ ] no technical calculation per se. The
damages or harm suffered by Durham is merely based on total amount
of payments that [SPS] made for invoices issued by [CGAW] that were
paid in violation of the Notice of Assignment Agreement between [SPS]
and Durham. … The backup information sought would be the [CGAW]
bank account statements evidencing deposits made.
Doc. 158 at 4–6. In July 2016, SPS’s counsel informally asked Durham to withdraw
its objection and produce responsive material. Durham did not produce additional
documents, and SPS filed no motion to compel their production.
In October 2016, in ruling on the parties’ summary-judgment motions, the
Court concluded Durham had to present evidence of assignment of specific accounts
through purchase from CGAW. Doc. 119 at 38–39 & n.28. In late January 2017,
following Durham’s motion seeking clarification, the Court reiterated that Durham’s
claim as pled was based on accounts it had purchased from CGAW. Doc. 143 at 3–5.
In early February 2017, Durham served amended initial disclosures
identifying the same categories of documents it had identified in the original
disclosures but amending the section titled “Computation of damages” to read:
The damages or harm suffered by Durham is the total amount of
payments that [SPS] made to [CGAW] in violation of the Notice of
Assignment issued by Durham to [SPS], for invoices issued by [CGAW]
to [SPS] … (the “Misdirected Payments”), which total approximately
more than $1,200,000.00. [SPS] owes Durham and Durham has suffered
damages in the sum of approximately $1,200,000.00, exclusive of
prejudgment interest.
Doc. 146-1 at 3–4. Durham filed a motion to amend the complaint to clarify it sought
to recover payments SPS had made to CGAW both on accounts Durham had
purchased and on accounts in which it had a security interest. Doc. 145. The Court
conducted a hearing on that and other motions. Doc. 148 (minutes), Doc. 150
(transcript). Durham withdrew its motion to amend the complaint, and its counsel
stated it was ready and willing to go to trial on the claim as pled. Doc. 150 at 37–40.

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On March 7, 2017, Durham produced 2060 pages of previously unproduced
documents, many of which were redacted and marked “Irrelevant.” Doc. 158 at 2. On
March 15, it replaced that production with unredacted documents. Doc. 158 at 2. The
production included (1) a 147-page spreadsheet purportedly showing “every single
invoice purchased by Durham from CGAW, every payment Durham received from
SPS[,] and all accounts Durham purchased from CGAW that Durham did not receive
payment from SPS [on],” see Doc. 168 at 17; (2) “rebate statements” showing rebates
Durham provided back to CGAW based on the difference between the less-than-facevalue amount Durham had advanced to purchase particular accounts and the amount
it eventually collected on those accounts; and (3) “account purchase addenda”
identifying invoices CGAW had sought to sell to Durham and the amounts it would
be advanced for such proposed sales.
SPS’s motion for sanctions followed. Doc. 158.
Motion, Response, & Oral Argument
SPS argues Durham should not be allowed to rely on the recently produced
documents. Doc. 158 at 2. It observes discovery closed more than a year earlier, and
it cannot conduct discovery on the documents or seek leave to file an amended answer.
Doc. 158 at 2. It argues the documents should have been identified in Durham’s initial
disclosures and were responsive to requests for production and interrogatories. Doc.
158 at 4–6, 12–13. It asserts Durham never indicated it had any documents showing
account purchases despite opportunities to do so in its initial and renewed summaryjudgment motions and trial brief; in the joint pretrial statement; in response to SPS’s
renewed summary-judgment motion and motion for judgment on the pleadings; or at
the February 2017 hearing. Doc. 158 at 7–11. It argues Durham was on notice at least
as of October 2016 (when the Court entered the summary-judgment order) that it
needed to show proof of purchase but waited another 142 days to produce documents.
Doc. 158 at 15. It argues Durham’s failure to produce the documents sooner is not
harmless because Durham had never indicated its intent to rely on them, and the
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production harms SPS “in its defense of this matter and in its own preparation for
trial.” Doc. 158 at 16–17. It argues that, even if the Court allows Durham to use some
of the documents, it should be limited to the damages and time period alleged in the
complaint and initial disclosures. Doc. 158 at 17–19.
Durham responds it properly objected to the identified discovery requests, and
SPS never moved to compel better responses. Doc. 168 at 8–9. It responds SPS’s
failure to move to compel suggests “SPS concurred that discovery pertaining to
purchased accounts was outside the scope of discovery.” Doc. 168 at 9. It responds the
“harsh” sanctions authorized under Rule 37 are unwarranted because SPS waited
“until the eve of trial” to address Durham’s perceived failure to offer evidence
supporting damages; its failure to provide the documents sooner was substantially
justified because it “had previously believed, and SPS made no argument otherwise,
that based on the legal issues actually litigated by the parties the [d]ocuments were
not relevant”; it only learned after the Court’s January order that the documents
relating to account purchases would relate to its claim as pled; its failure to
supplement its responses and disclosures was harmless “because SPS has had ample
notice throughout the case of the basis for and amount of damages Durham is seeking
…[,] and the damages do not require any complex calculations”; since the beginning
of the case, SPS has known Durham claims entitlement to payment on all accounts
SPS paid to CGAW after receiving the notice of assignment; the documents do not
reflect a new category of damages; and it had offered its president for an additional
corporate-representative deposition, but SPS declined. Doc. 168 at 9–18. It seeks
sanctions for having to respond to the motion, arguing the motion is “unjustified” and
“merely a disguised attempt by SPS to eviscerate the operation of Rule 15(b), and
prevent Durham from receiving a fair trial.” Doc. 168 at 19–20.
At the April 17 hearing, SPS’s counsel observed she had emailed Durham’s
counsel in July 2016 to ask about Durham’s discovery objections, and Durham’s
counsel responded that discovery had closed and it had no obligation to produce
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anything. She argued Durham’s assertion that the required proof to support its claim
was unclear until the January order is “absurd.” She argued if the Court excludes the
newly produced documents, the case is over unless the Court permits Durham to
amend the complaint at trial by introducing evidence supporting an alternative
theory of recovery. She argued if the Court permits Durham to use the evidence and
reopens discovery, SPS would move to amend the answer and for summary judgment
because she believes the newly produced documents remain insufficient to support
Durham’s claim as pled. She conceded SPS would suffer no prejudice from the
production if it were permitted to take discovery on those documents and amend its
answer.
Durham’s counsel responded the case they believed they had been litigating
from the outset was a claim seeking payment on all accounts on which SPS had paid
CGAW instead of Durham. He asserted they thought their theory was clear based on
the complaint allegations and the attachment of the notice of assignment and
factoring agreement to the complaint, and he believed SPS’s former counsel
understood and agreed to the scope of the claim. He explained they had
misunderstood the Court’s summary-judgment order as erroneously ruling, as a
matter of law, that Durham had to have purchased accounts to be an assignee entitled
to payment under Uniform Commercial Code section 9-406. He asserted the Court’s
January order clarifying that the Court had found a pleading deficiency came as a
“complete shock” to counsel. He asserted Durham intended to seek leave to amend
the complaint at trial by introducing evidence of its entitlement to payment based on
a security interest in all accounts and argued the newly produced documents are
“backup” evidence in case the Court does not allow amendment.

