Firneno v. Nationwide Marketing Services, Inc. et al

Filing 73

OPINION and ORDER Denying 66 MOTION to Dismiss, Granting 63 Renewed MOTION to Enforce Discovery, Imposing Rule 37 Sanctions, and Appointing Discovery Master. Signed by District Judge Stephen J. Murphy, III. (DPar)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JODY FIRNENO and CHRISTOPHER
FRANKE,
Case No. 2:14-cv-10104
Plaintiffs,
HONORABLE STEPHEN J. MURPHY, III
v.
MAGISTRATE R. STEVEN WHALEN
NATIONWIDE MARKETING SERVICES,
INC., et al.,
Defendants.
/
OPINION AND ORDER DENYING MOTION TO DISMISS [66],
GRANTING RENEWED MOTION TO ENFORCE DISCOVERY [63],
IMPOSING RULE 37 SANCTIONS, AND APPOINTING DISCOVERY MASTER
Plaintiffs Jody Firneno and Christopher Franke allege that Defendants Nationwide
Marketing Services, Inc. ("Natimark"), Leon Saja, and other corporate officers of Natimark
(collectively, "Defendants") violated the Fair Credit Reporting Act, 15 U.S.C. § 1681b, by
selling and/or providing consumer lists to third parties containing their private financial
information. Compl., ECF No. 1. Before the Court are Defendants' motion to dismiss and
Plaintiffs' renewed motion to enforce discovery. On December 6, 2016, the Court held a
hearing on both motions. For the following reasons, the Court will deny Defendants' motion,
grant Plaintiffs' motion, impose sanctions, and appoint a Discovery Master.
BACKGROUND
I.

Non-Economic Damages
In their complaint, Plaintiffs allege that they and the class members "have suffered

an unwarranted invasion of privacy and violation of their rights under the FCRA." See
Compl. ¶¶ 39, 46, 56, 70, 79, ECF No. 1. They later stipulated to the with-prejudice
dismissal of "actual and non-economic damages arising out of emotional and mental

distress, including but not limited to: worry, anxiety, fear of identity theft, embarrassment,
humiliation and mortification, among others." See ECF Nos. 51, 72. On September 27,
2016, Defendants filed a motion to dismiss the case under Rule 12(b)(1) for lack of subject
matter jurisdiction in light of the Supreme Court's recent decision in Spokeo v. Robins, 136
S. Ct. 1540 (2016). ECF No. 66.
II.

Discovery Issues
On November 6, 2015, the Court appointed Daniel Sharkey as Discovery Master. He

submitted a Report and Recommendation regarding the Plaintiffs' motions to compel
discovery, Plaintiffs timely objected to the Report, and the Court issued an order rejecting
Plaintiffs' objections and adopting the Report. Pursuant to that order, Defendants had 14
days to produce specified documents and answers to interrogatories. See Order 4, ECF
No. 50; Report 11–12, ECF No. 39. They failed to comply.
Three weeks after the order issued, Plaintiffs filed a motion to enforce disclosure of
the discovery required by the Court's order, and for appropriate discretionary relief under
Civil Rule 37(b)(2). ECF No. 52. On July 14, 2016, the Court found that Defendants failure
to comply with the Court's Order was not substantially justified, and ordered Defendants
to pay the Plaintiffs' reasonable expenses, including attorney fees, incurred in filing the
motion. The Court also stated that "any further failure to cooperate with the progression of
the case or to comply with an order of the Court will be treated as conduct tantamount to
bad faith, and will result in harsher sanctions under Civil Rule 37, up to and including the
Court's issuance of a default judgment against the Defendants." Order 2, ECF No. 56.
On September 14, 2016, Plaintiffs filed a renewed motion to enforce discovery, and
for Rule 37(b) sanctions due to Defendants' alleged continued noncompliance with the
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Court's orders. Mot., ECF No. 63.
STANDARD OF REVIEW
A party may seek dismissal of an action by challenging subject matter jurisdiction
under Rule 12(b)(1), at which point the plaintiff bears the burden of proving jurisdiction.
Madison–Hughes v. Shalala, 80 F.3d 1121, 1130 (6th Cir. 1996). A challenge to standing
addresses a court's subject matter jurisdiction. Kepley v. Lanz, 715 F.3d 969, 972 (6th Cir.
2013). A district court may "resolve factual disputes when necessary to resolve challenges
to subject matter jurisdiction." Id. Rule 12(b)(1) motions fall into two general categories:
facial attacks and factual attacks. United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994).
A facial attack goes to whether the plaintiff has properly alleged a basis for subject matter
jurisdiction, and the trial court takes the allegations of the complaint as true. Ohio Nat'l Life
Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990). A factual attack challenges the
factual existence of subject matter jurisdiction. No presumption of truth applies to the
factual allegations, and the court can weigh the evidence to determine its power to hear the
case. Ritchie, 15 F.3d at 598.
DISCUSSION
I.

