AKH Company, Inc. v. Universal Underwriters Insurance Company

Filing 501

MEMORANDUM AND ORDER granting in part and denying in part 478 Motion for Sanctions. Signed by Magistrate Judge Kenneth G. Gale on 11/14/17. (df)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
AKH COMPANY, INC.,

)
)
Plaintiff/Counter-Defendant, )
)
v.
)
)
UNIVERSAL UNDERWRITERS
)
INSURANCE COMPANY,
)
)
Defendant/Counter-Claimant. )
______________________________ )

Case No. 13-2003-JAR-KGG

MEMORANDUM & ORDER ON MOTION FOR SANCTIONS
Now before the Court is Defendant’s “Motion for Sanctions.” (Doc. 478.)
Having reviewed the submissions of the parties and the attachments thereto, the
Court GRANTS in part and DENIES in part Defendant’s Motion.
BACKGROUND
The above-captioned matter is a declaratory judgment action based on a
dispute concerning insurance coverage and the settlement of a trademark dispute
involving Plaintiff AKH and a third party. (See Doc. 1; Doc. 75, sealed, at 5-6
(underlying litigation hereinafter referred to as “RT litigation” or “RT case).) The
RT litigation occurred in California. During the RT litigation, Defendant paid for
the defense and settlement of claims against Plaintiff, which was both a defendant
and the claimant in that case. The parties disagree concerning duties owned to

each other arising out of that litigation. The claims in this case exceed five million
dollars.
The present case has a complicated procedural history involving nine
motions to compel granted in favor of Defendant and three previous awards of
sanctions against Plaintiff’s counsel amounting to approximately $60,000. (See
e.g., Docs. 371, 375, 429, 492, 494 (text entry adopting Joint Stipulation on
sanctions); see also Doc. 479, at 6-7).) The factual and procedural background of
this case has been summarized multiple times in the context of this Court resolving
“an inordinate number of increasingly contentious discovery disputes.” (Doc. 429,
at 1-2.) Factual summaries incorporated herein by reference include those
contained in the Order denying Gauntlett’s Motion to Reconsider this Court’s
Order on Defendant’s Motion to Compel (Doc. 339), the District Court’s
Memorandum and Order on Plaintiff’s Objection to Order and Report &
Recommendation on Renewed Motion for Sanctions (Doc. 400), and this Court’s
Order on Defendant’s Motion to Compel Discovery and for Sanctions (Doc. 429).
Defendant brings the current motion seeking sanctions for alleged
misconduct by Plaintiff’s counsel during depositions and destruction of documents.
(See generally Docs. 478, 479.) According to Defendant, shortly after Plaintiff
filed the present lawsuit,
2

[Plaintiff’s] owners, Hratch and Andy Andonian, began
implementing a plan to move all assets out of the
company. By the end of 2013, millions of dollars in
[Plaintiff’s] assets had been transferred to other
companies owned by Hratch and Andy Andonian or to
their own personal bank accounts. As a result, by the
following year, [Plaintiff] had no assets nor revenue and,
unbeknownst to [Defendant], existed solely for the
purpose of this lawsuit (with the legal expenses being
paid through transfers of funds to the company by the
owners). Consistent with that plan, [Plaintiff] and its
counsel provided vague and inconsistent discovery
responses about [Plaintiff’s] financial picture.
(Doc. 479, at 4.) Defendant states that it has filed the present motion, not in an
effort to expand the scope of discovery, but instead
to highlight for the Court that [Plaintiff] has still failed to
comply with existing Orders of production, that
[Plaintiff] has engaged in misconduct with regard to the
deposition of [Plaintiff’s representative(s)], and that
[Plaintiff’ has concealed or destroyed documents that
have since been produced by [Plaintiff’s] own agents
(begging the question of why [Plaintiff] claimed to be
unable to produce those documents).
(Id., at 5.)
ANALYSIS AND ORDER
A.

Standards for Discovery and Sanctions.
The Federal Rules of Civil Procedure give the court “ample tools to deal

with a recalcitrant litigant.” Jones v. Thompson, 996 F.2d 261, 264 (10th
Cir.1993). Whether or not to impose sanctions addresses the discretion of the
3

court. See National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S.
639, 642, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976). The Court’s discretion allows it
to “use sanctions where necessary to insure . . . that lawyers and parties refrain
from contumacious behavior . . . [and] that they fulfill their high duty to insure the
expeditious and sound management of the preparation of cases for trial.” Baker v.
Rivair Flying Service, Inc., 744 F.2d 1438, 1440 (10th Cir. 1984).
“In considering the imposition of sanctions, the court must consider on a
case-by-case basis whether a party’s failure was substantially justified or whether
other circumstances make the imposition of sanctions inappropriate.” United
States v. A & P Arora, Ltd., No. 92–2185–KHV, 1993 WL 461914, at *2 (D. Kan.
Oct. 29, 1993), aff'd, 46 F.3d 1152, 1995 WL 18276 (10th Cir.1995). The specific,
alleged tactics employed by Plaintiff that are the subject of Defendant’s motion
will be discussed in turn.
B.

Deposition Misconduct.
1.

Failure to prepare witnesses.

Plaintiff designated Hratch Andonian and Sergio Andonian as witnesses in
response to Defendant’s 30(b)(6) notice. (Doc. 479-1.) The notice sought
witness(es) on the following topics:
•

Plaintiff’s corporate structure, internal management,
teams, and employees, including employees’
4

responsibilities, employees’ compensation;
•

Plaintiff’s “web presence and the advertising and sale of
tires or wheels over the internet, including but not limited
to its use, ownership, design, or awareness of”
discounttires.com and DTCmotorsports.com,” and other
domain names used by Plaintiff to advertise or sell over
the internet;

•

Documents produced Plaintiff, Gauntlett, or Paul
Hastings pursuant to Court Orders from in this case
“regarding the crime-fraud exception to the
attorney-client privilege and/or work product doctrine”;

•

Plaintiff’s “financial status, tax returns, loans, bank
accounts and statements, corporate credit cards, loans,
financial transactions, net worth, profits, losses, revenue,
expenses, and other information bearing on a potential
punitive damages award, since the time of the Settlement
until the present time”;

•

The basis for Plaintiff’s claim for damages;

•

The basis for Plaintiff’s responses to certain, specific
discovery served in this litigation.

(Doc. 479-1, at 8-9.) The topics were those that Plaintiff either agreed to or was
ordered to provide a witness by this Court. (Id., at n.1.)
It is uncontroverted that both Hratch Andonian and Sergio Andonian
testified that they did little or nothing to prepare for the depositions. Hratch
Andonian stated he met with counsel for approximately 30 minutes but did not
review any documents or his prior deposition transcript. (Doc. 479-2, at 18-19.)
5

