First Mariner Bank v. The Resolution Law Group, P.C.
Filing
160
MEMORANDUM OPINION. Signed by Magistrate Judge Susan K. Gauvey on 10/24/13. (c/m 10/25/13 jnls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
First Mariner Bank,
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Plaintiff
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V.
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The Resolution Law Group,
et al.
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Defendants.
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CIVIL NO. MJG-12-1133
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MEMORANDUM OPINION
Pending before the Court is a Motion for Sanctions of First
Mariner Bank (“First Mariner”).
complete.
(ECF No. 142).
Briefing is
For the reasons set forth below, the Court GRANTS in
part and DENIES in part the motion.
In his memorandum and order denying defendants’ motion to
dismiss (ECF No. 60), Judge Garbis summarized the nature of
First Mariner’s claims and the history of the litigation to
date.
First Mariner has pled three claims: false advertising in
violation of the Lanham Act, defamation and unfair competition –
which claims withstood a defense motion to dismiss.
These claims are based on defendant Resolution Law Group’s
(“RLG”) mail advertisements dated April 6, 2012 and May 3, 2012
(and possibly other dates) to certain of First Mariner’s
Maryland customers stating that it was investigating First
Mariner, suggesting (at a minimum) that First Mariner was
engaging in illegal and improper banking practices and
indicating that some banks were in settlement negotiations with
government agencies.
The advertisements said that the
government would seek monetary damages for individuals and
reduction in home loans, principal balance and interest rate.
The mailed advertisements urged the recipients to contact the
RLG promptly.
First Mariner maintains that RLG is operating a mass
joinder mortgage reduction scam, similar to scams condemned in
other jurisdictions.
First Mariner argues that the
advertisements are untrue, seek to scare recipients into
engaging the RLG (and paying a retainer), which firm does not
have any basis to file any bona fide lawsuit against First
Mariner – all to the considerable detriment of First Mariner’s
business and goodwill.
It is against the backdrop of these claims and factual
assertions, that First Mariner sought discovery from the
defendants, serving its first discovery on defendants on
December 11, 2012.
Dissatisfied with defendants’ response to
its interrogatories and requests for production of documents, on
March 13, 2013, First Mariner filed a motion to compel discovery
(ECF No. 73-1).
After a hearing, by letter memorandum and order
dated April 19, 2013, the Court agreed with First Mariner,
2
finding the answers to interrogatories to be totally
unresponsive and largely boilerplate, and granted the motion
ordering defendants to fully answer interrogatories nos. 4 (all
employees ), 7 (cost of advertisement mailings), 8 (selection of
recipients of the mailed advertisements), 10 (persons involved
in creation, maintenance, funding and domain registration), 11
(list and information regarding persons answering calls from
recipients of mailed advertisements) and 14 (recordings and
transcriptions of calls). The Court warned that “[f]ailure to
[completely answer the interrogatories] will subject defendants
to additional sanctions.”
(ECF No. 87).
Similarly, the Court found the defendants’ response to the
requests for production of documents unresponsive and largely
boilerplate, noted the failure to produce any documents with the
response and ordered defendants to produce all documents sought
in request nos. 1, 4, 5, and 6 (all advertisements including
blanks and drafts), 7 and 8(contracts including with Marketing
Smart and Register.com), 10 and 11 (scripts, training materials,
including subject of fee amount).
And, the Court warned that
“[f]ailure to produce all documents will subject defendants to
additional sanctions.”
(Id.)
As to one category of requested documents – disseminated
advertisements or drafts of same – the Court required an
affidavit from Mr. Ian Berger “attaching all advertisements,
3
explaining and attesting to the fact that these represent the
universe of advertisements and drafts [and “blank” drafts].”
(Id.)
In the same letter memorandum and order, the Court ordered
production of “a complete list of recipients of defendants’
advertisements” (under cover of Berger’s affidavit), a list of
RLG employees to date and a “viable address” for defendants’
marketing firm (again under cover of Berger’s affidavit) and
further ordered that Mr. Berger should state in his affidavit
that he “has attempted to obtain a current, valid address [for
the marketing firm] and list those attempts.” (Id.)
Finding no substantive justification for defendants’
discovery failures, the Court awarded expenses to First Mariner.
(Id.)
By letter motion dated May 2, 2013 (ECF No. 91), First
Mariner complained that defendants had failed to comply with the
April 19, 2012 order.
The Court held a hearing on May 21 and
agreed that defendants had failed to comply in significant ways,
as delineated in the telephone hearing and ordered that
defendants file by June 5, 2013 supplemental answers to
interrogatory nos. 4 (all employees), 7 (cost of advertisement
mailings), 8 (selection of recipients of mailed advertisements),
10 (persons involved in creation, maintenance, funding and
domain registration), 11 (list and information regarding persons
4
answering calls from recipients of mailed advertisements), 14
(recordings and transcriptions of calls); supplemental responses
to request nos. 5 and 6 (all advertisements including blanks and
drafts), 7 (contracts including with Marketing Smart and
Register.com), 10 (scripts, training materials, including
subject of fee amount); and supplementation of the Berger
affidavit, paragraph nos. 3 (failure to attach all
Advertisements, including blanks and drafts, with attestation
that those attached are the universe of advertisements), 7
(failure to give specifics of effort to identify valid address
for Marketing Smart) and 8 (failure to obtain lists of
recipients from Marketing Smart). (ECF No. 105).
Further, the
Court ordered that these supplemental answers and responses must
be signed by both Mr. Kirk and Mr. Calhoun as counsel and both
Mr.
Berger and Mr. Broderick as representatives of RLG and that
the supplemental affidavit be signed by both Mr. Berger and Mr.
Broderick.
By letter dated June 6, 2013, First Mariner advised the
Court that defendants had failed to comply with the May 22
order.