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Law
Several procedural rules govern.
Federal Rule of Civil Procedure 1 provides that the rules “should be construed,
administered, and employed by the court and the parties to secure the just, speedy,
and inexpensive determination of every action and proceeding.”
Federal Rule of Civil Procedure 26 provides general rules addressing the scope
of discovery and parties’ obligations. Subdivision (a) provides that a party “must,
without awaiting a discovery request, provide to the other parties” copies or
descriptions of documents it has that it “may use to support its claims or defenses”
and “a computation of each category of damages claimed” with accompanying
evidence on which each computation is based. Fed. R. Civ. P. 26(a)(1)(A)(ii)–(iii).
Subdivision (b) provides that a party “may obtain discovery regarding any
nonprivileged matter that is relevant to any party’s claim or defense and proportional
to the needs of the case, considering the importance of the issues at stake in the
action, the amount in controversy, the parties’ relative access to relevant information,
the parties’ resources, the importance of the discovery in resolving the issues, and
whether the burden or expense of the proposed discovery outweighs its likely benefit.”
Subdivision (e) provides,
A party who has made a disclosure under Rule 26(a)—or who has
responded to an interrogatory, request for production, or request for
admission—must supplement or correct its disclosure or response:
(A) in a timely manner if the party learns that in some material
respect the disclosure or response is incomplete or incorrect,
and if the additional or corrective information has not
otherwise been made known to the other parties during the
discovery process or in writing; or
(B) as ordered by the court.
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Fed. R. Civ. P. 26(e)(1).
Federal Rule of Civil Procedure 33 provides that a party may serve an
interrogatory on another party “relat[ing] to any matter that may be inquired into
under Rule 26(b),” and “[e]ach interrogatory must, to the extent it is not objected to,
be answered separately and fully in writing under oath.” Fed. R. Civ. P. 33(a)(2),
(b)(3). “The grounds for objecting to an interrogatory must be stated with specificity.”
Fed. R. Civ. P. 33(b)(4).
Federal Rule of Civil Procedure 34 provides that a party “may serve on any
other party a request within the scope of Rule 26(b) … to produce … any designated
documents or electronically stored information.” Fed. R. Civ. P. 34(a)(1). Any response
“must either state that inspection and related activities will be permitted as
requested or state with specificity the grounds for objecting to the request, including
the reasons.” Fed. R. Civ. P. 34(b)(2)(B).
Federal Rule of Civil Procedure 37(c)(1) provides,
If a party fails to provide information or identify a witness as required
by Rule 26(a) or (e), the party is not allowed to use that information or
witness to supply evidence on a motion, at a hearing, or at a trial, unless
the failure was substantially justified or is harmless. In addition to or
instead of this sanction, the court, on motion and after giving an
opportunity to be heard:
(A) may order payment of the reasonable expenses, including attorney’s
fees, caused by the failure;
(B) may inform the jury of the party’s failure; and
(C) may impose other appropriate sanctions, including any of the orders
listed in Rule 37(b)(2)(A)(i)–(vi). 3