Sergio Andonian stated he did “[n]othing much” to prepare for his deposition.
(Doc. 479-3, at 19.) More specifically, he testified that he had a 5 minute call with
lead counsel, did not meet with local counsel, did not review documents, and did
not speak with or interview any employees. (Id., at 19-20, 45.)
Plaintiff now contends, however, that “[n]either witness accurately or
completely described their preparation when asked about it during the deposition.”
(See Doc. 486, at 21; see also 486-5, Chorbajian Decl. ¶ 4, 486-3, H. Andonian
Decl. ¶ 10.) Rather, Plaintiff contends that “[l]eading up to the deposition, Mr.
Chorbajian provided the witnesses with documents and deposition transcripts to
review, met with the witnesses on multiple occasions, and regularly communicated
with the witnesses about the case and their testimony.” (Doc. 486, at 21; see also
Doc. 486-5 at ¶ 4-6; 486-3 at ¶¶ 5, 6, 8, 9.)
The Court is not persuaded by Plaintiff’s attempt to re-write the deposition
testimony of its witnesses. Cf. Rios v. Bigler, 67 F.3d 1543, 1551 (10th Cir.1995)
(holding that where an affidavit attempts to create a sham fact issue by
contradicting sworn deposition testimony, it may be properly disregarded by the
court). The Court is also unmoved by Plaintiff’s offer to make Hratch Andonian
available to testify again if Defendant “would agree to provide the specific
questions in advance so that counsel could enure Mr. Andonian was fully prepared
6

to answer them.” (Doc. 486, at 21.) Defendants are free to choose the manner and
type of discovery they propound. White v. Union Pac. R.R. Co., No. 09-1407EFM-KGG, 2011 WL 721550, at *2 (D.Kan. Feb. 22, 2011). Further, Defendant is
not required to spoon-feed specific deposition questions to Plaintiff so that
Plaintiff’s counsel may help the proffered witnesses provide rehearsed responses.
See Garcia v. Pueblo Country Club, 299 F.3d 1233, n.5 (10th Cir.2002) (holding
that “[a] deposition is not a take home examination”).
Based on the portions of the deposition transcripts submitted (as well as the
apparently length of the depositions), the Court surmises that the witnesses at issue
provided a significant amount of useful information in response to Defendant’s
deposition queries. Even so, no witness, no matter how well prepared, can be
expected to have answers to every question potentially posed by opposing counsel.
According to Defendant, however, the deponents were “unable to provide answers
to several questions that could have been determined with a reasonable
investigation,” relating to the basis for Plaintiff’s damage claim, Plaintiff’s
finances, and Plaintiff’s use of the internet as a sales tool. (Doc. 479, at 9-12.)
Defendant contends Plaintiff’s approach “violated its obligations to provide
knowledgeable witnesses to testify on the company’s behalf.” (Id., at 9.) This
District has held that “[p]roducing an unprepared witness for a 30(b)(6) deposition
7

is ‘‘tantamount to a failure to appear’ at a deposition’ and constitutes sanctionable
conduct.” (Id., quoting Starlight Int’l, Inc. v. Herlihy, 186 F.R.D. 626, 639 (D.
Kan. 1999) (quoting United States v. Taylor, 166 F.R.D. 356, 363 (M.D. N.C.).)
The Court will thus review the specific areas of questioning about which
Defendant complains in an effort to determine whether Plaintiff identified the
proper witnesses – and sufficiently prepared them – to respond to topics
enumerated in the 30(b)(6) subpoenas.
a.

Basis for Plaintiff’s damages.

It is undisputed that Plaintiff had sufficient notice that a proffered witness
would need to testify regarding the categories of its damages. Plaintiff represented
to Defendant that fact witness testimony regarding damages would be unnecessary
because Plaintiff would rely on its expert for this. (Doc. 479, at 10; see also Doc.
479-4, at 3-4.) Defendant explained to Plaintiff that if Plaintiff’s “expert testimony
was stricken for any reason, [Defendant] would object to [Plaintiff’s] efforts to
offer fact witness testimony on the categories of [Plaintiff’s] damages if it refused
to provide deposition testimony on the same.” (Doc. 479, at 10.)
Thereafter, Plaintiff proffered Hratch Andonian to testify regarding this
subject. According to Defendant, the witness “was unprepared to provide that
information, instead directing [Defendant] on a run-around, back to [Plaintiff’s]
8

expert.” (Doc. 479, at 10.) The following deposition exchange is illustrative of
Defendant’s concerns:
Q. Are you claiming that Universal owes AKH the $XX1
contingency payment that it paid to Paul Hastings or not?
A. I'm not right now in position to answer that question
because I -- you have been with the attorneys in
conversation as to what our claims are and what your
claims are. So for me to step into the middle of this right
now is -- it's not a -- I wouldn't be -- that's why I'm
hesitating to give you an answer because it's kind of -settlement or some kind of conversation has been already
going on between the -- you as an attorney and our
attorneys. Isn't that -Q. Well, yes, but as the witness for AKH, we have a right
to learn from you exactly what damages you’re claiming
from Universal and the basis for those claims. And so
what I'm trying to figure out is whether AKH's position is
that Universal should have paid the $XX contingency
payment and, therefore, owes that money to AKH in this
litigation.
A. So I'm saying I'm not prepared right now to tell you
what our claim is or AKH’s claim is going to be. I'm not
in a position right now if I don't have all the whole
picture in front of me.
***
Q. One of your experts is Andre Jardini. He lays out the
basis in support for the attorneys' fees claim that you just
-- you and I just talked about a little bit. Are you aware

1

Amount redacted in deposition transcript submitted to Court.
9

whether AKH has any other evidence to support its claim
other than that identified by Mr. Jardini?
A. I can't answer that. I have no -- nothing to go by right
now.
Q. So you don't know?
A. No.
(Doc. 479-2, at 264-65 (emphasis added).)
Defendant argues that it is “unacceptable” that Plaintiff “claims to be unable
to quantify the damages” it seeks “[a]t this late stage of the litigation . . . .” (Doc.
479, at 11.) Defendant contends that sanctions are necessary because it should not
be “forced” to defendant at trial against a “nebulous” claim for damages. (Id.)
The Court finds, however, that Plaintiff’s damage claim is not “nebulous,”
despite the uncertainty of the witness testimony. Plaintiff has indicated it intends
to rely on expert testimony regarding damages. (Doc. 486, at 20.) That expert has
submitted a report and has been deposed by Defendant. (Id.)
As stated above, Defendant warned that if Plaintiff refused to provide fact
witness deposition testimony on damages, Defendant would object to efforts by
Plaintiff to offer fact witness testimony at trial on the subject if the expert
testimony was stricken for any reason. (Doc. 479, at 10.) In response, Plaintiff
submitted Hratch Andonian for deposition on this subject. Plaintiff prepared Mr.
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Andonian, or chose not to prepare him, as it saw fit. Should Plaintiff need to rely
on the deposition testimony provided by Mr. Andonian, it will rise or fall on the
merits and sufficiency of the testimony provided. In other words, to whatever
degree Plaintiff has failed to provide sufficient factual witness testimony regarding
damages, Plaintiff runs the risk of being unable to support claims for such damages
at trial if its expert is stricken. Plaintiff was free to make this tactical choice and
has not acted in a sanctionable manner. The risk Plaintiff faces is sanction enough.
Defendant’s motion is DENIED in regard to deposition testimony regarding
damages.
b.

Plaintiff’s finances.

Defendant also sought factual witness testimony regarding Plaintiff’s
“financial status, tax returns, loans, bank accounts and statements, corporate credit
cards, loans, financial transactions, net worth, profits, losses, revenue, expenses,
and other information bearing on a potential punitive damages award, since the
time of the Settlement until the present time.” (Doc. 479-1, at 9.) This topic was
revised by Defendant to comply with a prior Order by the undersigned Magistrate
Judge granting in part a motion to compel filed by Defendant. (See Doc. 451.)

