Fundamental Administrative Services, LLC v. Anderson

Filing 171

MEMORANDUM AND ORDER Finding that Defendant Kristi Anderson's failure to comply with the preliminary injunction constituted contempt of this Court's order; Finding that FAS was damaged by Anderson's contempt in the amount of $28,662.00; Directing Anderson to remit $28,662.00 to FAS's outside counsel, Linda S. Woolf, Esq.. Signed by Judge James K. Bredar on 4/1/2015. (nd2s, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

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FUNDAMENTAL

ADMIN. SERVS., LLC,

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Plaintiff

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v.

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KRIST! ANDERSON,

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Defendant

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CIVIL NO. JKB-13-170S

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MEMORANDUM

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AND ORDER

I. Background
This case arose from Plaintiff Fundamental Administrative

Services ("FAS"), LLC's

concern that Defendant Kristi Anderson, former general counsel of FAS, was going to violate her
ethical and fiduciary obligations not to disclose FAS's privileged and confidential information
acquired by her during the course of her employment with FAS.

(Compl., ECF No. I; Mot.

Temporary Restraining Order ("TRO") and Preliminary Injunction, ECF No.2.)
granted a TRO (ECF No.5),

The Court

but later dissolved it and denied preliminary injunctive relief

because it believed FAS's concerns focused upon proceedings in the bankruptcy court of the
Middle District of Florida and because the Court concluded that determinations of privilege and
confidentiality

could and would be properly addressed in that court (Order 6/14/2013, ECF

No. 13).
Roughly three months later, FAS came back to the Court with another motion for a TRO
and a preliminary injunction, asserting a fresh violation of Anderson's duties to FAS based upon
her filing a complaint against FAS in Maryland state court, which revealed much privileged and

confidential information.

(ECF No. 28.)

entered a preliminary injunction.

The Court granted the TRO and, after a hearing,

(ECF Nos. 32, 41.) One of the provisions of the injunction

mandated the following:
Defendant SHALL RETURN to FAS any document, whether in electronic or
paper form, that Defendant obtained through her employment and representation
of FAS and that is in her or her counsel's possession, custody, or control,
EXCEPT FOR any document that pertains to Defendant's compensation or other
benefit while employed with FAS.
(10/10/2013 Prelim. Inj. 4, '1[5.)
Shortly thereafter, Anderson filed a motion to alter or amend the preliminary injunction
or, alternatively, for its clarification.
of the injunction.

(ECF No. 45.) Anderson did not, however, move for a stay

In her motion brought pursuant to Federal Rule of Civil Procedure 59(e),

Anderson asserted she was entitled to keep copies of all the documents in her possession because
she had been FAS's in-house counsel, and she further asserted she was entitled to withhold
certain unspecified documents on the basis of privilege and/or work product.

She did not,

concurrently with her limited production to FAS or with her Rule 59(e) motion, provide either to
FAS or to the Court a privilege log that would permit determination of the legitimacy of her
claim. Instead, she asserted she had a right to claim as her work product any FAS document that
she had "culled" and retained in anticipation of litigation against FAS.
In three different productions
4,586 pages of documents

in November and December 2013, Anderson provided

to FAS, withholding

an unspecified

number

of unidentified

documents. (Pl.'s Mot. Order Show Cause 2.) In a "supplemental" Rule 59(e) motion, Anderson
stated, "The only documents
handwritten notes."

not otherwise

in FAS' possession

and control include her

(Def.'s Supp. Mot. Mem. 3, ECF No. 63.) Further, Anderson stated she

"ha[ d] in her possession ...

several copies of documents that she retained during the course of

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her employment at FAS that she retained specifically in anticipation of potential future litigation
with FAS."

(Id. 2, "if 5.) Briefing on Anderson's

motions continued into March 2014 (ECF

Nos. 55, 61, 63, 65, 66, 70, 71, 75, 78, 82, 83, 85), during which time FAS believed it had
received at least copies of most of the documents in Anderson's possession (Pl.'s Mot. Order
Show Cause 3).
But based on Anderson's

sudden production

on March 21, 2014, in the Florida

bankruptcy proceeding of 31 ,000 additional pages, FAS filed its motion for an order to Anderson
to show cause why she should not be held in contempt of the preliminary injunction (Mot. Order
Show Cause 4-5), which the Court granted (ECF No. 122). It was necessary to postpone the
contempt hearing twice, with the Court convening for this purpose on March 26 and 27,2015.

