Schwarz et al v. Board of Supervisors et al

Filing 292

ORDER denying 282 Motion for Sanctions. Signed by Judge George Caram Steeh, III on 1/10/2017. (Steeh, George)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
OCALA DIVISION

LOUIS SCHWARZ et al.,

CASE NO. 5:12-cv-00177
HON. GEORGE CARAM STEEH

Plaintiffs,
v.
THE VILLAGES CHARTER
SCHOOL, INC.,
Defendant.
________________________/
ORDER DENYING PLAINTIFFS’ MOTION FOR SANCTIONS (Doc. 282)
Now before the court is plaintiffs’ motion for sanctions. Plaintiffs seek default
judgment, or in the alternative, seek to preclude defendant the Villages Charter School,
Inc., from making its undue burden defense, based on defendant’s alleged failure to
cooperate in discovery and in preparing the joint final pretrial statement, for allegedly
making false statements to the press in order to influence this litigation, and for closing
the Lifelong Learning College. Defendant has responded in writing. Having carefully
considered the written submissions, plaintiffs’ motion for sanctions shall be denied.
A. Factual Background
The facts of this case were fully set forth by prior order of the court in Judge
Howard’s summary judgment decision dated February 29, 2016. (Doc. 189). Recent
developments including the closing of the Lifelong Learning College, and the publication
of articles in the local press about it, were thoroughly discussed in the court’s prior order



 The Honorable George Caram Steeh, Senior United States District Judge for the
Eastern District of Michigan, sitting by designation. 

denying plaintiffs’ motion for a temporary restraining order and permanent injunction.
(Doc. 285).

The court does not reiterate those facts here.

The court limits its

discussion here to the facts surrounding plaintiffs’ claim that defendant failed to
cooperate in discovery, and failed to cooperate in preparing the joint final pretrial
statement.
As to plaintiffs’ claim that defendant did not adequately participate in preparing
the joint final pretrial statement, the court has considered the affidavit of defense
counsel Mary Nardella, stating that she sent multiple e-mails to plaintiffs’ counsel
regarding the joint final pretrial statement, beginning over a week before the document
was due, and drafted a joint motion to extend the deadline for its filing. (Doc. 286). She
also attested to the fact that she continued to communicate with plaintiffs’ counsel
working late into the evening the night before the statement was due, staying until 10:00
p.m. before finally leaving to put her baby to bed. Id. According to Nardella’s affidavit,
defense counsel spent more than 70 hours working on the first joint final pretrial
statement, and more than 40 hours working on the second joint pretrial stipulation. Id.
As to plaintiffs’ claim that defendant did not cooperate in discovery, the court
finds plaintiffs’ claim that defendant listed certain documents as exhibits on the pretrial
statement without previously disclosing those documents to be the most significant
allegation of wrongdoing. Those documents were certain profit and loss statements for
the years 2010, 2011, 2012, and 2014, and checks from defendant to the Holding
Company. Plaintiffs objected to the use of those documents in the joint final pretrial
order and Judge Howard discussed the objections on the record during the joint final
pretrial conference held on October 5, 2016.

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(Doc. 267).

At that time, plaintiffs

requested that the materials be precluded or that they be allowed to take a deposition
concerning the omitted documents. (Doc. 267 PageID 7445-46). Defendant agreed to
produce a corporate representative for the deposition and plaintiffs agreed that was
satisfactory. Id. at PageID 7446. Judge Howard reopened discovery for the limited
purpose of taking the deposition of the corporate representative regarding those exhibits
that were identified on defendant’s exhibit list, but were not produced during discovery,
and ordered that the deposition be taken before November 30, 2016. (Doc. 263).
Over a month later, on November 11, 2016, plaintiffs served their notice of
deposition of defendant’s corporate representative pursuant to Federal Rule of Civil
Procedure 30(b)(6). The notice identified twenty-four areas of inquiry, including, among
other things, information about defendant’s bank accounts, how money was transferred
between the Holding Company and the Lifelong Learning College, and sought
production of checks received by defendant from the Holding Company or paid to the
Holding Company by the defendant. (Doc. 283-7). Defendant objected to the alleged
overbreadth of the notice via a letter to plaintiffs’ counsel stating that only two areas of
inquiry were allowed based on Judge Howard’s order: (1) all profit and loss statements
listed on defendant’s exhibit list, and (2) Dragon Naturally Speaking software, literature,
and equipment, listed on defendant’s exhibit list. (Doc. 283-8).
In its letter, defendant complained that the majority of the documents sought
related to advances and payments between the Holding Company and defendant which
it asserted were previously produced during the deposition of John Wise, vice-president
and CFO of the Holding Company, on November 11, 2014. Id. Because discovery did
not end until February 1, 2015, defendant pointed out that plaintiffs had more than two