By letter order dated June 13, 2013 (ECF No. 121), the
Court asked plaintiff’s counsel to specifically identify
remaining discovery deficiencies and instructed defendants’
counsel “to carefully review my past letter orders and the
plaintiff’s counsel’s complaint regarding lack of compliance
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[and warned that] [c]ontinued failure to respond completely may
result in additional sanctions, up to and including entry of
default judgment on any claims negatively affected by the
failure of discovery.”
(Id.)
The Court held a hearing on June 24 and found continued
failure to satisfactorily answer certain interrogatories,
notably interrogatory nos. 4 (all employees), 8 (selection of
recipients of mailed advertisements), 10 (internet website
consultant), 11 (list and information regarding persons
answering calls of recipients of mailed advertisements), 14
(recordings and transcripts of calls); and certain requests for
documents nos. 5 and 6 (all drafts of advertisements), 7
(contracts with Marketing Smart, Register.com and other
vendors), and 10 (scripts, training materials, etc.); and found
continued failure to provide the ordered affidavit statements on
the universe of advertisements and drafts, an adequate address
for Marketing Smart to allow service of subpoena and lists of
recipients, associated with specific advertisements and an
attestation that lists are the universe of persons who received
advertisements. (A list of recipients was first produced
literally during the discovery hearing on June 24).
In its July 3, 2013 letter memorandum and order the Court
allowed that the defendants could “still cure the [noted]
deficiencies, which may lessen the sanction.
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However, the Court
has determined to award additional attorney’s fees (as set forth
by plaintiff’s counsel in ECF No. 123 and to which defendant has
not responded).
Consideration of any further sanctions awaits
briefing.” (ECF No. 140).
As directed, First Mariner filed a Motion for Sanctions on
July 15, providing authority for the extraordinary relief that
its counsel sought in the June 24 hearing.
Specifically, First
Mariner seeks an order
prohibiting defendants from asserting the defense of
“absolute privilege”
prohibiting defendants from asserting the defamatory
statements at issue are true
entering an adverse inference against defendants that
they are not legitimately offering legal services, but
rather operating what the FTC has called a “Mortgage
Reduction scam”
prohibiting defendants from offering evidence
rebutting plaintiff’s costs for corrective advertising
awarding First Mariner its attorney’s fees incurred as
a result of defendants’ failures
The Court shall discuss the nature of defendants’ discovery
misconduct, the governing law of sanctions and the appropriate
relief for that misconduct.
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Attorney’s Fees
The Court grants First Mariner an award of its documented
attorney’s fees of $20,721.00,1 as of August 19, 2013 and an
additional $2500.00 for the additional work performed
thereafter, including preparation of the history (ECF No. 156-1)
in response to the Court’s request.2
This total award of
$23,221.00 shall be against the defendants and their prior
attorneys, Eric T. Kirk, John L. Calhoun and the firm of Kandel
and Associates, PA, jointly and severally.
It is clear to the
Court that counsel did not discharge their responsibilities
under the discovery rules.
However, it is also clear to the
Court that the client defendants were uncooperative.
The Court
has reviewed plaintiff’s statement of attorney’s fees, including
the hourly rates charged and the description of work performed
and finds the requested fees reasonable and necessarily incurred
by defendants’ obstreperous discovery conduct and failures.
Defendants state that “they have cured all deficiencies listed
in the July 3 order by their supplemental discovery responses
1
Defendants question including in the award $3610 of time expended in
reviewing defendants’ discovery as First Mariner counsel would have had to
expend this time in the normal course, regardless of any discovery dispute.
Defendants do not give the record citation for this time expenditure and the
Court does not see any entry. See (ECF No. 142-2). Accordingly, any
reduction is denied.
2
If defendants wish to challenge this amount, they should advise the Court by
November 1, and plaintiff’s counsel shall be required to submit
contemporaneous records for all work after August 19, 2013 by November 15.
The Court suspects that plaintiff’s actual fees incurred were greater than
$2,500.00
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served on plaintiff on July 31, 2013” and accordingly, that that
compliance, albeit belated, should result in a lesser attorney’s
fee award.
(ECF No. 143, 5).
The Court agrees that defendants’
July 31, August 19 and September 9, 2013 submissions produced
some, new substantive information in response to the December
2012 discovery requests and the Court’s repeated orders.
That
fact does not forgive defendants’ prior discovery obfuscation
and certainly does not negate plaintiff’s expense in getting
this belated compliance.
Accordingly, defendants’ belated
submissions provide no basis for a reduction in the $20,721.00
in documented, reasonable attorney’s fees, incurred through
August 19, 2013, and the additional $2,500.00 in fees incurred
to fully frame and present the defendants’ non-compliance to the
Court.
Other Sanctions
First Mariner seeks sanctions beyond an award of expenses.
The Court agrees that additional sanctions are warranted.
As First Mariner notes, the determination of these
additional sanctions involves a calculus of weighing the extent
of prejudice and the degree of culpability.
Victor Stanley,
Inc. v. Creative Pipe, Inc. 269 F.R.D. 497, 533 (D. Md. 2010).
The degree of culpability here is great.
The extent of
prejudice is less clear, and requires greater analysis and
consideration.
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Courts have broad discretion to impose punitive
measures on any party who fails to obey a discovery order.
Fed
R. Civ. P. 37(b)(2)(B); Mut. Fed. Sav. & Loan Ass'n v. Richards
& Assocs., 872 F.2d 88, 92 (4th Cir. 1989); 8B Charles Alan
Wright, et al., Federal Practice & Procedure § 2289 (3d ed.
2010).
It is generally recognized that Rule 37 sanctions are
intended to: (1) penalize culpable parties; (2) deter others
from engaging in similar conduct; (3) compensate the Court and
other parties for expense caused, and (4) compel discovery.
