Donald v. Wexford Health Sources Incorporated et al

Filing 31

ORDER granting 27 Motion to Compel. The parties are directed to confer on the language for a proposed protective order, and the Defendant shall file a motion for entry of a protective order after that conferral on or before August 3, 2017. See written order. Entered by Magistrate Judge Jonathan E. Hawley on 7/20/17. (WG, ilcd)

E-FILED

Thursday, 20 July, 2017 12:44:47 PM
Clerk, U.S. District Court, ILCD

IN THE
UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
JAMES A. DONALD,
Plaintiff,
v.

Case No. 1:16-cv-01481-JES-JEH

WEXFORD HEALTH SOURCES,
INC., ANTHONY CARTER, and
KURT D. OSMUNDSON,
Defendant.
Order
Before the Court is the Plaintiff’s Motion to Compel Production of
Documents (D. 27) 1 and the Defendants’ response thereto (D. 29). For the reasons
stated, infra, the motion is GRANTED.
I
The Plaintiff’s complaint alleges that while he was an inmate in the Illinois
Department of Corrections, the medical negligence and deliberate indifference of
Defendant-physicians Carter and Osmundson proximately caused him to incur
the loss of his left eye, partial blindness, pain, suffering, and disfigurement.
Defendant Wexford, as the employer of the Defendant-physicians, is alleged to be
responsible for their acts under a respondeat superior theory. Donald also makes a
claim for punitive damages related to his federal, deliberate indifference counts.
The Plaintiff’s request for production of documents numbers 1 and 2 seeks
from Wexford: 1) “Any and all audited or unaudited financial statements of
Defendant created or relating to Defendants’ finances in the last three years” and

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References to the docket in this court are abbreviated as “(D. __ at ECF p. ___).”

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2) “Any and all federal tax returns of Defendant from the last three years.” (D. 27
at ECF p. 1). Wexford objected to the requests arguing the information sought was,
among other things, irrelevant.
In Donald’s motion to compel the production of the information sought in
requests numbers 1 and 2, he argues that information about Wexford’s financial
condition is relevant to the issue of punitive damages. Wexford, however, argues
that it is inappropriate to consider a corporate defendant’s wealth or net worth in
assessing punitive damages, and, accordingly, the information Donald seeks is
irrelevant.
II
A
The initial question presented is whether the financial condition of Wexford
is relevant, for Federal Rule of Civil Procedure 26(b) limits discovery to that which
is “relevant to any party’s claim or defense . . .” If a corporate defendant’s wealth
may not be considered when assessing punitive damages, it is not “relevant,” but,
if it may be properly considered then, of course, it is.
The answer to this seemingly simple question is not as simple as it should
be because of the Seventh Circuit Court of Appeals’ opinion in Zazu Designs v.
L’Oreal, S.A., 979 F.2d 499 (7th Cir. 1992), and the subsequent district court cases
attempting to interpret it. In Zazu, a case relied upon by Wexford, the court
considered the defendant’s appeal in a trademark infringement action. The court
reversed and remanded, finding that the plaintiff did not have superior rights in
trademark to the defendant and, even if it had, the damages award was excessive.
Id. Regarding the punitive damages award, the court noted that although courts
“take account of a defendant’s wealth when ‘[a]n amount sufficient to punish or
deter one individual may be trivial to another,’” such may not be the case when
the defendant is a corporation. Id. at 508. The court explained:
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For natural persons the marginal utility of money decreases as wealth
increases, so that higher fines may be needed to deter those
possessing great wealth. (“May be” is an important qualifier; the
entire penalty includes extra-judicial consequences, such as loss of
business and other future income, that is likely to be greater for
wealthier defendants.) Corporations, however, are not wealthy in the
sense that persons are. Corporations are abstractions; investors own
the net worth of the business. These investors pay any punitive
awards (the value of their shares decreases), and they may be of
average wealth. Pension trusts and mutual funds, aggregating the
investments of millions of average persons, own the bulk of many
large corporations. Seeing the corporation as wealthy is an illusion,
which like other mirages frequently leads people astray.
Id. at 508. This language implies that for a corporate defendant, its financial
condition is irrelevant for purposes of calculating punitive damages.
Some district courts have interpreted Zazu in exactly this way. For example,
in Yund v. Covington Foods, Inc., 193 F.R.D. 582 (S.D. Ind; 2000), the court found that
Zazu was “controlling precedent” for the proposition that, at least for corporate
and institutional entities, “evidence of a defendant’s wealth should be irrelevant
to the assessment of punitive damages.” Id. at 586. See also Pivot Point Int’l, Inc. v.
Charlene Products, Inc., 932 F.Supp. 220, 223 (N.D. Ill. 1996) (excluding evidence of
defendant’s financial situation as irrelevant to punitive damages claim under
federal law). The court noted that in part I of the Zazu opinion, the court ruled that
the evidence was insufficient to establish the defendant’s liability, “thus rendering
all damages improper.”Yund, 193 F.R.D at 586. The court in Yund then noted that,
in part II of the Zazu opinion, the court, in what it characterized as a “second, and
independently sufficient, error [that] requires us to set aside the judgement,” made
its pronouncement concerning the relevance of a defendant’s wealth for purposes
of assessing punitive damages. Id.