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months to inquire about those documents. Id. In their motion for sanctions, plaintiffs
admit that the checks written from defendant to the Holding Company were produced by
Wise, but claim that their production was not responsive to his subpoena, and that the
checks were “hidden amongst approximately 140 pages of otherwise responsive
documents.” (Doc. 282 PageID 8205 n.17).
Plaintiffs did not file a motion to compel based on defendant’s objection to the
scope of the questions they sought to pose to defendant’s corporate representative, but
went forward with the deposition of Gina Ritch, defendant’s director of accounting, on
November 30, 2016. Her deposition lasted five hours. This was the second time that
plaintiffs deposed Ritch. Plaintiffs deposed Ritch about the profit and loss statements,
and about the checks issued from the defendant to the Holding Company. (Doc. 27711).
As a result of Ritch’s second deposition, plaintiffs claim they learned of additional
relevant documents for the first time: (1) a letter requesting the advance dated August
17, 2010, (2) original budgets and quarterly budgets for each of defendant’s seven
departments, (3) profit and loss statements for each of the departments, (4) Ritch’s
accounting ledger, (5) proof of rent payments, and (6) documentation concerning patron
memberships such as the number, cost and how many courses the patron members
participate in each year.
Plaintiffs claim that those documents should have been produced in response to
item 18 of their requests to produce which stated, “Please produce all your financial
documents including but not limited to your tax returns, revenue statements, receipts of
amenities fees, expense reports, balance sheets, financial statements, budgets, profit-

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loss statements, income statements, audit statements and other financial documents.”
(Doc. 282, Ex. A at PageID 8222).
Plaintiffs also allege that defendant’s responses to their requests to produce sent
in August, 2013, were incomplete, and state that in February and March, 2014, plaintiffs
sent defendant two letters stating their responses to plaintiffs’ requests to produce were
deficient. Plaintiffs never filed a motion to compel. Plaintiffs assert that one week prior
to the depositions of defendant’s witnesses, defendant served them with 10,000 pages
of documents.

Plaintiffs suggest that they were unable to process the document

production prior to the depositions, but it is undisputed that plaintiffs never sought to
adjourn the noticed depositions, either informally or by way of a formal motion. In the
motion now before the court, plaintiffs contend that defendant should have been
required to organize the 10,000 pages of financial documents produced, but again,
plaintiffs cannot show that they ever asked defendant to do so, either informally or by
way of a formal motion.
Plaintiffs also complain that in July, 2014, defendant made 88 redactions to
documents produced primarily on the basis of the work product privilege, but claim that
defendant failed to provide sufficient explanation of the basis for the privilege.
Specifically, plaintiffs complain that defendant asserted the privilege with respect to emails between Michelle Shideler and Randy McDaniel regarding plaintiffs’ requests for
accommodation, but that neither Shideler nor McDaniel are attorneys. Plaintiff never
filed a motion objecting to the assertion of the privilege.
Plaintiffs also complain that defendant misled them about whether it received
federal funding for the first year after this lawsuit was filed, causing the delay in their