Gregory P. Joseph, Sanctions: The Federal Law of Litigation
Abuse, § 49 (2013)(citing Carlucci v. Piper Aircraft Corp., 775
F.2d 1440, 1453 (11th Cir. 1985)).
As such, Rule 37 sanctions
are both punitive and remedial, and may be used to discourage
bad behavior and make the aggrieved party whole.
Courts in the Fourth Circuit must consider four factors in
determining what sanctions to impose: (1) whether the noncomplying party acted in bad faith; (2) the amount of prejudice
that noncompliance caused the adversary; (3) the need for
deterrence of the particular sort of non-compliance; and (4)
whether less drastic sanctions would have been effective.
Southern States Rack & Fixture, Inc. v. Sherwin-Williams Co.,
318 F.3d 592, 597 (4th Cir. 2003).
The presence or absence of
any one of these factors is generally not decisive: “[t]he
harshest of sanctions” may be imposed “when . . . culpability is
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minimally present, if there is a considerable showing of
prejudice, or, alternatively, the prejudice is minimal but the
culpability is great.”
Victor Stanley, Inc. v. Creative Pipe,
Inc., 269 F.R.D. 497, 533 (D. Md. 2010).
Ultimately, a court
must “make whatever disposition is just in the light of the
facts of the particular case.”
Bethesda Softworks LLC v.
Interplay Entm't Corp., No. 09-2357, 2011 U.S. Dist. LEXIS 44397
(D. Md. Apr. 25, 2011)(citations omitted).
Defendants’ discovery conduct will be discussed and then
each of the four factors will be discussed in turn, in light of
defendants’ conduct.
First Mariner served the subject written discovery on
December 2012.
The Court held three hearings on April 10, May
21, and July 3 and specifically identified the deficiencies at
each juncture.
The Court warned of sanctions, in addition to an expense
award, on numerous occasions both in writing (ECF Nos. 87, 97.
105, 121 and 140) and verbally in hearings.
Small improvements would be made to one discovery request
one day; another improvement to another discovery request,
another day.
Rather than provide complete answers, which would
very possibly reveal the stark facts of RLG’s operations, the
defendants chose to stonewall, obfuscate and finally provided
marginally satisfactory answers to the majority of discovery
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requests.
It took six months for defendants to provide any list
of recipients of the mailed advertisements, and when finally
produced, the lists were not associated with any particular
mailing.
After several iterations and more coaxing, defendants
have produced an answer as to how they selected the targeted
recipients – sufficient at least to allow intelligent, focused
questioning at depositions.
Defendants’ seriatim answers would be comical, if they were
not truly defiant of the ordered and essential precepts of
discovery and resolution of disputes in our civil justice
system.
At the Court’s request, plaintiff compiled a
chronological history of defendants’ responses to key
interrogatories and requests for production of documents.
No. 156-1).
(ECF
Even with defendants’ minor supplementation and
correction (ECF No. 159), it is a damning record of defendants’
contempt for the rules of procedure and the orders of the Court.
For example, in answer to interrogatory no. 4 (“Identify
each person employed by RLG since the date of its incorporation
to the present, describe the positions held by each person, and
state the commencement and termination dates of each person’s
employment by RLG”)3,
on January 31, defendants objected without
3
Plaintiff’s interrogatories expressly state that “[w]hen referring to a
person, to “identify” means to state the person’s full name, present or last
known address, and, when referring to a natural person, additionally, the
present or last known place of employment. If the business and home
telephone numbers are known to the answering party, and if the person is not
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providing any substantive information; on March 4, defendants
objected again without providing any substantive information but
stating that “RLG experiences significant turnover and employees
at a relevant time, may no longer be employed, and that current
employees. . . may not have been employed at a relevant time;”
on May 1, defendants named four people as RLG’s “full time”
employees without identifying information (but, the
interrogatory was not limited to “full time employees”); on June
6, defendants again named the same four people, but advised that
there were unidentified “independent contractors” who provide
services; on August 2, defendants identified three new employees
(all present employees, with the possible exception of Nancy
Torres for whom no dates of employment are given at all).
The initial objections were baseless.
Moreover, the
various answers are inconsistent, raising serious credibility
questions.
In their March 4 answer, defendants raise an excuse
for failing to answer that there is “significant employee
turnover”, but in subsequent answers, defendants failed to
identify a single past employee.
Given this answer on March 4,
it seems fair to conclude that defendants either lied in their
March 4 answer that there was significant employee turnover or
a party or present employee of a party, said telephone numbers shall be
provided.” (ECF No. 158-1, 4).
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they are still refusing to identify past employees, in the three
further answers.
Similarly, in answer to interrogatory no. 11 (“Identify
each person responsible for answering, or who answered,
telephone calls responding to the . . . advertisement[s], and
describe the educational and professional background of each
such person, as well as any training received by each such
person in connection with RLG advertisements, client
solicitation and marketing, and the lawsuit filed by RLG
against, inter alia, Plaintiff as referred to by RLG in its
motions to dismiss”), on January 31, defendants objected without
providing any substantive information; on March 4, defendants
said that “ Steve Wood” was the “employee handling Mr.
Callahan’s call [a First Mariner caller]” and stated that Mr.
Wood was not given any training in client solicitation and
marketing but did receive some information and training;4 on May
1, defendants gave two names of persons responsible for
answering the telephones, who were said to have received
“extensive training from R. Geoffrey Broderick;” on May 21,
another person was named as answering the phone; on June 6, the
three previous names were reiterated; on August 2, defendants
listed twenty-three “independent contractors who performed
4
While Mr. Wood was identified as an “employee,” he was never listed as an
employee in answer to interrogatory No. 4, although he was listed later as an
independent contractor in another interrogatory answer.
