Acosta v. Saakvitne et al
Filing
423
ORDER AFFIRMING MAGISTRATE JUDGE ORDERS DENYING MOTION FOR FINDING OF CONTEMPT AND IMPOSITION OF SANCTIONS re 409 . The court affirms the Magistrate Judge's denial of Bowers and Kubota's motion for determination of contempt an d imposition of sanctions. However, in the interest of reaching the merits of this case without further litigation, the court orders the Government to conduct further searches of its files as it proposed in its correspondence of December 17, 2020, unless somehow the passage of time makes those proposed searches now unduly burdensome. See ECF No. 396-7. Signed by JUDGE SUSAN OKI MOLLWAY on 4/2/2021. (cib)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
MILTON AL STEWART, Acting
Secretary of Labor, United
States Department of Labor,
)
)
)
)
Plaintiff,
)
)
vs.
)
)
NICHOLAS L. SAAKVITNE, an
)
individual; NICHOLAS L.
)
SAAVITNE, A LAW CORPORATION, )
a California Corporation;
)
BRIAN BOWERS, an individual; )
DEXTER C. KUBOTA, an
)
individual; BOWERS + KUBOTA
)
CONSULTING, INC., a
)
corporation; BOWERS + KUBOTA )
CONSULTING, INC. EMPLOYEE
)
STOCK OWNERSHIP PLAN,
)
)
Defendants.
)
_____________________________ )
CIVIL NO. 18-00155 SOM-WRP
ORDER AFFIRMING MAGISTRATE
JUDGE ORDERS DENYING MOTION
FOR FINDING OF CONTEMPT AND
IMPOSITION OF SANCTIONS
ORDER AFFIRMING MAGISTRATE JUDGE ORDERS DENYING MOTION FOR
FINDING OF CONTEMPT AND IMPOSITION OF SANCTIONS
I.
INTRODUCTION.
Brian Bowers and Dexter C. Kubota operated a company,
Bowers + Kubota Consulting, Inc.
Bowers and Kubota created an
Employee Stock Ownership Plan called Bowers + Kubota Consulting,
Inc. Employee Stock Ownership Plan (the “ESOP”), which allegedly
paid more money for ownership of the company than it was worth.
In relevant part, the Government brought this action
claiming that the sale violated the Employee Retirement Income
Security Act of 1974.
The present appeal arises out of one of
the numerous discovery disputes in this case.
Bowers and Kubota
seek a determination that the Government is in contempt of a
Magistrate Judge order concerning discovery and related
sanctions.
The Magistrate Judge denied the motion and subsequent
reconsideration motion.
This appeal followed.
This court
affirms.
II.
BACKGROUND.
This case is set for a nonjury trial on June 22, 2021,
less than three months from now.
See ECF No. 202, PageID # 4006.
The Amended Rule 16 Scheduling Order of May 15, 2020,
set the following discovery deadlines for the case:
The deadline for written fact discovery shall
be August 3, 2020; the deadline for other
fact discovery, including depositions, shall
be October 23, 2020. . . . Unless otherwise
permitted by the Court, all discovery motions
and conferences made or requested pursuant to
Federal Rules of Civil Procedure, Rules 26
through 37 inclusive and LR 26.1, 26.2[, and]
37.1[,] shall be heard no later than thirty
(30) days prior to the applicable discovery
deadline.
See ECF No. 202, PageID # 4008.
On or about June 29, 2020, Bowers and Kubota sent the
Government document requests and interrogatories.
Among other
things, Bowers and Kubota sought discovery pertaining to
Government investigations into actions by their ESOP’s trustee,
Nicholas L. Saakvitne, and his law firm relating to Employee
Stock Ownership Plans set up by companies unrelated to Bowers and
Kubota.
See ECF Nos. 247-4 and 247-5.
2
On July 29, 2020, the Government moved for a protective
order with respect to the discovery requests.
See ECF No. 246.
On August 3, 2020, Bowers and Kubota opposed that motion and
filed a cross-motion to compel.
See ECF No. 254.
On September 19, 2020, the Magistrate Judge granted
those motions in part and denied the motions in part.
No. 275.
See ECF
The Magistrate Judge ruled that the Government’s prior
investigations with respect to Saakvitne were not relevant to
this action.