Prior to the deposition, Plaintiff’s counsel specifically assured Defendant
11

that “[a]ny additional concerns you may have regarding . . . how AKH managed its
finances can be properly addressed at Hratch Andonian’s deposition.” (Doc. 4795, at 2.) According to Defendant, however, Hratch Andonian had not reviewed tax
returns in 6 to 8 months at the time of his deposition. (Doc. 479, at 11-12.)
Defendant also contends he was unable to answer basic questions, including
whether Plaintiff
had completed its production of documents, whether [it]
had any financial statements prepared on its behalf after
2011, what legal settlements were reflected in [its] tax
returns, why wires of funds were being made to . . .
individuals, and details of the sales of assets among the
various entities he owned, all critical to the valuation of
[Plaintiff] and, thus, the punitive damages claim.
(Id., at 12; see also Doc. 479-2, at 37, 74, 76, 82-85, 92-93, 100-101.) On several
occasions during the deposition, Hratch Andonian stated that he was not a CPA
and/or that the question would need to be posed to a CPA. (See Doc. 479-2, at 37,
74, 76, 82-85, 92-93, 100-101, 115-116, 124.)
Plaintiff, on the other hand, contends that Defendant’s expectations for the
deposition were unrealistic. Plaintiff argues that Defendant asked Hratch
Andonian
to testify with the expertise of an accountant and to
answer all their questions about AKH's financial
condition, tax reporting, and banking records, no matter
how obscure, remote, or complex. Universal badgered
12

Mr. Andonian about individual line items on tax returns
and bank statements that covered multiple years and
thousands of transactions. (See, e.g., Exh. E, AKH Dep.
at 69:25-70:4, 71:20-74:13, 75:14-22, 84:23-25,
104:3-19) No reasonable investigation could have
prepared him to answer such questions unless he actually
knew the questions in advance. Even though Mr.
Andonian is not an accountant and therefore reasonably
deferred to AKH's accountants on certain details, (see,
e.g., id. at 85:23-25,410:2-411:17), Universal's lawyers
openly criticized him for not having an accountant’s
expertise: ‘I can read the tax returns on my own. And so
if your position is that you don't know anything else
about the information other than what is in the tax
returns, then it may be that we have to . . . go back to
your accountant . . . .’ (Id. at 85:8-14) That the
accountants eventually gave depositions does not mean
that Mr. Andonian failed to discharge his duties as
AKH's Rule 30(b)(6) witness.
(Doc. 486, at 18-19.) Plaintiff also argues that the topics on Defendant’s
deposition notice “were extremely broad and did not identify any line items that
[Defendant] intended to cover with respect to [Plaintiff’s] tax returns and bank
statements.” (Id., at n.5.)
Some of the issues raised in the present motion, as well as one previous
ruling by the undersigned Magistrate Judge (Doc. 374), evince an on-going effort
by Plaintiff to obstruct discovery of its financial status. The discovery of
Plaintiff’s available assets against which to enforce a potential judgment is of
understandable interest to Defendant, but not relevant to the substantive issues for
13

trial. However, if Defendant prevails in proving its entitlement to an award of
punitive damages, the financial status of Plaintiff may be relevant at trial to a
determination of the amount of such an award. Mansourian v. Regents of the
Univ. of Calif., No. 03-2591-FCD-EFB, 2011 WL 98814, at *1 (E.D. Cal. Jan. 12,
2011) (holding that “evidence of the financial status and worth” of a party against
whom punitive damages are sought is relevant to the punitive damages claim,
“including the reasonableness of a punitive damage award”).
Discovery into this issue, however, has become the proverbial “tail wagging
the dog” in this case. Sanctions are appropriate – and an appropriate sanction
should be one which will allow the parties to move past this issue towards
resolution of the merits of this case.
Therefore, the undersigned Magistrate Judge GRANTS this portion of
Defendant’s motion. The Court recommends to the District Court that, as a
sanction for the discovery abuses relating to the production of information
concerning the financial worth of Plaintiff, the District Court and the Jury be
permitted, if punitive damages are awarded, to consider Plaintiff’s net worth
unlimited for the purpose of evaluating the appropriate amount of punitive
damages. An appropriate instruction in that regard should be given, tailored to
address the substantive relevance of that consideration under the applicable law.
14

Plaintiff should not be permitted to rebut that consideration either by evidence or
argument.
c.

Plaintiff’s use of the internet to sell.

Plaintiff identified Sergio Andonian as its 30(b)(6) witness to testify
regarding its “web presence and the advertising and sale of tires or wheels over the
internet, including but not limited to its use, ownership, design, or awareness of . . .
discounttires.com and DTCmotorsports.com,” and other domain names used by
Plaintiff to advertise or sell over the internet. (Doc. 479-1, at 9.) Defendant
complains that the witness “did not know when discounttires.com had been
registered and admitted that he had not investigated that topic.” (Doc. 479, at 12;
Doc. 479-3, at 64.) Defendant characterizes this as a “simple – yet potentially
dispositive – issue that AKH should have been prepared to confirm.” (Doc. 479, at
12-13.)
While this may be so, the Court does not find this to be sanctionable
conduct. As stated before, regardless of how prepared a witness may be, no
witness can be expected to have answers to every question potentially posed by
opposing counsel. The Court GRANTS in part this portion of Defendant’s
motion and finds this issue can be properly addressed by Plaintiff submitting a
written response to the question and all supporting documents, within thirty (30)
15

days of the date of this Order, signed and attested to by a representative of
Plaintiff. Plaintiff is also ordered to reimburse Defendant’s reasonable legal fees
incurred in litigating this portion of the present motion (the parties will follow the
procedure in D. Kan. Rule 54.2) .
2.

Providing false information.

This case has involved a long-standing dispute regarding Plaintiff’s alleged
ownership or use of the DTCMotorsports.com website. (See Doc. 479, at 13-14.)
Defendant diplomatically characterizes Plaintiff’s position regarding its ownership
of the website as “evolving.” (Id., at 13.) Defendant contends that publically
available records contradict Plaintiff’s denial of owning the website. (Id.) This
Court previously addressed the denials and stated that whether Plaintiff owned the
website was “a contested fact that cannot be resolved at this stage of the
proceedings as part of a discovery motion.” (Doc. 429, at 11.)
Defendant noticed this topic for 30(b)(6) deposition and Plaintiff designated
Sergio Andonian. Defendant argues the witness’s testimony “confirms the public
information” obtained by Defendant while “also flatly contradicts the denials
presented to this Court by [Plaintiff] and the statements of its counsel,” as quoted
in Defendant’s motion. (See Doc. 479, at 13-15.) Defendant argues that it “spent
thousands of dollars and months of discovery to prove this critical fact that is likely
16

dispositive to the coverage issues, only for [Plaintiff] ultimately to admit the truth
of that fact under oath.” (Id., at 15.) According to Defendant, this “suggests that
[Plaintiff] and its counsel directly misled [Defendant] and this Court until its
designated witness (apparently unaware of the company line)” testified. (Id.)
Plaintiff responds that “[p]rior to Sergio Andonian’s testimony, [Plaintiff’s]
current management was not aware that [Plaintiff] had any affiliation with the
DTCMotorsports.com website, and it still has no recollection of that website.”
(Doc. 486, at 22; Doc. 486-3, at ¶ 12.) Plaintiff continues that
[t]here has unquestionably been confusion regarding the
DTCMotorsports.com website, but Sergio Andonian’s
testimony resolved that confusion and clarified the
record. The prior confusion and lack of knowledge by
AKH's management does not equate to an intentional
misrepresentation, and this Court has previously stated
that ‘[t]he court will not find intentional
misrepresentation upon a speculative possibility.’
Starlight Int’l Inc. v. Herlihy, 186 F.R.D. 626, 645 (D.
Kan. 1999). There is no basis for sanctions.
(Doc. 486, at 22-23.)
The Court finds that issues relating to factual inconsistencies, if any,
perpetuated by Plaintiff are to be resolved by the District Court (on summary
judgment) or the jury (at trial). A party is not entitled to sanctions every time it
contends statements of the opposing party have been disproved by other evidence.
This portion of Defendant’s motion is DENIED.
17

3.