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services for RLG (but who are not employees of RLG), primarily
the answering of intake calls to RLG.”
In their July 31, 2013
submission, defendants did belatedly give some contact
information for certain previously listed employees and did list
certain independent contractors who answered the telephone (ECF
No. 149-1, 7-10).
(Notably, the defendants did not provide
requested telephone numbers (ECF No. 158-1, 4)).
However, thereafter First Mariner submitted evidence of six
other individuals who appear to have been employed or engaged by
RLG, but were not listed by defendants.
As First Mariner noted,
one of these listed employees – Michael Harper has been
identified variously as RLG’s “Compliance Manager” and “Intake
Coordinator” – a key person who would be expected to have much
information relevant to RLG’s operations.
In a sur-reply (ECF
No. 154, 4), defendants acknowledged that these six persons were
not previously listed but were “either left off by mistake or
omitted for legitimate reasons.”
Given the defendants’ prior
discovery tactics, the Court appreciates – if not shares – the
plaintiff’s skepticism that four of these names were omitted by
mistake.
In any event, the July 31 supplementation was not only
late but shown to still be incomplete.
In answer to the crucial interrogatory no. 8 (“Describe the
process(es) by and the manner in which you selected recipients
of . . . advertisement[s], and describe the means through which
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each recipient’s mailing address was obtained by you or on your
behalf”), on January 31, defendants objected without providing
any substantive information; on March 4, defendants answered “a
third party marketing firm was contacted about disseminating a
given mail piece to e.g., individuals in a specific geographic
area, or other specified criteria, e.g. the response rate or
performance of prior similar mailings or mailings to a similar
geographic area.
The criterion utilized to select the class of
recipients was an informed determination as to which class of
recipients was likely to generate the most responses;” on May 1,
defendants said that “the advertisement was mailed to people
identified and selected by Marketing Smart.
Mailing addresses
were obtained by Marketing Smart from public records;” on June
6, defendants essentially repeated their March 1 answer; on
August 2, defendants gave a fuller but not complete answer that
RLG identified certain, unnamed “banks” and certain “general
geographic areas” and Marketing Smart performed a search of
unidentified “public records” to compile a list of persons who
had a mortgage loan from one of the banks in the general
geographical area.
On September 6, 2013, the defendants further
supplemented their answer to this interrogatory;
“[c]ertain banks were selected based on public
accusations or findings of wrongdoing identified
in the press or other public outlets. There was
no special formula or source for selection – only
that a bank’s name appeared in public as having
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been found, charged or investigated in connection
with wrongdoing in the residential mortgage
business,
including
unlawful
race-based
discrimination.
This was how First Mariner was
selected – accusations of wrongdoing by First
Mariner in connection with residential mortgages
appeared in the media, including, but not
limited, a 2009 FDIC “Cease and Desist” Order
entered against First Mariner with respect to
unlawful and discriminatory mortgage practices.
(A copy of the FDIC Order has already been
produced to Plaintiff).
I have no recollection
of a specific publication or source in first
learning about First Mariner’s actions, but it
was based on public sources. Further responding,
the geographic area for selected recipients was
based on the size of the bank and where it
primarily did business. If the bank in question
was a national bank, then the geographic area
would usually be nationwide.
If the bank in
question was a regional bank, like First Mariner,
then the geographic area would usually be the
relevant region.” (ECF No. 154, 7-8)
With this answer, defendants have now given plaintiff a better
idea than from the first five answers.
However, while it is
still incomplete, it is arguably sufficient to allow
intelligent, focused questions on deposition.
On other key aspects of RLG’s operations, defendants
engaged in the same discovery tomfoolery.
Defendants resisted
producing the list of the recipients of mailed advertisements,
stating on January 31, incredibly, that “RLG does not have
information regarding intended recipients of the advertisements,
and doesn’t believe that such information exists” and on March 4
that “RLG does not believe that third party marketing firm has a
listing of intended recipients.”
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However, on June 24, literally
in the middle of a discovery hearing, defendants produced a
list, but without association with particular mailings.
Similarly, defendants engaged in delay and half measures in
responding to the key discovery inquiry as to the production of
all advertisements, including blank or draft.
My April 19 order stated that “in order to assure that
plaintiff has received all disseminated advertisements or drafts
of same, including “blank” drafts, Mr. Ian Berger of RLG, the
designated 30(b)(6) deponent, shall submit an affidavit
attaching all advertisements, explaining and attesting to the
fact that these represent the universe of advertisements and
drafts.”
Instead, Mr. Berger’s affidavit simply stated: “I have
attached true and correct copies of the various iterations and
drafts of the subject mailer.
been provided with these.
versions.”
I believe the Court has already
To my knowledge, there are no other
He did not in fact “attach any such copies of the
various iterations and drafts of the subject mailer,” nor
“explain how these were the universe.”
Similarly, the
Berger/Broderick affidavit submitted on June 6, 2013 still
failed to attach all versions of the mailer, though the
affidavit attests to their attachment and failed to fully
“explain that these represented the universe.”
Thus, despite clear Court direction, Messrs. Berger and
Broderick gave thin and cryptic statements on the directed
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topics.
On the topic of universe of advertisements, including
drafts – blank or otherwise Mr. Berger variously responded, but
never responded as directed by the Court.
Defendants assert that Mr. Broderick’s affidavit on August
19, 2013 (“the ‘universe of ads and drafts’ in RLG’s possession
has been produced to Plaintiff”) completely responds to
plaintiff’s discovery and the Court’s orders.
The Court
disagrees.
My injunction to Mr. Berger was to provide an affidavit
statement “attesting to the fact that these [attached]
advertisements represent the universe of advertisements and
drafts” (ECF No. 87, 2) – not the universe of advertisements and
drafts in RLG’s possession.
