Keybank National Association v. Perkins Rowe Associates, L.L.C., et al
RULING on Defendants' Motion for Reconsideration. Accordingly, the Court hereby DENIES the 378 Motion for Reconsideration of 366 Order on Motion for Contempt, Order on Motion for Sanctions. Signed by Judge James J. Brady on 7/25/2011. (LSM)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
KEYBANK NATIONAL ASSOCIATION
PERKINS ROWE ASSOCIATES, INC.,
RULING ON DEFENDANTS’ MOTION FOR RECONSIDERATION
This matter is before the Court on Defendants’ Motion (doc. 378) for
Reconsideration. This Court’s jurisdiction exists pursuant to 28 U.S.C. § 1332.
There is no reason for oral argument. For the reasons stated herein, the Court
DENIES Defendants’ motion.
On February 25, 2011, Magistrate Judge Stephen C. Riedlinger (“MJR”)
granted (doc. 304) Plaintiff’s motion to compel discovery. MJR concluded that
Defendants’ discovery responses were fraught with general and unsubstantiated
MJR ordered that “[n]o objections will be allowed, except for
objections based on attorney client privilege or work product protection, and then
only to the extent the Perkins Rowe defendants have previously properly urged
and supported such objections by a privilege log which satisfies Rule
(Id., pp. 12-13) (emphasis added).
On April 7,
2011, this Court upheld (doc. 343) MJR’s Ruling. In doing so, the Court found
In the sixteen months since KeyBank served its
discovery requests, Defendants have identified only
twenty-six documents as privileged. By August 9, 2010,
Defendants produced a total of three-hundred pages
and identified twenty-six as privileged. Since that date,
Defendants have produced over 86,000 documents and
failed to identify a single additional document as
privileged. On October 25, 2010, Plaintiffs complained
about the insufficiency of Defendants’ privilege log, but
Defendants have failed to respond.
(Id., p. 8) (internal citations omitted).
Thereafter, Defendants nonetheless failed to produce the requested
documents, and, instead, sent Plaintiff over a hundred pages of privilege logs
and indicated that they intended to provide more. As a result, Plaintiff filed a
Motion for Contempt and for Sanctions which this Court granted (doc. 366) on
June 7, 2011.
The Court concluded that Defendants had willfully violated a
discovery order and ordered the dismissal of Defendants’ affirmative defenses
and counterclaims. In support of its decision, the Court noted that Defendants
had “disobeyed court orders, filed frivolous motions, and impeded Plaintiff’s
attempts to obtain third-party discovery” and had “already been sanctioned four
times for discovery abuses” (doc. 366, p. 6).
The Court also noted that
“Defendants themselves—and not simply their attorneys—have refused to allow
the documents to be produced” and that “a client who directly participates in the
subversion of discovery should be barred from asserting claims or defenses for
which he provides his opposition no means to disprove” (doc. 366, pp. 6-7).
On July 13, 2011, Defendants filed their Motion (doc. 378) for
reconsideration. Defendants assert that the Court should overturn its finding of
contempt and entry of sanctions because (1) Plaintiff acted in bad faith; (2) their
failure to comply with the court’s order was not willful or in bad faith; (3) Plaintiff
was not prejudiced by Defendants’ conduct; (4) less drastic sanctions were
I. New Evidence of Plaintiff’s Bad Faith
Defendants assert that it has new evidence, an affidavit by Andy C. Alvillar
(“Alvillar”) of GlassRatner, establishing that Plaintiff did not fulfill its own
discovery obligations and so it is not entitled to equitable relief. According to
Defendants, an audit of Defendants’ by GlassRatner revealed that Defendants
never fraudulently diverted funds from the project. As such, Defendants assert,
Plaintiff has engaged in bad faith by submitting affidavits suggesting otherwise.
A court should only grant equitable relief when the party seeking relief has
acted in good faith. New York Football Giants, Inc. v. Los Angeles Chargers
Football Club, Inc., 291 F.2d 271, 273 (5th Cir. 1961).
Under this “unclean
hands” doctrine, a party will be denied equitable relief where it has itself acted
unconscionably in relation to the matter at issue to the detriment of the other
party. Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 244 (1933).
The Court finds that Alvillar’s affidavit does not establish that Plaintiff acted
in bad faith. First, Plaintiff does not contend that Defendants diverted funds away
from the project entirely. Plaintiff only contends that Defendants used funds to
pay entities for which the funds were not intended. Moreover, at most, Alvillar’s
affidavit creates a genuine issue of material fact as to whether Defendants
diverted funds. It does not establish that Plaintiff acted in bad faith in suggesting
otherwise. What is undisputable is that Defendants blatantly ignored this Court’s
February 25th order compelling discovery.