3The

permissible sanctions listed in Rule 37(b)(2)(A)(i) through (vi) are:

8

Fed. R. Civ. P. 37(c)(1). In deciding whether a failure to comply with Rule 26(a) or (e)
was substantially justified or is harmless, a court must consider the non-disclosing
party’s explanation, the importance of the information, and any prejudice to the
opposing party if the information were admitted at trial. See Romero v. Drummond
Co., 552 F.3d 1303, 1321 (11th Cir. 2008). “[T]he first and third factors, together, can
outweigh the second.” Id.
Analysis 4
Sanctions against Durham are unwarranted.
Durham did not violate Rule 26(e) because it only learned of the
incompleteness of its disclosures and responses in late January of this year when
counsel realized the claim as pled was based only on purchased accounts. See Fed. R.
Civ. P. 26(e)(1)(A) (quoted).
Durham explained its theory of the case has always been that it may recover
all payments SPS made to CGAW after receiving from Durham the notice of
(i)

directing that the matters embraced in the order or other designated
facts be taken as established for purposes of the action, as the prevailing
party claims;

(ii)

prohibiting the disobedient party from supporting or opposing
designated claims or defenses, or from introducing designated matters
in evidence;

(iii)

striking pleadings in whole or in part;

(iv)

staying further proceedings until the order is obeyed;

(v)

dismissing the action or proceeding in whole or in part; [or]

(vi)

rendering a default judgment against the disobedient party.

4In

this order, the Court is not deciding whether amendment of Durham’s pleading
under Federal Rule of Civil Procedure 15(b) is warranted or the admissibility of any evidence
under the Federal Rules of Evidence. The Court is deciding only whether sanctions against
Durham are warranted based on the timing of its latest document production.