The governing law – referred to in
at least one hearing – is that a party has an obligation to
produce not only information in its “possession,” but also
within its control.
Lynn v. Monarch Recovery Management, Inc.,
285 F.R.D. 350, 361 (D. Md. 2012).
(“[D]ocuments are considered
to be under a party’s control when that party has the right,
authority or practical ability to obtain the documents from a
non-party.”)
Defendants’ apparent failure to vigorously seek
advertisements and drafts not in their possession is especially
troublesome as defendants have failed to produce a viable
address for Marketing Smart – which company is highly likely to
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have advertisements and drafts as it did the mailings.
It
defies common sense in the age of computers that neither RLG nor
Marketing Smart have the advertisements.
Moreover, in the joint
Berger/Broderick affidavit dated June 6, 2013, it is represented
that “Broderick also conferred with staff at Marketing Smart in
order to ascertain whether there were additional iterations and
drafts of the subject mailer.”
(ECF No. 125-1).
Incredibly,
Mr. Broderick does not report the Marketing Smart staff response
in his affidavit, but states rather unusefully that “[t]o my
knowledge there are no other versions, but it is possible that
others exist.” (Id.).
Moreover, defendants’ position has been
they only have one address for Marketing Smart – an address that
plaintiff says is not viable for service of a subpoena.
Mr.
Berger said he had “tasked an internet search” to no avail for
further Marketing Smart addresses.
It is astounding that Mr.
Broderick as a customer of Marketing Smart could not obtain a
viable address.
It is more astounding that Mr. Broderick did
not get that viable address in his reported call with staff of
Marketing Smart.
This discovery misconduct counsels imposition of strong
sanctions under the Fourth Circuit’s four factor test.
First,
the history of defendants’ discovery misconduct overwhelmingly
demonstrates the defendants’ bad faith. (Factor 1) Defendants
deny that there is any evidence of “bad faith,” stating that
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“there has never been a question whether defendants raised
objections they believed were legitimate.” (ECF No. 143,3).
To
the contrary, the Court found in ruling on the first motion to
compel that “there was no substantive justification for
defendants’ discovery failures,” and awarded fees (ECF No. 87).
Thereafter, the Court never indicated, or in any way, credited
the bona fides of defendants’ continued failure to respond
completely to First Mariner’s discovery demands. Defendants
stonewalled, obfuscated and doled out small bits of responsive
information, over six months.
The need for deterrence is great for this type of noncompliance.
(Factor 3) Courts must discourage this modus
operandus in the discharge of discovery responsibilities.
The
Court and plaintiff’s counsel spent – wasted – enormous time
coaxing proper responses from defendants – an especially
egregious situation in that the defendants are a law firm and a
lawyer.
And, as to factor 4, quite obviously, the previous monetary
sanction of an award of expenses was ineffective.
The Court
made an award of expenses on April 19 as a result of First
Mariner’s first motion to compel and throughout the remaining
period of the discovery dispute repeatedly found deficiencies
and repeatedly warned of more severe sanctions if deficiencies
remained uncorrected.
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The harder question involves the final factor: the nature
and extent of prejudice that First Mariner suffered and suffers
by defendants’ discovery misconduct, and the appropriate relief
for that prejudice.5
First Mariner argues that defendants
refused to provide even the most basic information with respect
to its denial of operating a scam and its “privilege” and
“truth” defenses. (ECF No. 142-1, 4).
The Court largely agrees.
RLG has resisted providing discovery on its operations,
including identifying all its personnel, their credentials and
training, scripts and instructions provided to intake personnel
and recordings and transcripts of calls to RLG from recipients
of mailed advertisements.
Notably, defendants still do not
appear to have provided names of past employees, having earlier
complained of the burdensomeness of this interrogatory, as there
was great turnover and large number of employees.
Obviously
past employees can be critical sources of candid information
5
Rule 37 provides a nonexclusive range of sanctions. The most severe is
dismissal or default judgment. Hathcock v. Navistar Int'l Transp. Corp., 53
F.3d 36, 40 (4th Cir. S.C. 1995). Slightly lower in the continuum are
preclusion orders, recognized as “strong sanctions, although not as drastic
as dismissals or defaults.”5 Gregory P. Joseph, Sanctions: The Federal Law of
Litigation Abuse, § 49 (2013). As such, courts have set a high bar for
parties seeking preclusion. Some decisions have focused on the curative
nature of the sanction: recent district court opinions in the Fourth Circuit
have declined to grant requests for preclusion absent a strong showing of
prejudice. See Bethesda, at *18-19 (D. Md. Apr. 25, 2011)(preclusion
“typically requires some strong evidence of prejudice”); Hastings v. OneWest
Bank, No. 10-3375, 2013 U.S. Dist. LEXIS 52331 at *10-11 (D. Md. Apr. 11,
2013)(same); see also Life Techs. Corp. v. Biosearch Techs., Inc., No. C-1200852, 2012 U.S. Dist. LEXIS 63974, 37-38 (N.D. Cal. May 7, 2012)(“ When a
court excludes evidence under Rule 37, the Court should do so only where
there is a finding of prejudice to the nonoffending party.”).
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about operations.
Moreover, while defendant did eventually
provide a more complete list of persons who answered the
telephone, the defendants did not provide those persons
telephone numbers as the interrogatory requested.
158-1, 4).
See (ECF No.
As in the case of past employees, independent
contractors – past or present – may be a source of valuable
information to plaintiff.
Accordingly, the defendants shall
provide these telephone numbers by November 6; otherwise, the
Court shall add this failure to the jury instruction on
defendants’ discovery conduct.
While defendants did provide some scripts and instructions,
they seem incomplete, astoundingly without any discussion of
fees, for example.