II. Defendants’ Misconduct
Defendants assert that their conduct does not justify dismissal of their
defenses and counterclaims because (1) they did not engage in bad faith; (2)
less drastic sanctions were available through which to compel their compliance;
and (3) Plaintiff was not prejudiced by Defendants’ conduct.
Dismissal of a party’s defenses is undoubtedly a heavy sanction that is
appropriate only when less drastic sanctions would not ensure compliance.
Marshall v. Segona, 621 F.2d 763, 767-68 (5th Cir. 1980). Generally speaking,
dismissal is only appropriate where: (1) “the refusal to comply results from
willfulness or bad faith and is accompanied by a clear record of delay or
contumacious conduct;” (2) the violation of the discovery order must be
attributable to the client instead of the attorney, (3) the violating party's
misconduct “must substantially prejudice the opposing party;” and (4) a less
drastic sanction would not substantially achieve the desired deterrent effect. Doe
v. Am. Airlines, 283 Fed. App’x 289, 291 (5th Cir. 2008).
For the reasons stated below, the Court finds that dismissal of Defendants’
affirmative defenses and counterclaims was an appropriate remedy.
A. Willfulness or Bad Faith
Defendants assert that they did not act in bad faith because they have
spent considerable time and money answering Plaintiff’s discovery requests and
because the remaining unproduced documents are privileged and Defendants
fear that by producing them, they may waive privilege as to the documents in
future litigation (doc. 378, pp. 5-6). In addition, Defendants assert that the Court
erred in dismissing their defenses and counterclaims on the grounds that
Defendants had “disobeyed court orders, filed frivolous motions, and impeded
Plaintiff’s attempts to obtain third-party discovery” and had “already been
sanctioned four times for discovery abuses” (doc. 366, p. 6).
The Court finds that Defendants acted willfully and in bad faith. Though
Defendants may have spent considerable time and money complying with
discovery requests, Defendants plainly violated the Court’s February 25th order
which stated that “[n]o objections will be allowed, except for objections based on
attorney client privilege or work product protection, and then only to the extent
the Perkins Rowe defendants have previously properly urged and supported
such objections by a privilege log which satisfies Rule 26(b)(5)(A)(ii),
Fed.R.Civ.P.” (Id., pp. 12-13) (emphasis added). Instead, Defendants produced
hundreds of pages of privilege logs.
Defendants claim that they did not
understand the contours of the Court’s February 25th order.
language of the order could not be more clear. And though Defendants may
have wished to ensure that their documents remained privileged, they were not
at liberty to disregard the Court’s order.
Moreover, the Court finds that its characterization of Defendants’ conduct
does not alter its conclusion that Defendants’ acted willfully and in bad faith.
Though Defendants are correct that they were never “sanctioned,” under Federal
Rule of Civil Procedure 37(b), they were forced to pay Plaintiff’s expenses in
opposing motions which the Court determined to be frivolous under Federal Rule
of Civil Procedure 37(a) (docs. 105, 145, 304 & 348). Moreover, Defendants
have plainly “disobeyed court orders” and “impeded Plaintiff’s third-party
discovery”—indeed, the conduct for which Defendants are now being sanctioned
falls into these categories.
B. Less Drastic Sanctions
Defendants assert that less drastic sanctions were available to compel
them to produce the desired documents. However, the Court finds that this is not
the case. At the status conference in which the parties discussed the motion to
compel, Defendants’ counsel plainly stated that he did not have his client’s
permission to produce the documents. Moreover, Defendants’ counsel indicated
that it would contest any effort to compel production of the documents.
C. Prejudice to Plaintiff
Finally, Defendants assert that the Court erred because Plaintiff was not
prejudiced by Defendants’ conduct insofar as there is no set trial date or
discovery deadline. However, Defendants’ conduct is, in large part, the very
reason why there is no trial date or discovery deadline. Plaintiff has been forced
to oppose countless frivolous motions, expending significant time and resources
in doing so. Moreover, given that there are numerous suits pending against
Defendants arising out of the Perkins Rowe project, Plaintiff could be significantly
prejudiced by Defendants’ delay as Defendants may become judgment-proof.
See Adams v. State Farm Lloyds, Inc., 2008 WL 906256, at *2 (Mar. 31, 2008).
Accordingly, the Court hereby DENIES Defendants’ Motion (doc. 378) for
Signed in Baton Rouge, Louisiana this 25th day of July, 2011.
JUDGE JAMES J. BRADY
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
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