Secretary of Labor, United States Department of Labor v. Caring First, Inc. et al

Filing 107

ORDER granting in part and denying in part 86 Motion for Sanctions. Signed by Judge Carlos E. Mendoza on 10/20/2017. (KMS)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION

SECRETARY OF LABOR, UNITED
STATES DEPARTMENT OF LABOR,
Plaintiff,
v.

Case No: 6:15-cv-1824-Orl-41GJK

CARING FIRST, INC., IVANAH V.
THOMAS and TIMOTHY THOMPSON,
Defendants.
/
ORDER
THIS CAUSE is before the Court on Plaintiff’s Motion for Sanctions (“Motion,” Doc. 86),
to which Defendants filed a Response (“Response,” Doc. 94). On October 3, 2017, this Court held
a hearing on the Motion. (Min. Entry, Doc. 102). For the reasons stated herein, the Motion will be
granted in part and denied in part.
I.

BACKGROUND

This case arises under the Fair Labor Standards Act of 1938 (“FLSA”), as amended, 29
U.S.C. § 201 et seq. Plaintiff alleges that Defendants mischaracterized their licensed practical
nurse and registered nurse employees as independent contractors. (Compl., Doc. 1, at 3). On
December 3, 2015, this Court entered a scheduling order directing the parties to exchange all
documents germane to this case by January 15, 2016. (FLSA Scheduling Order, Doc. 29, ¶ 1).
Defendants failed to timely comply with the disclosure of documents and, as a result, an Order to
Show Cause why sanctions should not be imposed was issued. (Feb. 25, 2016 Order, Doc. 32, at
1–2). After a hearing on the matter, this Court found that sanctions were warranted against
Defendants and Defendants’ counsel for their failure to comply with the Court’s order, but held

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the sanctions in abeyance so long as Defendants produced all relevant documents in their
possession, custody, or control by March 21, 2016. (Mar. 7, 2016 Order, Doc. 37, ¶¶ 1–3).
On March 11, 2016, Plaintiff filed a motion for sanctions against Defendants. (Mot. for
Sanctions, Doc. 38). Therein, Plaintiff alleged that Defendants willfully destroyed, or negligently
allowed to be destroyed, payroll records prior to May 2015, despite an ongoing investigation by
the Department of Labor (“Department”). (Id. at 12–13). Additionally, Plaintiff asserted that since
May 2015, an administrative employee had been deleting payroll records on a weekly basis by
writing over them at the end of each work week. (Id. at 15–16). Defendants acknowledged that an
employee was writing over the payroll week-to-week but claimed that the records prior to May
2015 were destroyed by a disgruntled former employee, Karen Reyes. (Id. at 7). On September 22,
2016, this Court entered an order denying the motion for sanctions because there was a factual
dispute regarding whether Reyes deleted the payroll records and because Plaintiff had not yet
determined what, if any, prejudice Plaintiff had suffered. (Sept. 22, 2016 Order, Doc. 55, at 6–7,
9). Nevertheless, the Court was troubled by Defendants’ actions and ordered Defendants to
“immediately halt the destruction of any Current Payroll Records” and produce all payroll records
to Plaintiff on a bi-weekly basis. (Id. at 10). 1 Now, Plaintiff again seeks sanctions against
Defendants and Defendants’ counsel pursuant to Federal Rule of Civil Procedure 37(b), 28 U.S.C.
§ 1927, and this Court’s inherent authority.
II.

LEGAL STANDARD

Rule 37(b) “authorizes a panoply of sanctions” for a party’s failure to comply with a
discovery order, including entry of a default judgment as the ultimate sanction. Smith v. Sohaan

1

For a more comprehensive summary of the facts leading up to this point, see the
September 22, 2016 Order (Doc. 55) denying Plaintiff’s first Motion for Sanctions (Doc. 38).