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The court in Yund found the punitive damages discussion to be precedential
because, although the reversal on liability rendered all damages improper, the
Zazu court was simultaneously evaluating whether a sanction for litigation
misconduct could include a component of punitive damages. Id. That question was
independent of the question addressed in part I concerning liability. Specifically,
[A]lthough the [c]ourt reversed the finding of liability and the award
of punitive damages for the infringement claims, its subsequent
holding that a corporation’s financial conditions is not relevant to the
assessment of punitive damages cannot be considered as dictum
because the [c]ourt also held that a sanction award was appropriate
which could include a punitive or deterrent element under the same
punitive damages standard that applies to ordinary damages.”
Id. at 587.
The majority of district courts, however, have found that Zazu’s musings on
punitive damages are indeed dictum. For example, in Jones v. Scientific Colors, Inc.,
2001 WL 902278 (N.D. Ill.), the district court sustained a magistrate judge’s order
compelling the corporate defendant to produce financial information related to a
claim for punitive damages. While acknowledging the decisions in Yund and Pivot
Point, the court in Jones found that Zazu was not controlling precedent but, instead,
dictum. The court did not, however, provide any analysis regarding how it reached
this conclusion. The subsequent district court decisions relying upon Jones for the
proposition that Zazu is not controlling precedent add nothing to the lack of
analysis in Jones relegating Zazu’s punitive damages analysis to dictum. See e.g.,
Isbell v. John Crane, Inc., 74 F. Supp. 893, 898-99 (N.D. Ill; 2014) (agreeing with Jones
that Zazu’s punitive damages analysis was dictum); E.E.O.C. v. Staffing Network,
L.L.C., 2002 WL 31473840 (N.D. Ill.) (same). Further complicating the issue is the
fact that other district courts decline to follow Zazu not because its punitive
damages analysis is dictum, but rather because the punitive damages claims in the
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cases involved individual persons, not corporations; state law claims, not federal;
or specific statutes, not federal common law. See e.g., Sanders v. Jackson, 209 F.3d
998, 1002 (7th Cir. 2000) (discussing the Federal Debt Collection Practices Act’s “net
worth” provision as it relates to punitive damages); Kemzy v. Peters, 79 F.3d 33, 36
(7th Cir. 1996) (discussing the appropriateness of evidence of an individual
defendant’s wealth for purposes of calculating punitive damages); In re Aqua Dots
Products Liability Litigation, 270 F.R.D. 322, 325 (N.D. Ill; 2010) (considering whether
a defendant’s wealth is a proper consideration for purposes of calculating punitive
damages related to a claim made under state law).
B
This Court concludes that, in a case where punitive damages are sought
against a corporate defendant, Zazu’s statement that the defendant’s financial
condition is irrelevant to punitive damages is dictum. The term “dictum” has been
variously defined, as noted by the Seventh Circuit in United States v. Crawley:
We have defined dictum as “a statement in a judicial opinion that
could have been deleted without seriously impairing the analytical
foundations of the holding-that, being peripheral, may not have
received the full and careful consideration of the court that uttered
it.” Sarnoff v. American Home Products Corp., 798 F.2d 1075 (7th
Cir.1986). “[D]ictum is a general argument or observation
unnecessary to the decision.... The basic formula [for distinguishing
holding from dictum] is to take account of facts treated by the judge
as material and determine whether the contested opinion is based
upon them.” Local 8599, United Steelworkers of America v. Board of
Education, 162 Cal.App.3d 823, 834, 209 Cal.Rptr. 16, 21 (1984). A
dictum is “any statement made by a court for use in argument,
illustration, analogy or suggestion. It is a remark, an aside, concerning
some rule of law or legal proposition that is not necessarily essential
to the decision and lacks the authority of adjudication.” Stover v.