II. Standard for Civil Contempt
A movant for civil contempt is required to establish by clear and convincing evidence the
following four elements:
(I) the existence of a valid decree of which the alleged contemnor had actual or
constructive knowledge; (2) ... that the decree was in the movant's "favor"; (3) ...
that the alleged contemnor by its conduct violated the terms of the decree, and had
knowledge (at least constructive knowledge) of such violations; and (4) ... that
[the] movant suffered harm as a result.
In re Grand Jury Subpoena (F-I12), 597 F.3d 189,202 (4th Cir. 2010) (alterations in original).
Courts may impose sanctions for civil contempt '''to coerce obedience to a court order or
to compensate the complainant for losses sustained as a result of the contumacy.'''

In re General

Motors Corp., 61 F.3d 256, 258 (4th Cir. 1995) (GM Corp. 1) (quoting Connolly v. JT
851 F.2d 930, 932 (7th Cir. 1988)).

Ventures,

Civil contempt remedies must have a compensatory

remedial purpose. GM Corp. I, 61 F.3d at 259.

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or

Willfulness is not an element of contempt.
the third element.

Innocent or good faith noncompliance meets

McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949); McLean v.

Central States, Southeast and Southwest Areas Pension Fund, 762 F.2d 1204, 1210 (4th Cir.
1985); Brinn v. Tidewater Transp. Dist. Comm'n, 113 F. Supp. 2d 935, 940 (E.D. Va. 2000),

qlf'd, 242 F.3d 227 (4th Cir. 2001).
If the movant carries its burden of proof as to the four elements of civil contempt, then its
burden of proof as to damages is by the preponderance of the evidence.

In re General Motors

Corp., 110 F.3d 1003, 1018 (4th Cir. 1997) (GM Corp. II). Also, the movant need not prove that
its damages were solely caused by the behavior constituting contempt. "It is a common principle
of tort law that where more than one action or party each was a contributing cause of subsequent
damage, liability may be imposed on the wrongdoer if the intervening acts or final result were
foreseeable to the wrongdoer."

Id. (citing West/arm Associates Ltd. Partnership v. Washington

Suburban Sanitary Comm 'n, 66 F.3d 669, 687-88 (4th Cir. 1995) (interpreting Maryland law».
Attorney's fees and litigation costs can be damages.

See GM Corp. I, 61 F.3d at 259.

Therefore, if FAS makes its case on the elements of contempt, then FAS's attorney's fees and
litigation costs other than as to the instant motion and its related proceedings may be awardable
as damages.

But the attorney's

fees incurred in litigating the issue of contempt cannot be

awarded unless (1) the court finds the contempt amounted to willful disobedience and (2) the
fees and costs claimed were "reasonably
compliance."

and necessarily incurred in the attempt to enforce

Wagner v. Bd. of Ed. of Montgomery Cnty., 340 F. Supp. 2d 603, 620 (D. Md.

2004). "'A contemnor's refusal to comply with a court order must rise to the level of obstinacy,
obduracy or recalcitrance

to satisfy the "willful disobedience"

Supreme Court in Alyeska and Fleischmann.'"

standard enunciated by the

Id. (citations omitted) (referring to Alyeska

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Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 258 (1975), and Fleischmann
Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967».

III. Analysis
At the hearing, the Court received testimony and exhibits, and it heard argument from
counsel for FAS, counsel for Anderson, and counsel for Steven N. Leitess, Esq., former counsel
to Anderson.

During the hearing, the Court concluded that Mr. Leitess and his firm, Leitess

Friedberg, P .C., were not in contempt of the preliminary injunction. That conclusion was a close
call.
Mr. Leitess, who was serving as Anderson's counsel when the preliminary injunction was
issued, was subject to its command to return to FAS any documents in his possession, custody,
or control. He testified, though, he satisfied himself that the documents Anderson was producing
to FAS were the same as the documents in his possession, and after being so satisfied, he
destroyed the documents in his possession.