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Dev. Inc., No. 6:12-cv-1369-Orl-18DAB, 2013 WL 5720163, at *2 (M.D. Fla. Oct. 1, 2013); see
also Fed. R. Civ. P. 37(b)(2)(A)(i)–(vii). Entering a default judgment for violating a discovery
order requires: (1) a willful or bad faith failure to obey the order; (2) prejudice to the moving party;
and (3) a showing that lesser sanctions would not adequately punish the violation or deter future
violations. Inmuno Vital, Inc., v. Telemundo Grp., Inc., 203 F.R.D. 561, 571 (S.D. Fla. 2001)
(citing authority). However, “simple negligence, misunderstanding, or inability to comply [with a
discovery order] will not justify the sanction of default.” Id. (citing Malautea v. Suzuki Motor Co.,
987 F.2d 1536, 1542 (11th Cir. 1993)).
Title 28 of the United States Code § 1927 provides that “[a]ny attorney . . . admitted to
conduct cases in any court of the United States or any Territory thereof who so multiplies the
proceedings in any case unreasonably and vexatiously may be required by the court to satisfy
personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such
conduct.” “To justify an award of sanctions [under § 1927] a court must find that three predicates
apply: (1) an attorney must engage in unreasonable and vexatious conduct; (2) this conduct must
multiply the proceedings; and (3) the amount of the sanction cannot exceed the costs occasioned
by the objectionable conduct.” Traffic Sports USA, Inc. v. Federacion Nacional Autonoma De
Futbol De Honduras, No. 08-20228-CIV, 2008 WL 4792196, at *4 (S.D. Fla. Oct. 31, 2008).
“[A]n attorney multiplies proceedings unreasonably and vexatiously within the meaning of
the statute only when the attorney’s conduct is so egregious that it is tantamount to bad faith.”
Amlong & Amlong, P.A. v. Denny’s, Inc., 500 F.3d 1230, 1239 (11th Cir. 2007) (quotation
omitted). “[F]or purposes of § 1927, bad faith turns not on the attorney’s subjective intent, but on
the attorney’s objective conduct.” Id. “What is crucial is whether, regardless of the attorney’s
subjective intentions, the conduct was unreasonable and vexatious when measured against an

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objective standard.” Hudson v. Int’l Comput. Negotiations, Inc., 499 F.3d 1252, 1262 (11th Cir.
2007).
Additionally, federal courts possess the inherent authority “to manage their own affairs so
as to achieve the orderly and expeditious disposition of cases,” and, therefore, have the ability to
impose “sanction[s] for conduct which abuses the judicial process.” Goodyear Tire & Rubber Co.
v. Haeger, 137 S. Ct. 1178, 1186 (2017) (quotations omitted). Similar to § 1927, a federal court’s
inherent sanctioning authority permits it to impose sanctions “when a party has acted in bad faith,
vexatiously, wantonly, or for oppressive reasons.” Chambers v. NASCO, Inc., 501 U.S. 32, 45–46
(1991) (quotation omitted); see also Meidinger v. Healthcare Indus. Oligopoly, 391 F. App’x 777,
780 (11th Cir. 2010) (“In order to exercise its inherent power to award sanctions, the court must
find that a party acted in bad faith.”). Finally, “[i]nherent powers must be exercised with restraint
and discretion.” Footman v. Cheung, 341 F. Supp. 2d 1218, 1224 (M.D. Fla. 2004) (citing Barnes
v. Dalton, 158 F.3d 1212, 1214 (11th Cir. 1998)).
III.

ANALYSIS

Plaintiff argues that Defendants and Defendants’ counsel should be sanctioned for
spoliation of payroll records, violation of court orders, and misconduct in discovery. Specifically,
Plaintiff renews its previous assertion that Defendants intentionally destroyed, or negligently
allowed to be destroyed, payroll records from the time the Department began investigating Caring
First until May 2015. And since that time, Plaintiff alleges Defendants continued to willfully
destroy payroll records by writing over them, until mid-February of 2016—in violation of this
Court’s FLSA Scheduling Order.
Additionally, Plaintiff asserts that Defendants and their counsel misrepresented that a
spreadsheet—the “Master List”—was a recreation of all the destroyed payroll records. Plaintiff

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discovered that the Master List did not contain all of the information when Defendants disclosed
a second list as a trial exhibit over a year later, which contained additional information. Defendants
argue that the Master List was always an evolving document and that there was no duty to turn
over the second list because it was attorney work product. Finally, Plaintiff contends that
Defendants and Defendants’ counsel made misrepresentations regarding the information contained
on the nurses’ paychecks as well as their ability to obtain copies of the paychecks from their bank.
Regarding the weekly deletion of payroll records, Plaintiff has made the requisite showing
to convince this Court that sanctions are appropriate against Defendants under Rule 37(b).
However, Plaintiff has not proven that sanctions are warranted based on the other alleged
misconduct of Defendants. Nor has Plaintiff proven that sanctions are appropriate as to
Defendants’ counsel.
Defendants’ conduct in violating this Court’s order by deleting payroll records was willful.
Defendant Dr. Thomas—the owner of Caring First—was aware of the pending litigation, and she
acquiesced to the weekly deletion of payroll records that she knew were pertinent to the litigation.
Thus, Defendants willfully failed to comply with this Court’s Order to disclose “[a]ll time sheets
and payroll records in [their] possession, custody or control,” (Doc. 29 ¶ 1). This Court is
unpersuaded by Defendants’ argument that they were under no obligation to disclose the payroll
records because they disclosed the individual nurse’s time sheets. First, the Court’s order directed
Defendants to disclose “all time sheets and payroll records.” (Id. [emphasis added]). Second, as
discussed more fully below, the individual time sheets are far more voluminous and more time
consuming to analyze. Finally, “the broad scope of discovery allowed by [Rule] 26 does not limit
any party . . . from seeking information from multiple sources regarding the same issue.” Alderson