Stover, 60 Md.App. 470, 476, 483 A.2d 783, 786 (1984). It is “a statement
not addressed to the question before the court or necessary for its
decision.” American Family Mutual Ins. Co. v. Shannon, 120 Wis.2d 560,
565, 356 N.W.2d 175, 178 (1984). As often in dealing with complex
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terms, the definitions (those above, and others we could give) are
somewhat inconsistent, somewhat vague, and somewhat circular.
837 F.2d 291, 292 (7th Cir. 1988). Alternative to these definitions, the court noted
that dictum can be considered to be a passage that “was unnecessary to the
outcome of the earlier case and therefore perhaps not as fully considered as it
would have been if it were essential to the outcome.” Id.
Under any of these formulations, part II of the Zazu opinion is dictum. As
even the Yund court acknowledged, in part I of the Zazu opinion, the court ruled
that the evidence was insufficient to establish the defendant’s liability, “thus
rendering all damages improper.” Yund, 193 F.R.D at 586. Because the court
reversed the lower court’s finding on liability, the damages award premised upon
that erroneous liability determination automatically fell with it. The punitive
damages award was ipso facto vacated once the court concluded that the defendant
was erroneously found to be liable. The court’s discussion of how to properly
calculate punitive damages was therefore gratuitous and dictum.
At best, only the portion from part II of Zazu which addressed the district
court’s sanctions for litigation misconduct is binding precedent. As the court in
Yund noted, part II of the Zazu opinion dealt not only with the punitive damages
award, but also with the district court’s award of sanctions against the defendant
for litigation misconduct. Yund, 193 F.R.D at 587. The Court agrees that the portion
of part II addressing sanctions is binding precedent. That portion of the court’s
opinion is independent of part I of the opinion addressing liability; the district
court’s award of sanctions was not automatically vacated by the reversal of the
finding of liability like the punitive damages award was.
However, this Court disagrees with Yund’s conclusion that the punitive
damages portion of part II is not dictum because the Zazu court “held that a
sanction award was appropriate which could include a punitive or deterrent
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element under the same punitive damages standard that applies to ordinary
damages.” Id. The court in Yund, in other words, concluded that because the same
standards apply to a punitive damages award as they do to a sanction with a
punitive element, the precedential sanctions portion of part II of Zazu is also
precedential as it applies to punitive damages.
Yund cites nothing in support of its equating of the standards for punitive
damages and sanctions, which is the lynchpin of its finding that the punitive
damages discussion in Zazu is precedential. Moreover, this Court concludes the
standards are not equivalent. The Zazu opinion itself cites “contempt of court, Fed.
R. Civ. P. 11, and 28 U.S.C. § 1927” as the “principle vehicles for penalizing
misconduct in litigation” and directs judges to “ask and answer the questions
these bodies of law pose” before imposing sanctions. Zazu, 949 F.2d at 507-08.
These bodies of law have their own sets of precedents quite separate and distinct
from the federal common law which allows for punitive damages in a deliberate
indifference case. See Smith v. Wade, 461 U.S. 1625, 1628-29 (discussing the federal
common law of punitive damages in § 1983 cases). Finally, when imposing
sanctions for litigation misconduct, courts may only impose “punitive” sanctions
in special circumstances after according the offending party certain procedural
protections. See Goodyear Tire & Rubber Co., v. Haeger, __ U.S. __, 137 S.Ct. 1178,
1186 (2017) (noting that some civil sanctions “must be compensatory rather than
punitive”); Mineworkers v. Bagwell, 512 U.S. 821, 826-30 (1994) (distinguishing
compensatory from punitive sanctions and specifying the procedures needed to
impose each kind). In other words, sanctions and punitive damages are quite
different, as are the standards related to them, and, accordingly, this Court