The Court appreciates that technology can present

challenges in document production, but Mr. Leitess's decision, although seemingly pragmatic,
prevents FAS from knowing with certainty that the destroyed documents were in fact duplicates.
The better course of action would have been to follow strictly the dictates of the injunction and
provide all of the documents to FAS even if it meant providing duplicates; after doing so, a
consultation with FAS on the technical aspects of the destruction of the documents in Mr.
Leitess's files would have been in order before destroying them.
Also, Mr. Leitess testified he did not know the additional 31,000 pages of documents
existed until mid-March 2014 when Anderson called him to say she had found them. Her lack of
compliance as to those documents, to be addressed infra, was not shown to be attributable to
him. Applying the standards for judging contempt, the Court concludes that FAS has not proven

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by clear and convincing evidence that Mr. Leitess violated the provision in the preliminary
injunction cited by FAS in its motion for order to show cause.
In contrast, the Court concludes that FAS has met its burden of showing Anderson's
noncompliance with the preliminary injunction and its lesser burden of quantifying damages.
The existence of the court order-the
order are undisputed.

preliminary injunction-and

Anderson's knowledge of the

She has disputed that she knew she was violating the injunction as well as

whether FAS sustained any compensable damage. As stated at the hearing, FAS's complaint of
noncompliance

was based upon three intertwined events:

31,000 pages (the "thumb-drive

documents");

(I) Anderson's

tardy return of the

(2) her return of documents but retention of

copies, as well as her withholding of documents on privilege and work-product theories without
provision of a privilege log, despite FAS's request for one; and (3) her assertion of work product
protection for the entire 31,000 pages produced precipitously in Florida while contending they
could not be used to satisfy the Maryland preliminary injunction. The 31,000 pages resided on a
USB thumb-drive that Anderson said she unexpectedly found in mid-March 2014 in her home
office.
Preliminarily, the Court reiterates Anderson did not move to stay the injunction.

Federal

Rule of Civil Procedure 62(a) states, "[U]nless the court orders otherwise, the following are not
stayed after being entered, even if an appeal is taken: (1) an interlocutory or final judgment in an
action for an injunction ....

" Instead, she filed a motion to alter or amend judgment under

Rule 59(e) (and later filed a supplemental motion to amend). (ECF Nos. 45, 63.) The court has
discretion to stay an injunction pending disposition of a Rule 59(e) motion, see Fed. R. Civ. P.
62(b )(3), but Anderson never asked for that form of relief. Thus, Anderson was not relieved of
her responsibility to comply with the injunction.

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As for the tardy return of the 31,000 pages, FAS's first stated ground of contempt, the
circumstances

surrounding

Anderson's

finding the thumb-drive

establish that she had the requisite knowledge of their location.

in her home office clearly
She testified she searched her

home office in the Fall of 2013, after issuance of the preliminary injunction, for documents
responsive to the mandate.

She also testified that it was common in her work as FAS general

counsel to use multiple thumb-drives to carry documents when she traveled on business.

The

thumb-drive in question, unlike others she shared with other FAS personnel, was used by her
alone. Anderson conceded that the only way in which the thumb-drive would have existed in her
home was for her to have brought it home with her. No one else would have brought it to her
home and put it in her home office. She said that it apparently fell into a box of personal effects
in her home office where she had various boxes of FAS items as well as boxes of personal
effects. In the Fall of 2013, she only looked in the FAS boxes for documents.

It was only when

she was cleaning and organizing her home office in preparation for starting a new career that she
looked in the box of personal effects and found the thumb-drive.

This was at the same time that

she was making a more in-depth search of her home office for documents responsive to the
Florida bankruptcy court's order of production.
The case of United States v. Darwin Constr. Co., Inc., 873 F.2d 750 (4th Cir. 1989),
provides guidance for resolution of the issue of Anderson's
order.

lack of compliance with a court

There, a corporation ordered to produce documents responsive to an Internal Revenue

Service summons, and ultimately a court order, belatedly did so. Darwin made one production
and then made another production after a more thorough search. Id at 752. The district court
concluded that Darwin had not taken all reasonable steps to comply with the order, and the
Fourth Circuit agreed.

Id at 755.