Changing answers to RFAs.

Pursuant to Fed.R.Civ.P. 37(c)(2), when a party fails to properly admit a
Rule 36 RFA and the requesting party later proves the matter to be true, the Court
must order the failing party to pay reasonable expenses, including attorney’s fees,
incurred in making that proof unless there was good reason for the failure to admit.
During Plaintiff’s Rule 30(b)(6) depositions, Defendant asked about various
denials of prior RFAs from 2013, 2015, and 2016. (See Doc. 479, at 15.)
According to Defendant, “in several instances [Plaintiff’s designated witness]
either changed its answer or admitted that its reasons for denying the Request were
without support.” (Id., at 15-16.) Defendant argues that all RFA responses for
which Plaintiff changed its answers or for which Plaintiff’s objection is baseless
should be treated as unqualified admissions. (Id., at 18.)
Upon review of the various RFAs specifically discussed in Defendant’s
brief, as well as those that are the subject of the deposition testimony cited in this
section of Defendant’s brief, the Court finds that RFA Nos. 37, 38, 53, 123, 195,
197 – which were previously denied – have now admitted as a result of Hratch
Andonian’s deposition testimony. (See Doc. 479-2, at 295-97, 297-300, 320-21,
325-328, 329-30.) Defendant’s motion is GRANTED in regard to RFAs 37, 38,
53, 123, 195, and 197 and these RFAs are deemed admitted.
18

The status of the remaining RFAs cited in Defendant’s brief is a bit more
complicated. Request for Admission No. 59 asked Plaintiff to admit that it “used
the mark and domain name www.DiscountTires.com from July 1997 through
approximately January 2013.” (Doc. 479-2, at 300-01.) Upon deposition
questioning, Hratch Andonian stated that he would need to verify whether the
inclusive dates were correct or whether it began using the domain name in October
1997. Plaintiff is instructed to provide a written, verified response to this Request
for Admission, indicating the correct starting date, within thirty (30) days of the
date of this Order.
Certain RFAs ask Plaintiff to admit statements that were included in its
Complaint. (See Doc. 479-2, at 330-34, 336-38, regarding RFAs 200, 201, 205,
and 208.) In response to deposition questioning, Hratch Andonian explains why he
is reluctant to admit certain language from the Complaint. (Id.) Defendant merely
cites to these passages of the deposition in its brief; it does not argue or discuss in
the brief why the concerns raised in the deponent’s testimony are inadequate or
inaccurate. The Court will not presume to make Defendant’s arguments for it. As
such, the Court is unwilling to find Plaintiff’s denial of the Requests was
“baseless.” Defendant’s motion is DENIED in regard to RFAs 200, 201, 205, and
208.
19

Request No. 136 asked Plaintiff to “[a]dmit that, in December 2012, [it]
intended for [Defendant’s] policy limits to be used to compensate [Plaintiff].”
(Doc. 479-2, at 322-23.) The deponent testified he could not admit the RFA
because of ambiguity of the term “policy limits.” (Id.) Again, Defendant merely
cites to a deposition passage and fails to discuss in the brief why the concerns
raised in the deponent’s testimony are inadequate or inaccurate. Again, the Court
is unwilling to find Plaintiff’s denial of Request No. 136 to be “baseless.”
Defendant’s motion is DENIED in regard to RFA 136.
Defendant argues that “because this Court has already chastised [Plaintiff]
for its failure to properly respond to RFAs and the above-described misconduct
expressly violates Fed. R. Civ. P. 36, this warrants an award of costs and fees.”
(Doc. 479, at 18.) Given that the Court grants this portion of Defendant’s motion
in regard to the majority of the RFAs at issue (RFAs 37, 38, 53, 59, 123, 195, and
197), Plaintiff is hereby ordered to reimburse Defendant’s reasonable legal fees
incurred in litigating this portion of the motion.
4.

Speaking objections.

Plaintiff was previously warned by the Court regarding speaking objections
and went so far as to restrict lead counsel Vatche Chorbajian’s participation in
depositions because of his practice of improper speaking objections. (See Doc.
20

371.) Defendant contends the practice has now been continued by Plaintiff’s local
counsel, Brian Sobczyk. (Doc. 479, at 19.)
Federal Rule of Civil Procedure 30(c)(2) provides that objections taken
during a deposition are noted on the record, but that the deposition proceeds with
the testimony taken subject to the deposition. “An objection must be stated
concisely in a nonargumentative and nonsuggestive manner.” Fed.R.Civ.P.
30(c)(2). Form objections must be made at the time of the deposition to avoid
waiver because they can be corrected at that time. Fed.R.Civ.P. 30(d)(3)(B).
Objections to relevance or materiality are not waived by a failure to object
during the deposition. Fed.R.Civ.P. 32(d)(3)(A). An instruction not to answer is
appropriate only when necessary to preserve a privilege, to enforce a limitation
ordered by the court, or to present a motion to terminate or limit a deposition being
conducted in bad faith or in a manner that unreasonably annoys, embarrasses or
oppresses the deponent or party. Fed.R.Civ.P. 30(c)(3), (30)(d)(3).5
To promote these principals, and to facilitate the efficient and fair conduct
of depositions, this Court has promulgated Deposition Guidelines, which provide,
in part:
Objections shall be concise and shall not suggest answers
to or otherwise coach the deponent. Argumentative
interruptions will not be permitted. The only objections
that should be asserted are those involving privilege or
21

work product protection or some matter that maybe
remedied if presented at the time, such as an objection to
the form of the question or the responsiveness of the
answer. Other objections shall be avoided unless the
deposition is being taken for the express purpose of
preserving testimony.
Deposition Guidelines of the United States District Court for the District of
Kansas, ¶ 5(a). See also, Cincinnati Insurance Co. v. Serrano, 11-2075-JARKGG, 2012 WL 29071 (D. Kan. 2012). The Scheduling Order in the present case
mandates the application of these guidelines. (Doc. 112, at 4.)
The Guidelines support Rules 30 and 32 by highlighting some important
concepts. One is to prohibit objections that suggest answers to, or otherwise
coach, the witness, commonly referred to as “speaking objections.” The other
concept is to make clear that objections which need not be made to preserve the
objection under Rule 32 should not be made in a discovery deposition. The
Guidelines also prohibit argumentative interruptions. “Both the Rules and the
Guidelines require objections to be concise, non-argumentative and
non-suggestive. Implicit in the Rule and explicit in the Guidelines is that counsel
will cooperate and be courteous to each other and to deponents.” Ash Grove
Cement Co. v. Wausau Insurance Co., No. 05-2339-JWL-GLR, 2007 WL 689576
(D. Kan. 2007).
In regard to Defendant’s previous motion for sanctions regarding speaking
22

objections, the Court held that
[n]early every objection made by Plaintiff's counsel in
this case was improper, except for some of the privilege
objections . . . . Relevance (foundation) objections of all
stripes are improper. Coaching and speaking objections
are prohibited. In the few instances in which a form
objection might have had some merit, it was so
encumbered by improper speaking objections as to render
its evaluation by the questioner, or this Court, impossible.
Generally, counsel impeded the deposition, confused the
witnesses and their answers, wasted the time of counsel
and witnesses, and was rude and unprofessional to
opposing counsel. The resulting transcripts from these
depositions may be relatively useless.
(Doc. 371, at 9-10 (footnote omitted).)
This Court could not have been more clear as to what it found to be
inappropriate in the context of the prior depositions as well as the Court’s
expectations going forward. The Court ordered that two witnesses were to be redeposed and went so far as to prohibit Plaintiff’s lead counsel Vatche Chorbajian,
who was admitted pro hac vice, from serving as counsel during the re-depositions.
(Id., at 11.) The Court held that Mr. Chorbajian could be present during the redepositions, “but will not be allowed to speak on the record.” (Id.) The Court also
required that local counsel appear with Mr. Chorbajian “in all depositions in which
he participates to assure his compliance with this Court’s rules, orders and
guidelines.” (Id.)
23