disagrees with Yund’s equation of the two. Having concluded that the standards
for imposition of sanctions and punitive damages are different, there is no
bootstrap left by which to connect Zazu’s dictum on punitive damages with its
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precedential discussion of sanctions. Zazu’s discussion of punitive damages was
unnecessary given its reversal on the question of liability and was, therefore,
dictum which this court is not bound to follow.
C
Although the Court concludes that it is not bound to follow Zazu’s dictum
on punitive damages, it must still determine whether, absent that dictum, the
financial condition of a corporate defendant may ordinarily be considered when
assessing punitive damages. The answer to this question is much simpler than the
previous one. The general rule, as stated by the Supreme Court in Newport v. Fact
Concerts, 453 U.S. 247, 270 (1981), is that “’[e]vidence of a tortfeasor’s wealth is
traditionally admissible as a measure of the amount of punitive damages that
should be awarded . . .” See also Restatement (Second) of Torts § 908(2) (1979); D.
Dobbs, Law of Remedies § 3.9, pp. 218–219 (1973). Other than the dictum in Zazu,
there is no opinion from the Seventh Circuit modifying or qualifying this general
rule under the circumstances of this case. Accordingly, as a general rule, a
defendant’s wealth can be considered when evaluating punitive damages. It is
therefore “relevant” within the meaning of Rule 26(b).
III
Although the Court concludes that the information sought in requests for
production numbers 1 and 2 seek relevant information, it must finally address
whether that information is nevertheless precluded from production under Rule
26; relevance is a necessary but not sufficient condition to bring information within
the scope of discoverable information. Specifically, once relevance of information
is established, the information is only discoverable if it is also:
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
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burden or expense of the proposed discovery outweighs its likely
benefit.
Fed. R. Civ. P. 26
Wexford argues that, assuming the Plaintiff were to prevail in this case, “any
award of compensatory damages would be substantial and according to the U.S.
Supreme Court in BMW of North America v. Gore, 517 U.S. 559 (1996), must bear a
reasonable relationship to the award of compensatory damages, generally not
exceeding a one to one ratio.” (D. 29 at ECF p. 5). Moreover, Wexford suspects that
the plaintiff “intends to put on evidence that Defendant is an evil corporation to
induce a jury into a monstrous punitive damages award,” which would result in
a “denial of due process and a remitted award under BMW.” Id.
This argument, however, goes to the ultimate admissibility of the
information Donald seeks, not its discoverability. If indeed Donald intends to use
at trial the information sought in the way Wexford expects, such an intended use
may well make the information inadmissible. However, that is a question for the
district judge more properly argued after the close of discovery in a motion in
limine. So long as information is relevant and within the scope of discovery defined
by Rule 26, “[i]nformation within this scope of discovery need not be admissible
in evidence to be discoverable.” Fed. R. Civ. P. 26(b).
Finally, Wexford does not advance, nor does this Court find, any other
factors set forth in Rule 26(b) which should preclude the production of the
information sought by Donald. Any privacy concerns Wexford may have
regarding disclosure of the information sought can be properly addressed through
a protective order, which courts routinely grant when information is produced
during discovery.

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VI
For the reasons stated, supra, the motion to compel (D. 27) is GRANTED.
The parties are directed to confer on the language for a proposed protective order,
and the Defendant shall file a motion for entry of a protective order after that
conferral on or before August 3, 2017.
It is so ordered.
Entered on 7/20/2017
s/Jonathan E. Hawley
U.S. Magistrate Judge

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