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ability to amend the Complaint to add a claim under § 504 of the Rehabilitation Act.
Plaintiffs assert it was and remains improper for defendant to argue that the Lifelong
Learning College is a separate entity from the K through 12 charter school, and does
not receive federal funds.
Finally, plaintiffs argue that the court should use its inherent powers to grant
them a default judgment because of certain statements reported in several local
newspapers about this lawsuit, some of which are attributable to the defendant, and
because of defendant’s decision to close the Lifelong Learning College.
B. Standard of Law
Plaintiffs seek sanctions under Federal Rule of Civil Procedure 37(c), the court’s
inherent powers, and 28 U.S.C. § 1967. Specifically, plaintiffs seek the most drastic
sanction of default judgment, or the preclusion of defendant’s undue burden defense.
First, Rule 37(c) allows the court to impose sanctions, such as barring the introduction
of certain evidence, where one party has failed to provide information as required by
Rule 26(a), governing initial disclosures, or by Rule 26(e), governing responses to
requests for production and other discovery vehicles. Sanctions are not available where
the failure to provide information is substantially justified or is harmless. Fed. R. Civ. P.
37(c)(1). The most draconian sanction of default judgment is disfavored and is rarely
imposed, and then only where one party willfully, and in bad faith, fails to obey the
court’s discovery orders such that allowing the case to proceed would be unfair to the
innocent party. See Malautea v. Xuzuki Motor Co., 987 F.2d 1536, 1543 (11th Cir.
1993). In Malautea, the Eleventh Circuit twice warned defense counsel that default
judgment was a possible sanction for defendant thrice thwarting the court’s discovery

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orders. Id.
Second, the court also has the inherent power to impose sanctions for discovery
abuses under Chambers v. Nasco, Inc., 501 U.S. 32 (1991), but the Supreme Court has
stressed that a court should “exercise caution in invoking its inherent powers.” Id. at 50.
Imposition of sanction under the court’s inherent powers requires a finding of “bad faith.”
Peer v. Lewis, 606 F.3d 1306, 1316 (11th Cir. 2010).
Third, courts have power to impose sanctions for discovery abuses under 28
U.S.C. § 1927 when three elements are met: (1) the attorney must engage in
unreasonable and vexatious conduct, (2) the unreasonable and vexatious conduct must
multiply the proceedings, and (3) the sanction must be proportional to the expense
caused by the misconduct. Amlong & Amlong, P.A. v. Denny’s, Inc., 500 F.3d 1230,
1239 (11th Cir. 2007).
C. Analysis
The court turns now to its analysis of whether the most draconian sanction of
default judgment is appropriate here and finds that it is not. Plaintiffs state that only the
harshest sanctions are appropriate as lesser sanctions are not feasible.

Plaintiffs

oppose reopening discovery at this late date given that the trial is set to begin in several
weeks, and they do not wish to adjourn the trial. Plaintiffs also claim they lack sufficient
time to consider any additional documents that defendant might be ordered to produce
now. The court addresses each of plaintiffs’ specific allegations of discovery abuses
and litigation misconduct below.

All fall woefully short of the kind of bad faith

misconduct that courts have found warrants the imposition of sanctions.

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1.

Joint Final Pretrial Statement and Conference
Plaintiffs complain that defendant failed to cooperate in preparing the joint final