Obviously, if RLG is not a legitimate law
firm with the personnel and resources to prosecute a case of
this type against a large bank, the falsity of the
advertisements become apparent.
Similarly, RLG has resisted for
months providing information about its business, including the
vendors which provided marketing and internet services.
Those
vendors (and related documents) could provide valuable insight
into the nature of RLG’s operations.
Amazingly, RLG vigorously
resisted providing the criteria for targeting specific Maryland
customers of First Mariner as possible victims of First Mariner
wrongdoing. If RLG figuratively took names “out of a phone
book,” it undermines the case. Obviously, if RLG did not have a
23
basis to file a bona fide lawsuit on behalf of the specific
recipients to which the advertisements were mailed, First
Mariner’s false advertising claim is strengthened and RLG’s
absolute privilege defense, vitiated.
The defendants finally
relented to some extent providing a better description of its
criteria for mailing.
These discovery failures and tactics, plaintiff argues
severely prejudiced its prosecution of its case.
The Court
agrees that plaintiff was prejudiced by defendants’ misconduct.
That prejudice, coupled especially by defendants’ stunning
culpability, compels imposition of a stiff sanction, not only to
level the litigation playing field and punish the defendants,
but to also send a clear signal that such behavior is wholly
unacceptable in our courts.
Two types of prejudice result from discovery abuses.
The
first is procedural prejudice resulting from delay.
Evasiveness, delay and obfuscation may hinder the opposing
party’s ability to develop their case.
Bethesda Softworks LLC
v. Interplay Entm't Corp., 2011 U.S. Dist. LEXIS 44397 (D. Md.
Apr. 25, 2011)(“Indefinite delay, disruption of deadlines, and
the continuation of discovery can amount to prejudice”).
Here,
for an example, First Mariner postponed the 30(b)(6) deposition
First Mariner planned for March, as it wanted, quite
understandably, to have its written discovery – especially
24
documents before the deposition.
This discovery “dispute”
diverted First Mariner from the prosecution of the case, to
unnecessary side issues, and obviously “bought time” for the
defendants.
Courts have recognized that this piecemeal, less than
complete and slow production takes a toll and inflicts a
disadvantage on the requesting party.
Aerodyne Systems
Engineering, Ltd v. Heritage International Bank, 115 F.R.D. 281,
288 (D. Md. 1987). Seasoned practitioners and judges recognize
this “death by a thousand cuts” approach to legitimate discovery
requests.
It is wearing, counter-productive, wholly
unacceptable and sanctionable.
Prejudice thus is not simply the evidentiary disadvantage
that lack of discovery imposes in proving or defending specific
claims.
The Court believes that a sanction can be imposed
beyond attorney’s fees even if the requested discovery was
largely, ultimately provided, as here for the many of the
discovery requests.
Greater specificity on selection of targets
of mailed advertisements has now been wrung out of defendants.
Defendants, finally but belatedly, provided lists of actual
recipients of mailed advertisements, though unassociated with
particular mailings.
These failures (and the arduous attempts
to obtain the key discovery) have indeed prejudiced First
Mariner in its litigation, in several ways and requires
25
imposition of significant sanctions.
While an attorney’s fee
award can address the “out of pocket” cost of unnecessary
motions’ practice to obtain discovery, there is delay and
disruption that is real, if not wholly quantifiable, impeding
the efficient, orderly and prompt resolution of a case.
The second type of prejudice is substantive.
If a party
refuses to produce requested evidence despite a court order, its
opponent is obviously hindered in its ability to prosecute a
claim or present evidence at trial.
While substantive prejudice to the movant is an important
aspect of a Rule 37 analysis, it is generally not required for
stronger sanctions, such as preclusion orders.
Courts have
ordered preclusion, even in the absence of prejudice, in cases
where the non-movant is particularly culpable.
The Court of
Appeals for the District of Columbia has upheld an order
precluding evidence where defendant, “in a remarkable pattern of
delay and obfuscation,” had “resisted the discovery of specified
financial records, computer disks and other information.”
Jankins v. TDC Management Corp., 21 F.3d 436, 444 (D.C. Cir.
1994).
Although the trial was ultimately delayed, minimizing
prejudice to plaintiff, the Court found that the order barring
defendant from introducing evidence at trial was appropriate
given defendants’ “willful misconduct, and the purpose of
sanctions as a penalty and to deter misconduct by others.” Id.
26
Similarly, in Wachtel v. Health Net, Inc., 239 F.R.D. 81, 106
(D.N.J. 2006), the Court excluded 20,000 pages of late-produced
documents from trial.
While acknowledging that the aggrieved
party could potentially remedy any prejudice before the trial
date, the Court found that in cases involving a “persistent
pattern of delay and obfuscation” a preclusion sanction was
proper.
Id.
The prejudice in this case is more procedural than
substantive, with the important exceptions of the denial of
information regarding Marketing Smart and the lack of the
identification of past employees. Defendants, after significant
delay, ultimately produced much of the other discovery requested
by plaintiff or swore that it did not exist.
While defendants’
untimely production was certainly less than complete, plaintiff
has not been entirely denied the means with which to present its
case.
On the other hand, defendants are clearly culpable.
Defendants have sidestepped plaintiff’s requests, ignored orders
of the Court, and delayed proceedings.
At every opportunity,
defendants have obscured rather than clarified in their answers
to plaintiff.
This pattern of misconduct is certainly deserving
of sanction – indeed demanding of sanction.
However, the question before the Court is whether, in the
absence of significant substantive prejudice, plaintiff has met
the high bar necessary for sanctions as strong as it has
27
requested.
foul.”
Essentially, defendants’ position is “no harm, no
They seem to argue that they have now provided the
discovery requested in December 2012, and aside from paying some
attorney’s fees, the defendants should not be subject to any
punishment or disadvantage in the defense of this case in any
way.