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v. Ferrellgas, Inc., No. 3:12-cv-305-TLS-CAN, 2013 WL 11325054, at *4 (N.D. Ind. Aug. 22,
2013).
Plaintiff was prejudiced by this willful destruction of payroll records. To date, Plaintiff is
still unable to confirm the amount of back wages Caring First may owe if the nurses involved in
this suit are deemed to be employees. Moreover, because Defendants failed to preserve the weekly
payroll records, Plaintiff must comb through voluminous patient files and pull nearly 43,000
individual nurse time sheets to accurately calculate back wages. Plaintiff estimates that this will
cost the Department $34,907.50. If Plaintiff was given the weekly payroll records, as this Court
ordered, Plaintiff could calculate back wages at a fraction of the cost. Further, Defendants’ failure
to produce all of its payroll records in a timely and comprehensive fashion has already resulted in
numerous recalculations of back wages—none of which Plaintiff believes are entirely accurate.
Therefore, Plaintiff has been prejudiced by Defendants’ destruction of payroll records.
However, Plaintiff has not demonstrated that the ultimate sanction of default judgment is
appropriate in this case. “[G]ranting default judgment is a sanction of ‘last resort’ and is
appropriate only where lesser sanctions are not adequate.” Inmuno Vital, Inc., 203 F.R.D. at 573
(citing Malautea, 987 F.2d at 1542). Although Defendants’ willful destruction of payroll records
has resulted in repeated recalculations of back wages by Plaintiff, it is not so thoroughly prejudicial
as to warrant default judgment. Instead, a lesser sanction can remedy the harm caused by
Defendants’ misconduct.
It is important to keep in mind that sanctions should be tailored specifically to address the
prejudice caused by the misconduct. See Armstead v. Allstate Prop. & Cas. Ins. Co., No. 1:14-CV586-WSD, 2016 WL 7093903, at *5 (N.D. Ga. Dec. 6, 2016), aff’d, No. 17-10068, —F. App’x—
, 2017 WL 2992071 (11th Cir. July 14, 2017). It is unclear whether monetary sanctions will

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effectively cure this prejudice, especially considering that Defendants’ ability to pay is likely
dependent on the outcome of this case. Other courts have held that an adverse inference could be
drawn from a party’s failure to comply with a discovery order. Thomas v. Dep’t of Corr. for Ga.,
377 F. App’x 873, 880 (11th Cir. 2010). But courts and commentators alike have noted that
“adverse inference instructions are one of the least severe sanctions which the court can impose
and, therefore, often have very little deterrent effect.” Inmuno Vital, Inc., 203 F.R.D. at 574
(quoting Mosel Vitelic Corp. v. Micron Tech., Inc., 162 F. Supp. 2d 307, 315 (D. Del. 2000)).
Defendants have already been warned once that continued failure to comply with this Court’s order
will result in sanctions. (See Doc. 37 ¶¶ 1–2) (“The Court will abate the imposition of sanctions
pending the production of . . . all documents in Defendants’ possession, custody, or control that
may be used to determine the hours worked, the compensation paid, and the method for calculating
[the] same for all alleged employees.”).
Plaintiff represented at the evidentiary hearing that he was able to obtain a sampling of
nurses’ paychecks from Caring First’s bank. From these paychecks, which contain the hours
worked by the nurses and their pay rate, Plaintiff claims he will be able to accurately calculate
back wages. Therefore, as a sanction the Court will order the production of the nurses’ paychecks
from Caring First’s bank. In addition, the Court will allow Plaintiff to recalculate potential back
wages based on these paychecks. If Plaintiff prevails as to liability at trial, this calculation will be
irrebuttably presumed to be correct, subject to Court approval.
IV.

CONCLUSION

For the reasons set forth herein and in this Court’s prior orders, it is ORDERED and
ADJUDGED as follows:

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1. Plaintiff’s Motion for Sanctions (Doc. 86) is GRANTED in part and DENIED in
part.
2. Defendants are SANCTIONED in accordance with Rule 37(b) for willfully
destroying payroll records.
3. On or before November 3, 2017, Defendants shall produce all relevant nurses’
paychecks in their possession, custody, or control, including those in the possession
of their bank, for inspection by Plaintiff.
4. If Plaintiff prevails as to liability at trial, Plaintiff’s back wages calculation will be
irrebuttably presumed to be correct, subject to final approval by the Court.
5. The Motion (Doc. 86) is DENIED in all other respects.
DONE and ORDERED in Orlando, Florida on October 20, 2017.

Copies furnished to:
Counsel of Record

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