Considering that the Court has given specific instruction on this issue
previously – instruction that should not have been necessary for established
attorneys – the Court is disturbed that the issue has persisted. The Court is even
more disturbed that in the examples cited by Defendant, the offending behavior has
been attributed to counsel who is admitted to practice in the District of Kansas.
The first example provided by Defendant involves deposition questioning
regarding apparent contradictions between Plaintiff’s allegations in the present
case and allegations made against its prior counsel in the related legal malpractice
suit. Local counsel Brian Sobczyk interjected as follows:
I’m going to object to the line of questioning on
the grounds that the Complaint and a response to Request
For Admissions in two separate proceedings, there are
different legal standards that apply to both.
Allegations in a Complaint are not subject to the
same standards as a response to a Request For
Admission. The Complaint is based on – largely on
information and belief, subject to later proof during
discovery.
(Doc. 479-2, at 334-35.) He then instructed the witness to answer.
Defendant complains that Mr. Sobczyk’s speaking objection “influenced the
testimony of the witness, who immediately responded that the allegations of the
malpractice complaint ‘still needs to be proved, I guess in court.’” (Doc. 479, at
19; Doc. 479-2, at 335.) The witness subsequently testified regarding Plaintiff’s
24

apparently contradictory positions, “Well, first of all, the – again, those allegations
are – have to be proved; right? . . . They have to be proved. They have to go
through the process . . . .” (Doc. 479-2, at 413-14.) The witness also testified “I
don't know that. Again, these things have to be gone through the legal process.”
(Id.) The Court agrees that Mr. Sobczyk’s objection improperly coached the
witness, whose subsequent testimony clearly mimicked the speaking objection.
Defendant also raises this issue as to questioning regarding Plaintiff’s claim
for damages. In the context of that questioning, the following exchange occurred:
MR. SOBCZYK: Object to form. [Plaintiff] has
designated an expert witness on damages, who's provided
an expert report and has been deposed in this case. His
calculations have been provided. And the witness has
not testified that he personally calculated damages.
MS. KLEVENS: And yet it's in [Plaintiff’s]
interrogatory response, it does not rely solely on its
expert. If it wants to do that, then we can hear that
answer from the witness and not from the lawyer.
MR. SOBCZYK: And I'll read the response. The
response says if [Defendant] discounted rates by, say, 60
percent and 50 percent solution became a 20 percent
solution, that is math. A hundred percent cut in half is
50, cut by 60 is 20. That's a simple statement. It’s just a
general statement that can be calculated on a calculator.
MS. KLEVENS: I'm going to – just going to object on
the record because I think you're coaching the witness. I
think your objection is entirely improper. We can take
that up with the court. We’ve taken it up with the court
25

many times before.
(Doc. 479-2, at 354-55.)
Plaintiff responds that sanctions are not merited on the basis of only two
objections. (Doc. 486, at 25- 28.) Plaintiff continues that the objections were
warranted and did not coach or influence the witness. (Id.) Based on the above
discussion, the Court strongly disagrees that the objections were proper. The Court
also finds that the objections specifically coached the witness, as outlined by the
testimony excerpted above. On the other hand, this is clearly not a situation in
which “[n]early every objection made by Plaintiff's counsel . . . was improper . . . .”
(Doc. 371, at 9-10 (footnote omitted).)
The Court “may impose an appropriate sanction . . . on a person who
impedes, delays or frustrates the fair examination of the deponent.” Fed.R.Civ.P.
30(d)(2). Although the Court finds the tactics of Mr. Sobczyk to be improper, it
cannot find that Defendant’s ability to examine the deponent was prejudicially
impeded or frustrated. The Court does, however, admonish Mr. Sobczyk for his
use of speaking objections and directs him to review the pertinent federal and local
rules on the issue, as discussed herein.2

2

On a related matter, the Court DENIES Plaintiff’s request to revoke the pro hac
vice status of Mr. Chorbajian.
26

C.

Concealing or Destroying Documents.
Plaintiff’s pattern of deflection and delay when it comes to document

production is well-established in this case. Defendant characterizes it as a
“repeated and tortured pattern” consisting of the following:
[Plaintiff] claims that responsive documents do not exist
or otherwise refuses to produce documents, only for
agents of [Plaintiff] to then produce the purportedly
non-existent documents. In other instances, [Plaintiff]
has ignored its obligations of production for months or
years, before admitting either that it did not keep the
documents that are being requested or stating that it will
‘try’ to produce the required materials. Notwithstanding
that it is involved in litigation, [Plaintiff] appears to have
allowed the spoliation of many of its crucial documents,
requiring [Defendant] to collect partial records from
others or, in some instances, to accept that such records
were not preserved and will never be produced.
At this point, the law of diminishing returns is in
full effect. Any efforts by [Plaintiff] at this date to
produce additional documents that should have been
produced in December 2015 are too late to be helpful
and do not undo the prejudice of [Defendant’s] constant
struggle to compel [Plaintiff] to comply with its
discovery obligations. Further, this litigation will never
end if [Plaintiff’s] conduct is permitted to continue.
Therefore, the only appropriate remedy is sanctions.
(Doc. 479, at 20-21.) Defendant raises concerns regarding the following categories
of documents.
1.

Information on AKH Company, LLC.

After noticing a reference to a company called “AKH Company, LLC,”
27

defense counsel inquired with Plaintiff to determine if additional discovery was
needed on the entity. Plaintiff’s counsel responded that February 2017 that “AKH
Company, LLC [was] a separate Nevada business entity . . . merely used for tax
reasons around 2013 for a tax related matter and not used thereafter.” (Doc. 4795.) This was reiterated in a deposition of Plaintiff’s representative in March 2017.
Defendant contends that discovery received from Plaintiff’s accountant
Darrel Whitehead in May 2017 included a “Plan of Conversion,” which indicated
that Plaintiff “converted to a Nevada entity named ‘AKH Company, LLC’ shortly
after filing this litigation, rendering Plaintiff a shell with no commercial purpose
other than to litigate this case.” (Doc. 479, at 22; Doc. 479-17.) Defendant argues
the document establishes that “the LLC was not a company ‘merely used for tax
reasons,’ as stated by [Plaintiff’s] counsel, but that it was the vessel into which
Plaintiff . . . deposited all of its assets in an apparent attempt to devalue itself.”
(Id.)
Plaintiff dubiously responds that because Defendant learned about AKH
Company, LLC from documents produced by its accountant, “it is undisputed that
[Plaintiff] voluntarily disclosed the existence of this entity.” (Doc. 486, at 11.)
Plaintiff contends that the deposition of its accountant Mr. Whitehead made it clear
that AKH Company, LLC “was merely a pass-through entity that was created to
28

facilitate the disposition of [Plaintiff’s] assets.” (Id.; see also Doc. 486-6, at 12.)
Further, Plaintiff points to a letter from its counsel Mr. Chorbajian dated April 20,
2017, that “explained the precise purpose of the LLC entity and specifically
referenced the asset transfers” by Plaintiff. (Doc. 486, at 11.) Plaintiff also
contends that the “Plan of Conversion” was not carried out “due to certain
requirements of California law . . . .” (Id., at 12.)
Even assuming these assertions of Plaintiff to be true, these subsequent facts
seem to be somewhat at odds with the explanation Plaintiff gave Defendant in
February 2017 that “AKH Company, LLC [was] a separate Nevada business entity
. . . merely used for tax reasons around 2013 for a tax related matter and not used
thereafter.” (Doc. 479-5.) The Court thus GRANTS this portion of Defendant’s
motion. The Court finds that the jury instruction, recommended in § B(1)(b),
supra, to consider Plaintiff’s net worth unlimited for the purpose of evaluating the
appropriate amount of punitive damages, provides an adequate and appropriate
remedy.
2.