pretrial statement and conference. The court has carefully reviewed the affidavit of
defense counsel Mary Nardella. While it is clear that both sides had difficulty working
together, the court is satisfied that the defense made reasonable attempts to cooperate
in the process.
At the pretrial conference, defendant stated its intent to produce checks written
from it to the Holding Company, apparently to show that any funds paid to it by the
Holding Company were advances that needed to be repaid. (Doc. 267 at PageID 7414,
7422). Plaintiffs responded that they did not have copies of those checks, and that
there had been no testimony that the charter school repaid advances from the Holding
Company. Id. at PageID 7431. Defendant vehemently disagreed, insisting that there
was no unfair surprise, but that there was testimony that the payments from the Holding
Company to the defendant were advances that had to be repaid. Id. at PageID 7432.
Judge Howard indicated her agreement with the defense that there had been testimony
the monies paid from the Holding Company were advances, stating:
And so I don’t think it’s surprising that there may have been repayment
back, and so I think that to the extent that there is any surprise, we can
simply address it by making a witness available to address those – for
deposition on those issues.
Id. at PageID 7433. Plaintiffs’ counsel indicated that proceeding in that manner was
“agreeable.” Id.
Plaintiffs also complain that at the joint final pretrial conference, defense counsel
offered to make a witness available to discuss the checks written between the Holding
Company and the defendant, but later refused to do so, stating that plaintiffs had
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received all of the checks from the defendant to the Holding Company in connection
with Wise’s deposition. There appears to be no dispute that plaintiffs were provided
with five reimbursement checks written from defendant to the Holding Company on
November 11, 2014. (Defense exhibits 2, 19, 33, 34, and 45). Plaintiffs claim, however,
that it is not enough that Wise, vice-president and CFO of the Holding Company,
produced the reimbursement checks, but that defendant should have done so as well.
Plaintiffs’ argument is not persuasive. Plaintiffs had the checks in their possession
since November, 2014; thus, they can show no unfair surprise or prejudice. Sanctions
on this basis are not appropriate.
Moreover, this court has carefully reviewed the transcript of the second
deposition of Ritch. During that deposition, plaintiffs relied on the exhibits produced by
Wise. (Doc. 277-11). Plaintiffs questioned Ritch at length about the checks written from
the Holding Company to the defendant, and from the defendant to the Holding
Company. (Doc. 277-11 at PageID 7603-73). Because plaintiffs had the opportunity to
discuss all of the checks, both the advances from the Holding Company to the
defendant, and the alleged repayments made by the defendant back to the Holding
Company, plaintiffs can show no prejudice that they received copies of the repayment
checks from their subpoena to Wise, rather than from the general document request to
the defendant.
2.

Financial Documents
As to the four profit and loss statements for the years 2010, 2011, 2012, and

2014 which were included on defendant’s exhibit list but not previously produced during
discovery, any prejudice was cured when the court permitted plaintiffs to take a Rule

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30(b)(6) deposition regarding those documents. Plaintiffs did so when they deposed
Ritch for the second time on November 30, 2016.
The court turns now to plaintiffs’ argument that defendant should be sanctioned
for not turning over other documents referenced by Ritch in her second deposition.
Defendant responds that plaintiffs were on notice that such documents existed based
on Ritch’s first deposition and the deposition of Dr. Randy McDaniel’s, Village’s Charter
Schools director of education. At her first deposition, Ritch testified about how each of
defendant’s departments operates its own budget and both she and McDaniel testified
about how the Lifelong Learning College pays rent for use of the charter school
facilities. (Doc. 287-7). Thus, there should have been no surprise to plaintiffs that
records existed regarding the budgets of each department and documentation and proof
of rent payments. Plaintiffs never specifically asked for those records. Plaintiffs argue
that such records should have been provided in response to their general request for
production of all financial documents; however, plaintiffs never filed a motion to compel
with regard to those documents.
Similarly, plaintiffs’ claim that they just learned of the existence of documents
pertaining patron memberships, including the number, cost, and how many courses the
patron members take each year during Ritch’s second deposition is not convincing.
The existence of those records should have been obvious to plaintiffs during the
discovery period.

Plaintiffs also claim they were prejudiced because they did not

receive Ritch’s accounting ledger, or an August 17, 2010 letter requesting an advance.
It is hard to conceive why the availability of Ritch’s accounting ledger would not have
been obvious during her first deposition. As to the August 17, 2010 letter requesting an

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advance, defendant has not stated any intention of using that letter at trial, and the
harshest sanction of default judgment could not be imposed based on the omission of
that one document.
3.

Reimbursement Checks
Plaintiffs also claim sanctions are warranted because defendant failed to produce

checks it sent to the Holding Company. It is undisputed that all of those checks were
produced to plaintiffs’ counsel at the deposition of John Wise on November 11, 2014.
Plaintiffs’ claim that the checks were “hidden” in the 140-pages of documents produced
at the time of his deposition is not compelling. As discussed earlier, plaintiffs discussed
all of those checks during Ritch’s second deposition. Thus, no discovery sanctions are
warranted on this basis.
4.

10,000 Pages of Documents
Plaintiffs object to defendant’s production of 10,000 documents on the eve of

depositions.