The Magistrate Judge reasoned that, to the extent
discovery into those prior investigations was sought on the
ground that they might show the Government’s actual knowledge of
or willful blindness to Saakvitne’s allegedly wrongful conduct
(matters allegedly important for a statute of limitations issue),
the discovery sought would not shed light on actions taken with
respect to the ESOP transaction in this case.
# 6043.
See id., PageID
The Magistrate Judge did not determine that every
request was irrelevant:
The court agrees with Defendants that they
are entitled to discover when, in fact, the
Secretary learned of the ESOP transaction at
issue in this litigation. . . . However,
Defendants do not seek targeted discovery
aimed at determining when the Secretary
learned about the alleged ERISA violations
for the ESOP transaction at issue in this
litigation. Instead, the discovery requests
at issue seek broad information and numerous
documents from all of the Prior Saakvitne
Investigations that are entirely unrelated to
the transaction at issue in this litigation.
3
Id., PageID # 6044 (citation omitted).
The Magistrate Judge also
ruled that the discovery requests were not proportional to the
needs of the case.
Id.
The Magistrate Judge therefore granted
the request for a protective order limiting discovery with
respect to the prior Saakvitne investigations.
Ultimately, the Magistrate Judge determined that
limited further discovery into what
information, if any, that the Secretary
learned about the Bowers + Kubota Consulting,
Inc. ESOP during the two Prior Saakvitne
Investigations that involved an ESOP and that
were opened before October 2014 is
appropriate. However, the Court also
understands that the deadline to serve
written discovery has passed. See ECF No.
226. In an effort to avoid further
litigation regarding this category of
documents, the Court DIRECTS the Secretary to
produce to Defendants all documents that
reflect any information that the Secretary
obtained about the Bowers + Kubota
Consulting, Inc. ESOP during the two Prior
Saakvitne Investigations involving an ESOP
that were opened before October 2014 (Kennedy
Fabricating, Inc. ESOP and Hot Dog on a Stick
ESOP). If no such documents or information
exists, the Secretary shall provide a
declaration to Defendants so stating. To the
extent the Secretary claims any privilege
regarding this narrow group of documents, the
Secretary shall produce a privilege log and
the necessary declarations to support the
claimed privileges on October 1, 2020.
Id., PageID #s 6046-47.
In so ruling, the Magistrate Judge noted
that the discovery deadline with respect to written fact
discovery had passed on August 3, 2020, and noted that any party
seeking to reopen that deadline might face difficulties given the
4
delay in serving discovery and filing the motion to compel
discovery.
Id., PageID # 6046-47 n.3.
On or about September 28, 2020, Robert Prunty, “the
investigator of the Hot Dog on a Stick Employee Stock Ownership
Plan,” submitted a declaration responsive to the September 19,
2020, order.
That declaration stated, “I do not recall the
Bowers + Kubota Consulting, Inc. ESOP ever coming up during the
investigation of the Hot Dog on a Stick ESOP.
I recall that the
individuals involved in identifying for investigation the Bowers
+ Kubota Consulting, Inc. ESOP were not involved in the Hot Dog
on a Stick ESOP investigation.”
56.
ECF No. 396-3, PageID #s 8955-
Prunty says he conducted a search for the records required
by the Magistrate Judge, finding no responsive documents.
Id.,
PageID # 8956.
At a continued deposition on November 24, 2020, Prunty
explained that he had searched his email and the electronic case
file, but not the emails of other Government investigators and
supervisors.
See ECF No. 409-4, PageID #s 9087-88.
Prunty said
he had used keywords such as Bowers, HDOS, and hot dog to
electronically search for the documents, taking about an hour to
do so.
Id., PageID # 9089.
Prunty conceded that his use of key
words to search for responsive documents would not have
discovered any document with a handwritten note responsive to the
order.
Id., PageID # 9092.
Prunty further conceded that he did
5
not search other individual’s computer hard drives, although he
explained that the electronic case file was stored on a network.
In other words, while other Government employees’ computers had
hard drives to which information could be saved, Government
employees apparently used a networked drive to save information.
Id., PageID #s 9094-95.
On or about December 8, 2020, Bowers and Kubota sent
electronic correspondence to the Government, arguing that
Prunty’s search was insufficient and requesting a telephone
conference.
See ECF No 409-5.
Apparently, at the meet-and-confer conference, the
Government offered to consider running additional searches if
Bowers and Kubota provided a list of search terms.
On or about
December 15, 2020, Bowers and Kubota sent electronic
correspondence to the Government with those search terms, as well
as a list of all the places they wanted searched.