Schwab account.

Defendant also refers the Court to documents produced by Mr. Whitehead
showing a previously undisclosed account with Charles Schwab. (Doc. 479, at 23.)
According to Defendant, the documents “show that [Plaintiff] sold several million
29

dollars in assets after this lawsuit was filed, deposited the proceeds from that sale
into the undisclosed Schwab Account, and then paid multi-million dollar
distributions from that account directly to the owners of [Plaintiff], without ever
disclosing those transfers to [Defendant] in discovery.” (Id; see also Docs. 479-12,
479-13.)
Defendant contends that it “had actually noticed prior to the accountants’
depositions that something appeared to be missing: [Plaintiff’s] tax returns
claimed millions of dollars in sales of stores but the bank accounts did
not show any corresponding deposits.” (Doc. 479, at 23.) Upon noticing this,
Defendant asked Plaintiff “to identify where those deposits were reflected in the
bank records.” (Doc. 479-15.) Defendant contends that, despite this inquiry,
Plaintiff “never identified the Schwab account, leaving [Defendant] to uncover it in
the accountant’s production months later.” (Doc. 479, at 23.)
Although Plaintiff “finally indicated, the night before [Defendant] filed this
Motion, that it would produce the Schwab documents,” Defendant contends this is
“too little, too late . . . .” (Id., at 24.)
Plaintiff responds that the Schwab account “was opened in 2013 for the
specific purpose of receiving and distributing the proceeds from [Plaintiff’s]
reorganization and sales of assets to Pep Boys, 55, Inc. and Andonian Enterprises.”
30

(Doc. 486, at 12.) Apparently the account has not been used since 2014. (Id.)
Further, the account was opened by a former CFO of Plaintiff who is no longer
employed by the company. (Id.) Plaintiff characterizes the account was simply
“overlooked” and was “inadvertent, and an honest mistake.” (Id., at 12-13.)
Given the history of discovery abuses by Plaintiff in this case, the Court is
hesitant to conclude that the withholding of any documents from Defendant
occurred “inadvertently.” Plaintiff’s pattern of concealment overshadows its
attempt to concede an “honest mistake.” The Court GRANTS this portion of
Defendant’s motion. The Court finds that the jury instruction, recommended in §
B(1)(b), supra, to consider Plaintiff’s net worth unlimited for the purpose of
evaluating the appropriate amount of punitive damages, provides an adequate and
appropriate remedy.
3.

Previously unidentified bank accounts.

In regard to one of Defendant’s many previously granted Motions to
Compel, this Court ordered Plaintiff to produce all bank statements. (Doc. 451.)
The undersigned Magistrate Judge stated that the Order was not limited to
Plaintiff’s accounts with US Bank, stating that “[t]o the extent Plaintiff switched
banks or has opened/maintained accounts at any other banks since 2011, Plaintiff is
ordered to provide the requested information as to any and all such bank accounts
31

from 2011 through the present.” (Id., at 4.) This Court specifically stated that the
production was to include, “but is not limited to, accounts with Bank of America.”
(Id.)
Plaintiff represented to Defendant that all bank accounts had been identified
and all bank statements had been produced. (Doc. 479-210, at 2.) Approximately
two months after the Court’s Order, Plaintiff’s lead counsel Vatche Chorbajian
specifically stated to Defendant that “All Bank Records have been produced”
and “Nothing is missing.” (Id., (emphasis in original).) Almost five months later,
Plaintiff’s former accountants produced documents referencing three previously
undisclosed Bank of America accounts in Plaintiff’s name. (Doc. 479, at 25; Doc.
479-11.) This is in flagrant violation of the Court’s previous Order. (Doc. 451.)
Further, Defendant is concerned because its expert “previously reviewed what
[Defendant] was told was a complete set of [Plaintiff’s] bank statements.” (Doc.
479, at 25.)
Plaintiff again contends that its current management did not open the
accounts at issue and did not know they existed. (Doc. 486, at 13.) Plaintiff also
argues that the existence of these accounts “has not hindered [Defendant’s]
investigation of [Plaintiff’s] ability to pay a judgment, and does not warrant
sanctions.” (Id., at 14.)
32

Again, given the history of discovery abuses by Plaintiff in this case, the
Court is hesitant to conclude that the withholding this information was inadvertent.
The Court thus GRANTS this portion of Defendant’s motion. The Court finds that
the jury instruction, recommended in § B(1)(b), supra, to consider Plaintiff’s net
worth unlimited for the purpose of evaluating the appropriate amount of punitive
damages, provides an adequate and appropriate remedy.
4.

Plaintiff’s 2012 tax return.

In January 2016, Plaintiff produced a 2012 tax return. (Doc. 479, at 25.)
The return was used as a deposition exhibit and provided to Defendant’s experts.
(Id.) Unfortunately, Defendant eventually learned that the 2012 tax return
provided by Plaintiff was never filed with the IRS. (Id., at 25-26.) Plaintiff’s
accountant Whitehead then produced the 2012 tax return that was filed with the
IRS. (Id., at 26.) Unfortunately, this did not occur until after all the depositions of
Plaintiff’s representative and executives. (Id.)
Plaintiff again contends that this was merely a “simple misunderstanding.”
(Doc. 486, at 14.) More specifically, Plaintiff contends it “learned for the first time
that the return it previously produced to [Defendant] was not its final 2012 return”
in connection with Defendant’s deposition of Mr. Whitehead. (Id.) Plaintiff also
contends that there is no prejudice to Defendant because Plaintiff’s “accounting
33

treatment of [the RT] settlement has no relevance to the merits of this lawsuit, and
there is no contention that the two returns differed in any respect as to that
accounting.” (Id., at 15.)
The Court is troubled by Plaintiff’s assertion that it “worked with its
accountants” to respond to Defendant’s document requests (id., at 10), but then is
surprised on more than one occasion at documents its accountant produces in
conjunction with his deposition. The Court thus GRANTS this portion of
Defendant’s motion. The Court finds that the jury instruction, recommended in §
B(1)(b), supra, to consider Plaintiff’s net worth unlimited for the purpose of
evaluating the appropriate amount of punitive damages, provides an adequate and
appropriate remedy.
5.

Profit/loss statements.