Given that the defendants eventually produced much of the
requested discovery or swore that it did not exist (though
sometimes with questionable credibility), the sanctions that
plaintiff seeks, including entry of an adverse inference, loss
of the affirmative defense of “absolute privilege” and a bar
from asserting the truthfulness of the advertisements may seem
too severe.
On the other hand, as long as a party can “fix” its
discovery deficiencies without real penalty, there would seem to
be no meaningful deterrence to this type of conduct.
As stated earlier, Rule 37 sanctions properly have remedial
and punitive ends.
Here, the remedial end of Rule 37 is served
in part by the award of attorney’s fees reimbursing plaintiff
for its attorney’s fees incurred unnecessarily to obtain
legitimate discovery.
However, the award of attorney’s fees
does not fully put Humpty Dumpty back together again – as
defendants’ discovery failures have clearly delayed and
complicated the prosecution of the case and perhaps more
importantly, represent a bold mockery of the rules of fair play
embodied in the Federal Rules of Civil Procedure.
28
The comments
of the late, distinguished Judge Murnaghan upholding entry of a
default judgment for similar discovery misconduct are apt.
“Even though the defendants may have made efforts
to comply, the attempts were lastditch and only
offered when it became crystal clear that they
were going to lose the case unless they did
something. Entrance of default judgment [is] an
unmistakable message to them and others that the
judicial
system
will
not
tolerate
repeated
misconduct never wholly remedied in the future.
To find otherwise would be to send the opposite
message that the Court may be pushed, ignored and
defied to the outermost limits so long as the
noncomplying
party
has
even
an
inadequate
fallback act ready in the wings should the final
curtain be falling.”
Mut. Fed. Sav. & Loan Ass'n v. Richards & Associates, Inc., 872
F.2d 88, 94 (4th Cir. 1989).
Accordingly, in recognition of
defendants’ belated production of much of the requested
discovery, the Court has not imposed the severest of available
sanctions – default judgment or preclusion of evidence nor even
the lesser sanctions requested by plaintiff, in all instances.
However, the Court has concluded that the only effective remedy
– and deterrent – here is to adversely affect the defendants’
position in the litigation.
The Court shall discuss what this conclusion means in terms
of the specific relief plaintiff seeks.
Request for an Order Prohibiting Defendants
from Asserting the Defense of “Absolute Privilege.”
The parties agree that Maryland Law recognizes an absolute
privilege for defamatory matter published by an attorney during,
29
or prior to, a judicial proceeding in which he is engaged.
Arundel Corp. v. Green, 75 Md. App. 77, 82-83 (1998).
Defendants contend that the statements in the advertisements are
accordingly absolutely privileged.
First Mariner argues that “[d]efendants’ willful failures
to comply with the Court’s discovery orders are intended to
deprive First Mariner the opportunity to contest defendants’
Absolute Privilege defense.”
The Court agrees, particularly as
it relates to the statements made prior to institution of a
lawsuit to which privilege applies “only when the communication
has some relation to a proceeding that is contemplated in good
faith under serious consideration.”
Id. at 84.
If defendants
deprive First Mariner of the ability to investigate and test the
facts of RLG’s operations, (is it a legitimate law firm or a
money-making scam), it cannot challenge, for example,
defendants’ bald assertion that the advertisements had some
“relation to a proceeding that is contemplated in good faith
under serious consideration.”
Defendants’ discovery misconduct
– delay, obfuscation and ultimately marginally satisfactory
responses to most, but not all, discovery requests, was aimed at
hampering First Mariner from contesting RLG’s absolute privilege
defense.
While this is certainly culpable behavior, it is also
important to note that defendants eventually provided much,
30
though not all, of the information plaintiff needs to challenge
the absolute privilege.
In light of this production, the Court
finds that striking the privilege defense entirely is too severe
a sanction.
On the other hand, the Court also finds that a mere
imposition fees is an insufficient penalty for behavior clearly
calculated to deprive plaintiff of the facts of the RLG
operations.
The Court finds that the most appropriate sanction in this
unique case is an instruction to the jury informing them of this
misconduct, as set out in the accompanying order.
This middle-
ground solution follows that adopted by the court in
Network
Computing Services Corp. v. Cisco Systems, Inc. 223 F.R.D. 392,
400-401 (D.S.C. 2004).
There, plaintiff delayed production of
material documents for several months, despite several motions
to compel and court orders.
Id. at 396-399.
Although there was
no great prejudice as a result of the delay, the district court
found that in light of plaintiff’s repeated dilatory tactics a
monetary sanction was insufficient.
Id. at 399.
Instead, the
court opted to inform the jury of the misconduct.
Id.
The
court noted that this “moderate approach” was “especially
appropriate in those rare cases where there has been clear and
sanctionable conduct by one of the parties.”
Id. at 400.
Like in Network, this is a rare case of clear and repeated
sanctionable conduct on the part of defendants.
31
Without the
continual efforts of plaintiff to pry relevant information from
defendants, they would have not have received sufficient
information to contest defendant’s privilege defense.
The most
appropriate sanction for defendants’ conduct is to bring it to
light in front of the jury, whose members may make consider it
along with all other evidence at trial.
Request for an Order Entering an Adverse Inference Against
Defendants that they are not Legitimately Offering Legal
Services, but Rather Operating that the FTC has called a
“Mortgage Reduction Scam.”
First Mariner argues that “[d]efendants . . . have made it
impossible to develop facts proving that [they] are operating on
a scam rather than offering bona fide legal services,” refusing
to identify its employees and information on Marketing Smart and
vendors and website consultant.
Defendants’ discovery failures,
especially the lack of complete information on past employees
and information on Marketing Smart, significantly handcuff First
Mariner in its proof of RLG as a scam operation.