409-6.
See ECF No.
On December 17, 2020, the Government responded with a
counterproposal to search for responsive documents, saying that,
if Bowers and Kubota agreed to the counterproposal, they should
tell the Government that by December 21, 2020.
7.
See ECF No. 409-
The Government appears to have notified Bowers and Kubota
that hard copies of the documents were located in an archive that
was unaccessible because of COVID-19 restrictions.
409-8.
See ECF No.
On January 3, 2021, Bowers and Kubota accepted most of
6
the counterproposal, but disagreed with respect to a couple of
points.
searches.
They asked for an independent third-party to conduct the
See ECF No. 409-8.
On January 12, 2021, Bowers and
Kubota asked the Government whether it intended to respond to
their letter of January 3, 2021.
See ECF No. 409-9.
The record
does not include a Government response, and Bowers and Kubota
filed their Motion for Contempt and For Sanctions on February 3,
2021.
The Bowers and Kubota motion asked for two kinds of
relief:
1. The Court impose evidentiary sanctions
under Rule 37(b)(2)(A)(i) and (ii),
establishing as fact that Nicholas
Saakvitne’s involvement as Trustee of the
B+KC ESOP in the December 14, 2012 ESOP
Transaction was revealed to the Department of
Labor in the Hot Dog on a Stick investigation
no later than July 2014 and preventing the
Secretary of opposing that fact; and
2. Sanctions in the form of an award of
attorneys fees related to its efforts to
compel discovery and impose sanctions against
the Secretary under Rule 37(b)(2)(C) in an
amount to be proven at the time of the award.
ECF No. 374, PageID # 7720.
Bowers and Kubota argued that
sanctions were appropriate under Rule 37 of the Federal Rules of
Civil Procedure and under the court’s inherent power.
See ECF
No. 375, PageID # 7740.
On February 5, 2021, the Magistrate Judge denied the
sanctions motion via a Minute Order, reasoning that Bowers and
7
Kubota had failed to move to reopen the discovery deadlines and
that they had not been diligent in filing the motion for a
determination of contempt and the imposition of sanctions.
See
ECF No. 377.
On February 17, 2021, Bowers and Kunota sought
reconsideration of the minute order.
See ECF No. 396.
On February 23, 2021, the Magistrate Judge denied the
reconsideration motion, viewing Bowers and Kubota’s mere
disagreement with the order as insufficient to justify
reconsideration.
See ECF No. 403, PageID # 9034.
The Magistrate
Judge noted that Bowers and Kubota’s motion for contempt was
untimely and that they had not been diligent in filing it, as the
deadline to file motions concerning written discovery had long
passed.
Id.
He further noted that Bowers and Kubota had waited
10 weeks after finding out the factual basis for the motion
before filing it.
This appeal followed, but is limited to discovery
related to the Hot Dog on a Stick ESOP investigation.
No. 409.
8
See ECF
III.
STANDARD OF REVIEW.
Rule 72(a) of the Federal Rules of Civil Procedure
allows a party to object to a nondispositive magistrate judge
order “within 14 days after being served with a copy” of it.
Fed. R. Civ. P. 72(a).
It further provides, “A party may not
assign as error a defect in the order not timely objected to.”
Id.
Under 28 U.S.C. § 636(b)(1)(A), a district judge may
set aside a magistrate judge’s nondispositive order if it is
“clearly erroneous or contrary to law.”
See also Bhan v. NME
Hosp., Inc., 929 F.2d 1404, 1414-15 (9th Cir. 1991) (stating that
§ 636(b)(1) “provides that the magistrate’s decision on a
nondispositive issue will be reviewed by the district judge under
the clearly erroneous standard”).
The Ninth Circuit has
explained, “Pretrial orders of a magistrate under 636(b)(1)(A)
are reviewable under the ‘clearly erroneous and contrary to law’
standard; they are not subject to de novo determination.
The
reviewing court may not simply substitute its judgment for that
of the deciding court.”
Grimes v. City & Cty. of San Francisco,
951 F.2d 236, 241 (9th Cir. 1991) (quotation marks and citations
omitted).
The threshold of the “clearly erroneous” test is high.
“A finding is ‘clearly erroneous’ when although there is evidence
to support it, the reviewing court on the entire evidence is left
9
with the definite and firm conviction that a mistake has been
committed.”