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assignment whether based on purchases or a security interest. That perspective is
apparent from its consistent position throughout the litigation that, to prove its claim,
it needed to present evidence only of the notice of assignment and SPS’s payments to
CGAW despite that notice. Its initial disclosures and responses to discovery requests
reflect that theory. SPS waited until after the discovery deadline to approach
Durham’s counsel about its objection and never sought Court intervention to compel
better responses. Under those circumstances, Durham did not unreasonably withhold
production of the documents before the Court’s order on summary judgment. At the
April 17 hearing, SPS’s counsel appeared to concede that point.
After summary judgment, Durham arguably was on notice it would need to
present evidence of account purchases to prove its claim as pled, so it arguably should
have known it would need to produce the documents. But its assertion it had misread
the Court’s order as making a legal error—rather than identifying a pleading error—
is plausible and explains why it failed to recognize the need for additional proof to
support its claim. Accepting that assertion as true in light of counsel’s displayed
sincerity at the April 17 hearing, the proper date for determining whether Durham
timely supplemented its disclosures and responses is January 30, 2017, when
Durham learned documents showing account purchases might be necessary to prove
its claim as pled.
Durham’s amended initial disclosures, served on February 7, did not indicate
it had additional documents to produce. See Doc. 146-1 at 3–4. Nevertheless, it
apparently immediately began the process of compiling the new documents for
production and offered Durham corporate representative Craig McGrain for an
additional Federal Rule of Civil Procedure 30(b)(6) deposition (albeit without an
indication that additional documents were forthcoming), which SPS declined. Though
Durham could have provided advance notice of its intent to produce new documents,
its production just over a month after it first realized the need to supplement its
disclosures and responses was not so delayed as to warrant sanctions.
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Even if Durham failed to timely supplement its disclosures and responses, any
failure is harmless if SPS may conduct discovery on the recently produced documents
and raise any defenses or arguments it might have based on them. At the April 17
hearing, Durham’s counsel represented the production was every available document
related to purchased accounts; the only additional discovery necessary would be an
additional corporate-representative deposition to allow SPS’s counsel to determine
what the documents mean. SPS should have that opportunity.
At the April 17 hearing, SPS’s counsel acknowledged the opportunity for
discovery might lessen the harm of the timing of the production but contended any
new discovery, by itself, would be of little value without an opportunity to amend the
answer. Amending the answer is unnecessary; under the circumstances, Durham
cannot argue SPS waived any defense that became apparent only from the recently
produced documents.
SPS’s counsel also indicated it might want an opportunity to file a renewed
motion for summary judgment. SPS can argue at trial, through a motion for judgment
as a matter of law, that Durham’s evidence of purchase is insufficient. SPS will not
unduly prejudiced by being required to present its argument in that manner as
opposed to through another round of dispositive motions that may or may not dispose
of or narrow the issues, and both parties will benefit from a more expeditious
resolution.
To the extent SPS asks the Court to preclude Durham from introducing
evidence of damages either in excess of the amount identified in its initial disclosures
or from before the time identified in the initial disclosures, it has shown no basis for
excluding that evidence. Durham correctly observes some of the cases on which SPS
relies addressed distinct categories of damages that the plaintiff had failed to
identify. See, e,g., Mee Indus. v. Dow Chem. Co., 608 F.3d 1202, 1221–22 (11th Cir.
2010); Goodman-Gable-Gould Co. v. Tiara Condo. Ass’n, Inc., 595 F.3d 1203, 1211–
13 (11th Cir. 2010). Here, all damages are in the same category (wrongfully paid
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accounts); the only differences are the amount and time frame, which Durham
changed (or, as to the time frame, omitted) in amending its initial disclosures in
February. See Doc. 146-1 at 3–4.
SPS has not shown Durham had any obligation to amend its initial disclosures
to reflect the higher damages amount given that that amount had otherwise been
made known to SPS during and after discovery. In its original and amended
summary-judgment motions, Durham argued SPS had wrongfully paid CGAW the
“approximate amount of $1,200,000.00.” Doc. 25 at 6, 12; Doc. 64 at 23. It relied on
testimony from SPS’s Chief Financial Officer, Peter Justin Crowley, for that figure.
See Doc. 25 at 6, 12; Doc. 64 at 23–24. Its amended initial disclosures reflect the same
information. See Doc. 146-1 at 3–4. And in the joint pretrial statement filed in June
2016, the parties stated Durham claimed $1,331,000 in damages and listed as an
admitted fact that SPS had paid CGAW that amount during the relevant time
period. 5 See Doc. 103 at 2, 5, 7. SPS was on notice that Durham intended to claim
entitlement to damages exceeding the amount alleged and originally disclosed, and
it cannot now claim surprise and prejudice simply because Durham has produced
documents potentially corroborating that amount.
On documents purportedly “fall[ing] well outside the specific date range”
alleged in the complaint and identified in initial disclosures, with no indication of
what those documents are or whether they relate to Durham’s estimated damages
amount, the Court cannot conclude their exclusion is warranted because the
documents could relate to Durham’s claim for damages arising within the disclosed
period. For example, at the April 17 hearing, SPS’s counsel provided a sample
“account purchase addendum” from the March 7 production dated October 9, 2013—
before the alleged and disclosed time frame of wrongful payments, and so presumably
5The

amended pretrial statement, filed the day after Durham produced the documents
at issue, also lists Durham’s claimed damages as $1,331,000 but omits SPS’s payment of that
amount to CGAW from the section listing admitted facts. See Doc. 154 at 2, 4, 10–11.

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among the documents SPS seeks to exclude. But to the extent Durham intends to
argue the document shows it purchased particular accounts, use of that document
would not be inconsistent with the time frame alleged and disclosed, and exclusion
would be unwarranted. A general assertion that some documents are from outside
the relevant time frame, without more context, is insufficient.
The Court denies SPS’s motion for sanctions, Doc. 158. By May 19, 2017,
Durham must produce a corporate representative to testify about the documents. To
give the parties sufficient time to prepare for trial after the additional discovery, the
Court cancels the final pretrial conference scheduled for May 1, 2017, and removes
the case from the May trial calendar. The Court will reschedule the conference and
set the case for trial by further order upon consideration of SPS’s motion to stay, Doc.
176, filed earlier today.
Although the Court denies SPS’s motion, its position was substantially
justified. Durham’s assertion that SPS is seeking to “eviscerate the operation of Rule
15(b),” see Doc. 168 at 19–20, is unpersuasive; whether Durham should be allowed to
amend the complaint differs from whether Durham should be allowed to introduce
only recently produced evidence relevant to the claim as currently pled. The Court
denies Durham’s request for sanctions, Doc. 168 at 20.
Ordered in Jacksonville, Florida, on April 28, 2017.

c:

Counsel of record

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