The successful second search proved that the documents

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produced in the second batch "'were locatable with some effort"'; Darwin '''was required to
make that effort.'"

Id. at 753 (quoting district court's order finding Darwin in contempt).

thumb-drive was locatable in Anderson's

home office with some effort.

The

She was required to

make that effort. Her failure to do so constituted noncompliance with the preliminary injunction.
Regarding

the second stated ground for contempt, the retention of copies and the

withholding of documents without provision of a privilege log, the Court also finds Anderson's
engaging in those acts amounted to contempt.

The injunction's mandate required her to return

"any document" and did not direct or allow her to retain copies. Her retention of copies of FAS
documents, in the absence of a stay, was done at her peril and constitutes contempt of the
injunction.

Equally so, the withholding of unidentified documents on the basis of privilege and

work product without concurrent provision to FAS of a privilege log also amounts to contempt.
Tellingly, Anderson's reply on her supplemental motion to amend asserted,
It is commonplace for a Court to issue an Order regarding the production of
documents without specifically excepting documents subject to protection based
on the attorney/client privilege, work product protection or some other recognized
privilege. Generally, existing recognized privileges operate as the backdrop of
any order requiring production.
(Def.'s Reply 2, ECF No. 71.)
This Court agrees that "[g]enerally,
backdrop of any order requiring production."

existing recognized

privileges

operate as the

Of course, the injunction did not require Anderson

to produce documents but to return documents she was not entitled to possess after being
discharged by FAS. Nonetheless, even accepting her analogy, it is also commonplace for a party
who is required to produce documents to provide a privilege log identifying which documents
the party seeks to withhold from production.

But Anderson did not follow that commonplace

procedure and refused to provide a privilege log until after the Court issued a supplemental order

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May 1,2014 (ECF No. 97), ordering her to provide a privilege log within ten days of the Court's
order. The Court would be faced with materially different circumstances if she had followed the
usual procedure of providing a privilege log to FAS in the Fall of2013.

The argument in front of

the Court would then have been about whether specific documents may legitimately be withheld
and not returned. Anderson's failure to provide any privilege log while withholding unidentified
documents constitutes contempt of the injunction.
The third ground for contempt was stated by FAS as Anderson's assertion that all 31,000
pages of the thumb-drive documents were her work product.
This is analyzed at greater length in the Court's May 1,2014,

Her assertion defies rationality.
order (ECF No. 97), but it is

sufficient to say here that her claiming that FAS documents-which

were not created by

Anderson and were taken by Anderson without FAS's blessing-were

her work product for

litigation she anticipated having against FAS is utterly without merit; indeed, the Court deems
her argument on this point to have been asserted without a good-faith basis.
Furthermore, Anderson's

testimony at the hearing was not entirely consistent with her

filings in this case. Throughout the litigation following the entry of the preliminary injunction,
Anderson contended she selected and retained the documents in her (former) possession out of
the universe of FAS documents and did so in anticipation of her litigation against FAS, and she,
in effect, argued those documents were transformed into her work product when she took them.
(See Def.'s Supp. Mot. Amend 2-3, ECF No. 63; Def.'s Supp. Mot. Amend. Mem. 3, 10-11, ECF
No. 63-2; Def.'s Reply 12, ECF No. 71.) Yet, at the hearing, even though she acknowledged she
had asserted work-product protection over the thumb-drive documents produced in Florida, she
testified she intended to leave the thumb-drive
inconsistency highlights the implausibility

at FAS when she was terminated.

of her claim to work-product

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This

protection for FAS

documents. If she intended not to take the documents when she left FAS, then her argument that
they were really her work product when she unexpectedly found them is even more preposterous
than her original argument, especially when she admitted on the witness stand that she did not
review the thumb-drive documents for work-product status.
On these multiple grounds, the Court finds by clear and convincing evidence that
Anderson knowingly violated the injunction's mandate that she return "any document" to FAS.
Further, the Court received clear and convincing evidence at the hearing to show that FAS was
damaged

when additional

documents.

litigation was necessitated

by Anderson's

failure to return the

Thus, the four elements of civil contempt have been established.

However, the

Court finds that the record evidence does not clearly and convincingly show willful disobedience
by Anderson.