United States v. U.S. Gypsum Co., 333 U.S. 364, 395
(1948); accord Easley v. Cromartie, 532 U.S. 234, 242 (2001)
(stating that, in reviewing for clear error, “a reviewing court
must ask whether, on the entire evidence, it is left with the
definite and firm conviction that a mistake has been committed”
(quotation marks and citation omitted)); Balen v. Holland Am.
Line Inc., 583 F.3d 647, 655 (9th Cir. 2009) (“Review under the
clearly erroneous standard is significantly deferential,
requiring a definite and firm conviction that a mistake has been
committed.” (quotation marks and citation omitted)); Burdick v.
Comm’r Internal Revenue Serv., 979 F.2d 1369, 1370 (9th Cir.
1992) (“A finding of fact is clearly erroneous if we have a
definite and firm conviction that a mistake has been
committed.”).
“‘A decision is ‘contrary to law’ if it applies an
incorrect legal standard or fails to consider an element of the
applicable standard.’”
Green v. Kanazawa, No. CV 16-00054
LEK-KSC, 2018 WL 5621953, at *3 (D. Haw. Oct. 30, 2018) (quoting
Na Pali Haweo Cmty. Ass'n v. Grande, 252 F.R.D. 672, 674 (D. Haw.
2008)).
In case it might be argued that the Magistrate Judge
was issuing dispositive rulings for which, instead of orders,
findings and recommendations should have issued, this court notes
10
that it would reach the same result if the Magistrate Judge had
issued findings and recommendations subject to de novo review
rather than orders reviewable for clear error or as contrary to
law.1
IV.
ANALYSIS.
A.
Bowers and Kubota Were Not Diligent in Seeking the
Discovery at Issue.
Bowers and Kubota waited more than two years after the
filing of the Complaint on April 27, 2018, to send the Government
the document requests and interrogatories at issue here.
Those
requests, sent on June 29, 2020, sought discovery pertaining to
the Government’s prior investigations into Saakvitne and his law
firm.
See ECF Nos. 247-4 and 247-5.
There is no dispute that
Bowers and Kubota failed to timely move to compel compliance with
the discovery requests.
The Amended Rule 16 Scheduling Order,
dated May 15, 2020, set the following discovery deadlines for the
case:
1
The Magistrate Judge’s issuance of orders may well be
correct. Orders imposing monetary sanctions under Rule 11 of the
Federal Rules of Civil Procedure, for example, are deemed
nondispositive and thus matters that a magistrate judge may
impose by order. See Maisonville v. F2 Am., Inc., 902 F.2d 746,
747 (9th Cir. 1990) (“we find that the Rule 11 sanctions imposed
here are non-dispositive matters properly ordered by
the magistrate and reviewed by the district court for clear
error”). The Ninth Circuit has also held that “magistrates may
impose prospective sanctions pursuant to Rule 37 where such
sanctions are necessary to enforce compliance with a valid
discovery order.” Grimes v. City & Cnty. of San Francisco, 951
F.2d 236, 241 (9th Cir. 1991).
11
The deadline for written fact discovery shall
be August 3, 2020; the deadline for other
fact discovery, including depositions, shall
be October 23, 2020. . . . Unless otherwise
permitted by the Court, all discovery motions
and conferences made or requested pursuant to
Federal Rules of Civil Procedure, Rules 26
through 37 inclusive and LR 26.1, 26.2[, and]
37.1[,] shall be heard no later than thirty
(30) days prior to the applicable discovery
deadline.
See ECF No. 202, PageID # 4008.
Accordingly, any discovery
motion pertaining to written discovery had to be filed in time to
allow a hearing at least 30 days before August 3, 2020.
Bowers
and Kubota did not file a motion to compel until August 3, 2020.
See ECF No. 254.
In the original order denying Bowers and Kubota’s
motion for sanctions, the Magistrate Judge noted that the
discovery deadline for filing motions had passed and that Bowers
and Kubota had not sought to reopen the deadline before filing
the motion.
See ECF No. 377, PageID # 7799.
To the extent that
the motion for sanctions can be construed as an independent
motion to compel, the Magistrate Judge correctly reasoned that it
was untimely.
Bowers and Kubota also show no clear error in the
Magistrate Judge’s determination that they failed to diligently
file the present motion.
Bowers and Kubota waited ten weeks
after the Prunty deposition to file the motion.