Employees,
vendors or other consultants would ordinarily provide invaluable
“third party” information.
Defendants’ failure to provide a
valid address for Marketing Smart to allow a subpoena even
though defendants acknowledge contact with Marketing Smart as
recently as June, is a major impediment for plaintiff in its
case.
Communications between Marketing Smart and RLG, including
drafts regarding the advertisements, might be highly probative.
32
It is not enough that First Mariner will have the opportunity to
depose Messrs. Broderick and Berger as 30(b)(6) representatives.
Counsel must be able to come at key factual issues “sideways,”
not be limited to wresting testimony from only the defendants
themselves.
In considering an appropriate sanction for this behavior,
the analysis in Stanphill v. Health Care Serv. Corp., a case
which bears some similarity to the facts at hand, is
instructive.
2008).
2008 U.S. Dist. LEXIS 43878 (W.D. Okla. June 3,
There, defendants’ production came more than a year
after plaintiff’s request, but before the trial date.
*22-23.
Id. at
Noting that the failure limited plaintiff’s ability to
effectively conduct depositions, the court determined that
sanctions beyond fees were warranted.
The court declined,
however, to grant plaintiff’s request for “an order designating
its version of the documents as true and requiring the jury to
draw inferences favorable to [plaintiff] as a result of the
delay.”
Id. at *24.
Noting that the “proposed sanctions would
turn the Court into the fact-finder with substitution of its
judgment for that of the jury,” the court found that a mandatory
inference was improper.
Id. at *23.
Instead, the court ordered
a “permissible inference,” instructing the jury “that it can
draw inferences adverse to the Defendant based on its failure to
timely supplement its document production.”
33
Id.
Plaintiff’s adverse inference request goes to the very
heart of plaintiff’s case.
While this sanction may have been
appropriate if material evidence was destroyed or entirely
withheld, here defendants have produced sufficient information
to allow the plaintiff to engage in further investigation and
discovery by deposition and to allow the jury to reach their own
conclusion on this central issue.
As such, as in Stanphill, the
Court declines to grant the requested sanction wholesale.
Defendants’ conduct is, however, worthy of consideration by
the jury.
Defendants’ pattern of delay and intransigence during
discovery is relevant evidence.
The jury should therefore
consider defendants’ late and incomplete production, in
conjunction with all other evidence presented, in drawing its
conclusions, and is instructed that it may draw a negative
inference from the failure to produce information on Marketing
Smart and past employees.
Request for an Order Prohibiting Defendants from Asserting the
Defamation Statements at Issue are True.
First Mariner also claims that defendants’ “willful
discovery failures have prevented [it] from exploring the
context of the advertisements,” and ask that the Court prohibit
defendants from asserting that their statements in the
advertisements are true. (ECF No. 142-1, 9).
34
The Court agrees that defendants’ discovery failures have
hindered First Mariner’s ability to fully disprove the veracity
of the statements when made.
For example, the scripts for
intake might shed light on defendants’ “inten[tion] to file a
claim against . . . First Mariner Bank aimed at improper lender
actions” or contradict the advertisement’s assertion that there
is an “investigation of potentially fraudulent mortgage note.”
(Compare ECF No. 1-2, 1).
Or the scripts might reveal the
nature of the investigation.
Past employees, again, may provide
useful information.
It is not enough to say that First Mariner can depose the
defendants on these subjects.
Seasoned practitioners know that
documents are essential in directing and identifying areas of
inquiry and frankly keeping deponents “honest.”
However, until
it can be determined that there are transcripts and that there
are additional scripts, for example, which are being withheld,
the Court has determined that this requested sanction is too
severe.
If more information is elicited, further supporting the
inference that defendants are withholding transcripts or scripts
which are of high probative value, the Court would consider
entry of an adverse inference or a rebuttable presumption that
the defamatory statements are not true.
At this point, the
Court finds the lack of significant instructions and the
haphazardness of the scripts, notably without mention of fees,
35
to be highly suspect and suggestive of the withholding of
damaging documents.
The Court also finds the equivocation and
confusion over the existence of transcripts suspect.
It is very
common – indeed almost standard – for a recording to be made of
such intake or customer calls.
defendants on these suspicions.
But the Court will not sanction
However, at this point the
Court shall impose a penalty insofar as the lack of any
identification of any past employees and the failure to provide
viable information about Marketing Smart to allow at a minimum,
service of a subpoena duces tecum.
While the Court declines to grant the requested sanction,
it again finds, in line with the reasoning supra, that
defendants’ discovery conduct is relevant evidence for the jury.
As such, while defendants’ actions do not justify instructing
the jury that there is an adverse inference, as earlier
indicated the jury shall be instructed that they may make such
an inference, in the absence of information on past employees
and Marketing Smart, that their testimony would be adverse to
the defendants.
Request for an Order Prohibiting Defendants from Offering
Evidence Rebutting Plaintiff’s Costs for Corrective Advertising.
Since the defendants have identified a per piece cost of
the mailed advertisements, this gives the plaintiff the basis
for corrective advertising costs.
36
However, because defendants have failed to identify and
itemize the advertising cost information for the mailed
advertisements, the Court agrees that defendants should be
restricted in their presentation of evidence on the point.
However, an order prohibiting defendants from offering any
evidence rebutting plaintiff’s costs for corrective advertising
is too severe.
But, the defendants may not present any evidence
on the itemized costs, as was requested but never provided.
They may only present the basic per piece cost that they
provided in discovery. Compare PBM Products, Inc. v. Mead
Johnson & Co., 174 F. Supp. 2d 417, 420-1 (E.D. Va 2001).
A separate order shall be filed to accompany this
Memorandum Opinion.
Date:
_10/24/13__
/s/
Susan K. Gauvey
United States Magistrate Judge
37
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