In October 2016, the undersigned Magistrate Judge ordered Plaintiff to
produce all of its “profit and loss statements, annual statements, balance sheets,
and expense/ revenue reports for 2011 through the present.” (Doc. 451, at 5.)
After the entry of this Order, Plaintiff informed Defendant that it had no profit and
loss statements to produce. (Doc. 479, at 26.) Defendant contends that “[o]n the
day before his deposition . . ., [Plaintiff’s] accountant Mr. Whitehead produced a
number of [Plaintiff’s] profit/loss statements. (Id., at 27.) Defendant only attached
34

one such profit and loss statement to the present motion, however. (Doc. 479-16.)
According to Defendant, there are only two explanations for this: “either
[Plaintiff] knew about these documents and lied about them, notwithstanding a
Court order that they be produced, or [Plaintiff] failed to ask its accountants to
provide whatever profit/loss statements it had until [Defendant] served Subpoenas
on the Accountants.” (Doc. 479, at 27.) According to Defendant, “[e]ither way,
[Plaintiff] again failed to meet its discovery obligations.” (Id.)
Plaintiff responds that it “ does not routinely prepare or maintain profit and
loss statements, nor has it requested that such statements be prepared by its outside
accountants.” (Doc. 486, at 15; Doc. 486-3, at ¶ 17; Doc. 486-9, at ¶ 3.) In his
subsequent declaration, Whitehead states that the 2013 profit and loss statement
was “mistakenly prepared” and that no such statements were subsequently
prepared. (Doc. 486-9, at ¶ 3.) Plaintiff contends that sanctions are not warranted
because it “did not know of any profit and loss statements in Mr. Whitehead’s file
and did not have any reason to believe any existed because [it] did not request that
they be prepared.” The Court is not persuaded by Plaintiff’s arguments.
The Court GRANTS this portion of Defendant’s motion. The Court finds
that the jury instruction, recommended in § B(1)(b), supra, to consider Plaintiff’s
net worth unlimited for the purpose of evaluating the appropriate amount of
35

punitive damages, provides an adequate and appropriate remedy.
6.

Checks.

Defendant contends that “approximately $70.3 million worth of canceled
checks are unexplained in [Plaintiff’s] bank account records, making it difficult, if
not impossible, to determine [Plaintiff’s] profitability for punitive damages
purposes.” (Doc. 479, at 27.) Although Plaintiff initially offered to produce the
checks, it ultimately stated that doing so “was too costly an expense” and that it
understood that Defendant would subpoena copies of the checks at Defendant’s
expense. (Doc. 479-18, at 4.) Plaintiff indicated it would not object to such a
subpoena. (Id.)
Plaintiff contends that this request is evidence of “how far afield
[Defendant’s] discovery campaign has strayed from the merits of this case . . . .”
(Doc. 486, at 15.) Plaintiff continues that it never agreed to produce the checks,
but merely agreed not to object if Defendant tried to obtain them from the banks.
(Id., at 16.) Further, Plaintiff argues that the checks “have no relevance to the
merits of this case, and [Defendant] has not made any showing as to how they
purportedly have any relevance to the punitive damages portion of its case.” (Id.)
Defendant replies that when
reviewed the bank account information that [Plaintiff]
provided, it noticed tens of millions of dollars issued
36

from those accounts with no record of why the money
was paid and where it went. When [Defendant] asked
[Plaintiff] about it, [Plaintiff] said that the money
reflected checks it had sent, but that it did not know to
whom the checks were issued (including whether they
went to other [Plaintiff]-related entities or individuals) or
for what purpose; instead, [Plaintiff] offered under oath
to produce the cancelled checks to explain this massive
amount of missing money. (Doc. 486-7 at 212-13, 230.)
Then, nothing happened.
(Doc. 488, at 24.) The Court does not agree with Defendant’s assertion that
Plaintiff promised “under oath” to produce the cancelled checks. In response to
questioning as to how “we find out what all of these checks were for or who they
were paid to,” Hratch Andonian merely replied, “I suppose we could ask the bank
to get us the cancelled checks.” (Doc. 486-7, at 212.) The Court does not interpret
this as an agreement to produce this voluminous amount of documentation.
That stated, the Court agrees with Defendant’s assertion that the cancelled
checks are within Plaintiff’s possession, custody, or control. As stated by the
Honorable District Judge Julie Robinson in this case, “control comprehends not
only possession but also the right, authority, or ability to obtain the documents.”
(Doc. 400, citing Super Film of Am., Inc. v. UCB Films, Inc., 219 F.R.D. 649,
651 (D. Kan. 2004) (quoting Comeau v. Rupp, 810 F. Supp. 1127, 1166 (D. Kan.
1992)); Internationale v. Rogers, 357 U.S. 197, 206 (1958); Ice Corp. v.
Hamilton- Sundstrand Corp., 245 F.R.D. 513, 517 (D. Kan. 2007).)
37

The undersigned Magistrate Judge finds that Plaintiff has “the right,
authority, or ability to obtain” its own cancelled checks, which he also finds to be
relevant, discoverable, and proportional to the needs of this case. This portion of
Defendant’s motion is GRANTED. The Court finds that the jury instruction,
recommended in § B(1)(b), supra, to consider Plaintiff’s net worth unlimited for
the purpose of evaluating the appropriate amount of punitive damages, provides an
adequate and appropriate remedy.
7.

Pep Boys sales agreement.

Defendant sought documents relative to the multi-million dollar sale of
certain of Plaintiff’s stores to Pep Boys in 2013. Defendant hoped the documents
would help it “to understand the value of the stores owned by [Plaintiff] when the
this action was initiated” and determine “how much money was paid to [Plaintiff] .
. . . to track the funds in [Plaintiff’s] bank account statements for valuation
purposes related to punitive damages.” (Doc. 479, at 28.)
Defendant argues that Plaintiff conceded the relevance of the documents, but
stated it could not produce them because they were subject to “strict
confidentiality” provisions. (Doc. 479-18, at 4.) As with other documents
discussed herein, Defendant ultimately received the document from Plaintiff’s
accountant. In this instance, the document was not complete, as schedules and
38

exhibits were withheld. According to Defendant, however, the agreement did not
contain any type of confidentiality provision, leading Defendant to believe Plaintiff
made this objection “solely to shirk its discovery obligations.” (Doc. 479, at 28.)
Further, even if the confidentiality provision existed, a Protective Order was
entered in this case.
It is well settled that confidentiality does not act as a bar
to discovery and is not grounds to withhold documents or
information from discovery. ‘A concern for protecting
confidentiality does not equate to privilege.’ While a
confidentiality objection may be appropriate when a
party seeks a protective order limiting the parties’ use or
disclosure of confidential information, it is generally not
a valid objection to withholding discovery altogether. In
Sonnino v. University of Kansas Hospital Authority,
this Court specifically addressed an objection to
producing confidential information on the grounds the
producing party was contractually barred from disclosing
the information. The Court held that in the context of
settlement agreements the mere fact that the settling
parties agree to maintain the confidentiality of their
agreement does not serve to shield the agreement from
discovery. ‘Although a settlement agreement contains a
confidentiality provision, litigants cannot shield
otherwise discoverable information from disclosure to
others by agreeing to maintain its confidentiality, and
cannot modify the Federal Rules of Civil Procedure by
agreement.’
High Point SARL V. Sprint Nextel Corp., No. 09-2269-CM-DJW, 2011 WL
4008009, at *1 (D. Kan. Sept. 9, 2011) (citations and footnotes omitted).
Plaintiff contends that “[t]he protective order entered by this Court would
39

not protect [it] from the consequences of . . . a breach” of the confidentiality
provision. (Doc. 486, at 16.) Plaintiff does not, however, explain how or why this
is so. The Court is not persuaded by this factually-unsupported, conclusory
statement. Cf. Szczygiel v. Kansas, No. 14-3011-EFM, 2015 WL 630570, at *2
(D.Kan. Feb.12, 2015) (citations omitted) (holding that “[c]onclusory statements,
threadbare recitals of elements, and legal conclusions, however, are not entitled to
a presumption of truth’ in the context determining the futility of a proposed
amendment). Plaintiff contends it has requested a copy of the agreement
containing the confidentiality provision from Pep boys “but has not yet received
anything in response.” (Doc. 486, at 17.)
This portion of Defendant’s motion is GRANTED. The Court orders
Plaintiff to produce to Defendant, within thirty (30) days of the date of this
Order, a copy of the agreement containing the confidentiality provision that also
evidences how the Protective Order in effect in this case would fail to protect
Plaintiff would fail to “protect” Plaintiff “from the consequences of such a breach.”
(Id., at 16.) Should Plaintiff be unable to do so, Plaintiff is ordered to produce to
Defendant, within thirty (30) days of the date of this Order, unredacted copies
all documents within its possession relative to the multi-million dollar sale of
certain of Plaintiff’s stores to Pep Boys in 2013. The jury instruction
40

recommended in § B(1)(b), supra, provides an additional remedy. The Court also
orders Plaintiff to reimburse Defendant for its costs relating to litigating this
portion of the present motion for sanctions.
8.