PageID # 9035.
See ECF No. 403,
While Bowers and Kubota worked with the
12
Government in December 2020 in connection with the discovery
dispute, some of the delay in 2021 can be attributed to them.
For example, Bowers and Kubota waited until February 3, 2021, to
file their contempt/sanctions motion after receiving no response
to a letter they sent on January 3, 2021.
February 3, 2021).
See ECF No. 374 (filed
With the deadline to file motions pertaining
to discovery having passed and trial set to begin June 22, 2021,
this court cannot say that this demonstrates diligence.
B.
The Court Has Inherent Authority to Enforce its
Own Orders.
Because Bowers and Kubota sought sanctions under Rule
37, the Magistrate Judge correctly noted that such a motion was
untimely.
However, their motion could be viewed as one to
enforce the court’s order of September 19, 2020.
There is no
dispute that the court has the power to enforce its own orders.
See ECF No. 275.
In that order, the Magistrate Judge granted the
Government’s request for a protective order limiting discovery
with respect to the prior Saakvitne investigations.
# 6047.
Id., PageID
However, the Magistrate Judge directed the Government
“to produce to Defendants all documents that reflect any
information that the Secretary obtained about the Bowers + Kubota
Consulting, Inc. ESOP during the two Prior Saakvitne
Investigations involving an ESOP that were opened before October
2014 (Kennedy Fabricating, Inc. ESOP and Hot Dog on a Stick
ESOP).”
Id., PageID # 6046.
13
Although Bowers and Kubota argue that the Government
failed to comply with that order, they do not establish such
noncompliance.
First, the Government’s lead investigator with
respect to the Hot Dog on a Stick ESOP stated that he did not
“recall the Bowers + Kubota Consulting, Inc. ESOP ever coming up
during the investigation of the Hot Dog on a Stick ESOP.”
No. 396-3, PageID # 8956.
ECF
He further stated that different
individuals were involved in investigating the two ESOPs.
Id.
Bowers and Kubota argue that his search of the electronic file
was insufficient because it used too few search terms and did not
search handwritten notes or the hard drives of other persons
involved with the investigation.
This court cannot conclude that
the search was so deficient as to hold the Government in contempt
and sanction it for its conduct.
Instead, the court determines
that the search was reasonable under the circumstances,
especially given the lack of access to the archived hard copies
of the files during the ongoing pandemic.
While not technically a modification of the Magistrate
Judge’s orders, in the interests of ending the current dispute
and in furtherance of ruling on the merits of the case based on
available discovery, the court orders the Government to do that
which it previously offered to do.
Unless the Government informs
the court in writing no later than April 9, 2021, that a further
search would be unduly burdensome, the Government must search for
14
responsive documents in the manner proposed in its letter of
December 17, 2020.
See ECF No. 396-7.
No later than April 23,
2021, the Government shall: 1) produce responsive documents and
information with respect to the discovery searches identified in
the communication of December 17, 2020, filed as ECF No. 396-7;
2) provide a declaration stating that all responsive documents
and information ordered to be produced have been produced; and
3) produce a privilege log and the necessary declarations to
support any claimed privilege(s) with respect to documents or
information withheld based on privilege.
Given what appears to
be COVID-19 concerns, the Government need not search the archived
hard copies of the Hot Dog on a Stick ESOP investigation.
Bowers and Kubota must live with the results of the
Government’s additional searches unless they can establish
without further discovery that the Government acted in bad faith
with respect to the additional searches.
That is, the court is
not contemplating any further discovery relating to those
results.
At this point, the parties should focus their efforts
on trial preparation.
V.
CONCLUSION.
The court affirms the Magistrate Judge’s denial of
Bowers and Kubota’s motion for determination of contempt and
imposition of sanctions.
However, in the interest of reaching
the merits of this case without further litigation, the court
15
orders the Government to conduct further searches of its files as
it proposed in its correspondence of December 17, 2020, unless
somehow the passage of time makes those proposed searches now
unduly burdensome.
See ECF No. 396-7.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, April 2, 2021.
/s/ Susan Oki Mollway
Susan Oki Mollway
United States District Judge
Stewart v. Heritage, et al., Civ. No. 18-00155 SOM-WRP; ORDER AFFIRMING MAGISTRATE
JUDGE ORDERS DENYING MOTION FOR FINDING OF CONTEMPT AND IMPOSITION OF SANCTIONS
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