Consequently, FAS's attorney's fees and costs of litigating the issue of contempt

are not awardable. The Court now addresses the specific items of damage claimed by FAS.
The largest single item of damages claimed is FAS's legal work in relation to Anderson's
two Rule 59(e) motions. This legal work would have been unnecessary had Anderson complied
with the injunction.

Anderson's own acknowledgement

of the well-understood role of privilege

and work-product claims in document production undercuts her refusal to provide a privilege
log. As earlier noted, this would be a different case as to contempt had she taken this step. Any
litigation resulting from a timely privilege log would have been narrowly focused, unlike the
wide-ranging motions actually filed.

The amount billed to FAS by its counsel on these two

motions was $22,427, and the Court finds that this amount was reasonable and necessary.

The

Court notes that, during the hearing, it indicated it was considering reducing that amount based
upon the Court's May I, 2014, order requiring Anderson to provide a privilege log. However,

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after reflection, Anderson's

belated privilege log does not merit mitigation of any part of the

amount claimed on the Rule 59(e) motions. The full amount will be allowed.
Also claimed by FAS as an item of damages was FAS's opposition in the Florida
bankruptcy court to the trustee's motion to overrule privilege objections and compel production
by Anderson ofFAS documents. Had Anderson timely returned FAS's documents in accordance
with the preliminary injunction, she would have had no documents in her possession to produce
in Florida.

She brought that possibility to the Florida bankruptcy court's attention when she

stated in her response to the motion, "A substantial amount of the documents directly relate to
the matters before this Court. If the U.S. District Court [for the District of Maryland] compels
Ms. Anderson to surrender all documents that she selected for her defense and her claims, this
Court's efforts to facilitate complete discovery will be defeated."

(Pl.'s Ex. 26.)

The Court

infers she was urging the Florida bankruptcy court to require production of documents from her
before this Court reached the merits of her Rule 59( e) motions, which had no legal effect on her
duty to comply with the preliminary injunction.

FAS spent $2,300 in opposing this motion and

the Court concludes the amount spent was reasonable and necessary.
Next, FAS spent $237 for communications

with its outside counsel about the issue of

Anderson's retention of documents in violation of the preliminary injunction.

The Court fmds

this charge was reasonable and necessary.
Further, FAS spent $1,655 for its communications back and forth with Maryland outside
counsel after the surprise production of the thumb-drive documents March 21, 2014. Also, FAS
filed an emergency motion for continuance of the Florida bankruptcy court's planned March 28

in camera examination

of the documents

produced by Anderson,

given the unexpectedly

voluminous production and the need to review each one for potential objections; FAS spent

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$1,268 for Florida outside counsel and $775 for Maryland outside counsel in connection with
this motion. The Court finds these charges were reasonable and necessary.
Finally, FAS claimed $500 for counsel's review of the certificates of compliance filed by
Anderson and Stacey Moffet, Esq. (Anderson's

counsel) and eventually filed by Steven N.

Leitess, Esq. (Anderson's former counsel). The certificates from Anderson and Ms. Moffet were
not ordered by the Court. The one filed by Mr. Leitess was required by the May 1,2014, order.
The Court does not consider this charge to be necessitated by Anderson's noncompliance with
the preliminary injunction.
In sum, the Court finds FAS sustained $28,662 in damages flowing from Anderson's
contempt.

The evidence presented at the hearing shows that the amounts billed to FAS by

outside counsel were reasonable.

IV. Conclusion
The Court finds by clear and convincing evidence that Defendant Kristi Anderson's
failure to comply with the preliminary injunction (ECF No. 41) constituted contempt of this
Court's order.
amount

of

FORTHWITH

Further, the Court finds FAS was damaged by Anderson's

$28,662.

Accordingly,

IT

IS

HEREBY

ORDERED,

contempt in the

Anderson

SHALL

REMIT $28,662.00 to FAS's outside counsel, Linda S. Woolf, Esq., Goodell

DeVries Leech and Dann LLP, One South Street, 20th Floor, Baltimore, Maryland 21202.

DATED this __ I_day

of April, 2015.

BY THE COURT:

O__
-~.13~
James K. Bredar
United States District Judge
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