Notably, plaintiffs never objected to the timing of the filing of the

documents, never requested to reschedule the depositions, and never sought to re-take
any of the depositions based on documents contained in that production. Plaintiffs
never filed any motions objecting to the document production or its timing. Under these
circumstances, no sanctions are warranted.
5.

Work Product Privilege
Defendant prepared a supplemental privilege log in July, 2014, to which plaintiff

objected to for the first time in December, 2016, long after discovery had closed. The
court has reviewed the privilege log which identifies each document by Bates number
and by date, describes the privilege raised, provides the subject matter of the document

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at issue, and identifies the parties in each communication. Given plaintiffs’ delay in
objecting thereto, the court cannot find any basis for awarding sanctions on these
grounds.
6.

Statements Regarding Federal Funding
Plaintiffs claim that defendant purposefully misled them as to whether it received

federal funds. In support of this claim, plaintiffs rely on a statement that they attribute to
the mediator in February, 2013, and on two e-mails drafted by defense counsel in July,
2013.

Defendant responds that the purported misstatement by the mediator is not

attributable to it, is impermissible hearsay, and is not admissible under Local Rule
9.07(b). The court agrees.
As to the two e-mails drafted in July, 2013, the court has reviewed those
documents and finds that they are not purposefully misleading.

In those e-mails,

defense counsel admitted that The Villages Charter School, Inc. receives federal funds,
but denied that the Lifelong Learning College receives any such funds, claiming that the
College’s operating income is derived solely from class fees. (Doc. 287-1). Plaintiffs
claim it is improper and contrary to Judge Howard’s summary judgment ruling for
defendant to contend that defendant’s business was segregated into two halves — the
K through 12 charter school and the Lifelong Learning College. But the e-mails in
question were drafted over two-years before Judge Howard issued her summary
judgment ruling. (Doc. 189). Plaintiffs also suggest that Judge Howard’s order allowing
them to amend their Complaint to add a Rehabilitation Act claim is precedent that
defendant is covered by the Rehabilitation Act, when in fact, in that order Judge Howard
noted that issue was hotly contested. (Doc. 92 at PageID 612).

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To the extent that plaintiffs are complaining that defendant still seeks to present a
case to the jury that the Lifelong Learning College did not receive federal funds, the
court has already addressed that issue in its order deciding the parties’ prior motions in
limine. (Doc. 274). In that order, the court held that “evidence of how the Charter
School Corporation uses (or is required to use) any federal funds it receives is relevant
in determining whether those funds constitute available resources for purposes of the
Charter School Corporation’s undue-hardship defense.” Id. at PageID 7511-12. Given
this limited purpose, defendant may introduce evidence at trial discussing the
organization of the K through 12 charter school and the Lifelong Learning College, and
no sanctions are appropriate based on defendant proceeding in this way.
7.

Statements to the Press and Decision to Close Lifelong Learning College
Plaintiffs also seek sanctions because of defendant’s statements about this

lawsuit in the local media and because of defendant’s decision to close the Lifelong
Learning College. The court thoroughly addressed that issue in its prior order denying
plaintiffs’ motion for a preliminary injunction.

(Doc. 285). For the same reasons

discussed there, sanctions are not warranted based on any pretrial publicity or the
closing of the Lifelong Learning College.
D. Conclusion
Because plaintiffs never sought a motion to compel to resolve any of their
discovery disputes, the court never warned defendant the most drastic sanction of
default judgment was a possibility, and the court has made no finding of bad faith or
willful misconduct on the part of defendant, the harshest sanction of default judgment, or
the equally severe sanction of prohibiting defendant from putting forth its undue

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hardship defense, is not warranted. To the extent that defendant seeks to introduce
profit and loss statements not produced during discovery at trial, those documents were
still produced three months prior to trial and any prejudice has been cured by the Rule
30(b)(6) deposition of Ritch. Accordingly, plaintiffs’ motion for sanctions (Doc. 282) is
DENIED.
IT IS SO ORDERED.
Dated: January 10, 2017
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE

CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
January 10, 2017, by electronic and/or ordinary mail.
s/Barbara Radke
Deputy Clerk

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