Sales and internet records.

Defendant requested documents showing Plaintiff’s pre-2007 use of the
internet to sell tires. Plaintiff responded that documents produced in the RT
litigation were the only ones that existed. Defendant continues that Sergio
Andonian testified that “historical records relating to [Plaintiff’s] sale of tires and
wheels online are maintained in a database and that no one ever asked him - or to
his knowledge, anyone else - to review that database for responsive documents.
(Doc. 479, at 29; Doc. 479-3, at 40-41, 47.) Defendant complains that Plaintiff
“[a]gain . . . misrepresented the thoroughness of its review for documents and
prejudiced [Defendant’s] ability to obtain discoverable information that could be
dispositive to whether it ever owed coverage in the underlying case.” (Doc. 479, at
29.)
As Plaintiff correctly points out, however, Sergio Andonian’s testimony
related to internet sales that began in October 2007. (Doc. 486, at 23; Doc. 479-3,
at 40-41, 47.) Plaintiff argues that “[t]here is no evidence that [Plaintiff] sold tires
online prior to October 2007, and there is no basis for [Defendant’s] contention
41

that records of online sales exist from a time period during which there were no
online sales.” (Doc. 486, at 23.)
Defendant replies that Andonian’s testimony related to sales via the
discounttires.com website beginning in October 2007, but that Defendant is
seeking information about Plaintiff’s sales “through the DTC Motorsports website,
which [Plaintiff] used for sales prior to 2007.” (Doc. 488, at 25-26; see also Doc.
479-8, at 15-16.) Defendant also directs the Court to Sergio Andonian’s testimony
that he did not search for documents relating to Plaintiff’s “eCommerce sales” in
the context of this litigation and was never asked by anyone to do so.” (Doc. 488,
at 26; Doc. 479-3, at 46-48.) The cited portion of Andonian’s testimony, however,
again appears to relate to Plaintiff’s eCommerce sales from 2007-on. (Doc. 479-3,
at 46-48.)
The Court GRANTS in part this portion of Defendant’s motion. This issue
can be properly addressed by Plaintiff submitting a written response to the question
and all supporting documents, within thirty (30) days of the date of this Order,
signed and attested to by a representative of Plaintiff. Plaintiff is also ordered to
reimburse Defendant’s reasonable legal fees incurred in litigating this portion of
the present motion.
D.

Requested Sanctions.
42

Fed. R. Civ. P. 37(b)(2) states that “[i]f a party . . . fails to obey an order to
provide or permit discovery . . . the court where the action is pending may issue
further just orders.” Sanctions enumerated by Rule 37(b) include:
(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;

(vi)

rendering a default judgment against the
disobedient party . . . .

Subsection (b)(2)(C) of Rule 37 also allows the Court to order the “disobedient
party” to pay reasonable expenses relating to the underlying motion. The sanctions
imposed should endeavor to remedy the violation and address the specific conduct
to the extent possible.
In the context of the various misdeeds catalogued above, Defendant asks the
Court to enter default judgment against Plaintiff on Defendant’s counterclaim and
43

dismiss Plaintiff’s claims against Defendant in their entirety. (See Doc. 479, at 3031.) In the alternative, Defendant requests the following adverse inferences,
instructions, and/or preclusive orders:
•

An adverse inference or instruction that AKH failed to
produce responsive documents and that AKH attempted
to hide information from this Court;

•

An Order that AKH is not permitted to adduce evidence
in support of its claim for damages against Universal;

•

An adverse inference or instruction that where AKH has
been unable to produce responsive documents or states
that such documents do not exist, such documents were
intentionally destroyed and would have benefitted
Universal and harmed AKH;

•

An adverse inference or instruction that AKH withheld or
obfuscated information sufficient to show that it moved
or transferred all of its assets out of AKH to avoid
liability or a damages award in this case;

•

An adverse inference or instruction that AKH withheld or
obfuscated information about its assets as part of its
continuing efforts to conceal information from Universal;

•

An adverse inference or instruction that any question
AKH was unprepared to answer at its deposition would
have benefitted Universal and harmed AKH;

•

An adverse inference or instruction that AKH owned the
DTCMotorsports.com website and that those records
would have shown that AKH was selling tires and wheels
through that website prior to 2007;

•

An Order barring AKH from claiming that it lacks the
44

funds to satisfy a judgment or award; and
•

An Order barring AKH from asserting at trial or in
dispositive motions any affirmative defenses or claims
that are impacted by the missing discovery.

(Doc. 479, at 31-32.) As addressed in footnote 2, supra, Defendant also requests
that the pro hac admission of Vatche Chorbajian be revoked. See United States v.
Howell, 936 F. Supp. 774, 776 (D. Kan. 1996) (ordering revocation of pro hac
status for counsel’s continued “difficulties adhering to the court’s ethical
requirements”).
Given the on-going pattern of misrepresentation and obfuscation by Plaintiff
and its counsel in this matter, the Court finds the following sanctions to be
measured and appropriate:
1.

As referenced above, Plaintiff is assessed attorney fees for
Defendant’s litigation of the specified portions of this motion. The
Court orders the use of the procedure in D. Kan. Rule 54.2 to resolve
the amount of this award.

2.

The undersigned Magistrate Judge recommends to the District Judge,
as a sanction for the discovery abuses relating to the production of
information concerning the financial worth of Plaintiff, that the
District Court and the Jury be permitted, if punitive damages are
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awarded, to consider Plaintiff’s net worth unlimited for the purpose of
evaluating the appropriate amount of punitive damages. An
appropriate instruction in that regard should be given, tailored to
address the substantive relevance of that consideration under the
applicable law. Plaintiff should not be permitted to rebut that
consideration either by evidence or argument.
3.

The Court also orders Plaintiff to produce documents, as well as
provide responses verified by a representative of Plaintiff, as more
fully set forth above. This shall occur within thirty (30) days of the
date of this Order.

IT IS THEREFORE ORDERED that Defendant’s Motion for Sanctions
(Doc. 478) is GRANTED in part as more fully set forth above.
IT IS SO ORDERED.
IT IS THEREFORE RECOMMENDED to the District Judge that a Jury
Instruction, as generally described supra, be given at trial and the recommended
presumption be used during the consideration of dispositive motions (if
applicable).
Pursuant to 28 U.S.C. §636(b)(1), Fed.R.Civ.P. 72, and D.Kan. Rule 72.1.4,
the parties shall have thirty (30) days after service of a copy of these proposed
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findings and recommendations to serve and file with the U.S. District Judge
assigned to the case, any written objections to the findings of fact, conclusions of
law, or recommendations of the undersigned Magistrate Judge. Any party’s failure
to file such written, specific objections within the fourteen-day period will bar
appellate review of the proposed findings of fact, conclusions of law, and the
recommended disposition.
IT IS SO RECOMMENDED.
Dated this 14th day of November, 2017.
S/ KENNETH G. GALE

Kenneth G. Gale
United States Magistrate Judge

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