Defendants' Motion to Dismiss
Defendants argue that Plaintiffs lack standing in light of the Supreme Court's recent

decision in Spokeo Inc. v. Robins, 136 S. Ct. 1540 (2016), a case that addressed a
standing issue relevant to the instant matter — namely, whether Plaintiffs have clearly
alleged facts to show that they have suffered a concrete "injury in fact." Mot. Dism., ECF
No. 66.
Article III standing "is a doctrine rooted in the traditional understanding of a case or
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controversy." Spokeo, 136 S. Ct. at 1547. As the party invoking federal jurisdiction, a
plaintiff must clearly allege facts demonstrating that he has "(1) suffered an injury in fact,
(2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely
to be redressed by a favorable judicial decision." Id. (citing Lujan v. Defenders of Wildlife,
504 U.S. 555, 560–61 (1992)).
Injury in fact, the "first and foremost" of standing's three elements, is a "constitutional
requirement . . . that Congress cannot erase . . . by statutorily granting the right to sue to
a plaintiff who would not otherwise have standing." Id. at 1547–48 (citations and internal
quotation marks omitted). A plaintiff must establish an injury in fact by showing that he
suffered "'an invasion of a legally protected interest' that is 'concrete and particularized' and
'actual or imminent, not conjectural or hypothetical.'" Id. at 1548 (quoting Lujan, 504 U.S.
at 560). "Particularization is necessary to establish injury in fact, but it is not sufficient. An
injury must also be 'concrete,'" which is to say the injury "must actually exist." Id.
In Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702 (6th Cir. 2009), the Sixth Circuit
reasoned that "Congress has the power to create new legal rights, [including] right[s] of
action whose only injury-in-fact involves the violation of that statutory right," and thus held
that the Fair Credit Reporting Act (FCRA) "permits a recovery when there are no
identifiable or measurable actual damages." 579 F.3d at 705–06. But in Spokeo, the
Supreme Court clarified that although
Congress may elevat[e] to the status of legally cognizable injuries concrete,
de facto injuries that were previously inadequate in law . . . Congress' role in
identifying and elevating intangible harms does not mean that a plaintiff
automatically satisfies the injury-in-fact requirement whenever a statute
grants a person a statutory right and purports to authorize that person to sue
to vindicate that right. Article III standing requires a concrete injury even in
the context of a statutory violation. For that reason, [a plaintiff] could not, for
example, allege a bare procedural violation, divorced from any concrete
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harm, and satisfy the injury-in-fact requirement of Article III.
Spokeo, 136 S. Ct. at 1549 (citations and internal quotation marks omitted). Since "[a]
violation of one of the FCRA's procedural requirements may result in no harm," id. at 1550,
courts must determine whether Plaintiffs suffered actual harm apart from the alleged
statutory violation, or "whether the particular procedural violations alleged in this case entail
a degree of risk sufficient to meet the concreteness requirement." Id.
Defendants argue that Plaintiffs cannot articulate the sufficient degree of risk to meet
the concreteness requirement of Article III standing. In support, Defendants note that
Plaintiffs merely "allege that they received three advertisements in the mail, which they may
have shown to their spouses and attorneys," and point to Plaintiffs' with-prejudice dismissal
of "any claims for damages that could be arguably connected to alleged injuries arising
from the generally alleged 'invasion of privacy.'" Mot. Dism. 8–9, ECF No. 66 (citing Firneno
Dep. 11:27–29, ECF No. 66-3 and Franke Dep. 37, ECF No. 66-4).
Plaintiffs contend that the Defendants caused concrete and particularized harm by
illegally accessing Plaintiffs' consumer reports and invading their privacy by actually
obtaining "private financial information, including credit and FICO scores, the amount of
debt, and addresses and the last four digits of the social security numbers of thousands of
consumers." Resp. 6–7, 10, ECF No. 68.
Numerous district courts have applied Spokeo and reached different conclusions as
to whether an alleged invasion of privacy allegation satisfies the injury-in-fact concreteness
requirement. The analysis in Burke v. Fed. Nat'l Mortgage Ass'n is particularly persuasive.
No. 3:16CV153-HEH, 2016 WL 4249496 (E.D. Va. Aug. 9, 2016). In Burke, as here, a
plaintiff alleged that her privacy was invaded when the defendant obtained her credit report

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without a permissible purpose in violation of 15 U.S.C. § 1681b(f). Id. Judge Hudson
reasoned that
[t]he FCRA was meant to protect the interest of privacy. The portion of the
FCRA at issue here is clear that one's consumer report is not to be obtained
except for the limited purposes specifically provided by the statute. The
language and context of this provision seem to establish a statutory right to
privacy based in one's consumer report. As Spokeo counsels, this Court
must defer to history and the judgment of Congress in deciding whether the
alleged harm constitutes an injury-in-fact. In some sense, the right at issue
can appear procedural, as it is a mechanism intended to prevent further
harms. Yet, given the purposes, framework, and structure of the FCRA, the
right to privacy established by the statute appears to be more substantive
than procedural . . . Plaintiff's alleged violation of privacy is a concrete harm,
even if that harm does not lead to other, more tangible harms. Therefore, by
claiming that the Defendant obtained her consumer report without a lawful
purpose under the FCRA, Burke has pleaded a concrete harm.
Id. at *4. Like the plaintiff in Burke, Plaintiffs claim that Defendants unlawfully obtained their
credit and FICO scores, along with other private information. Like Burke, the Court finds
Plaintiffs have alleged a concrete harm — their right to privacy is "more substantive than
procedural." As a result, Plaintiffs' stipulated dismissal of any non-economic damages is
immaterial: Plaintiffs have standing for the invasion of privacy claim regardless of whether
they can collect non-economic damages. The Court will deny Defendants' motion.
II.

Renewed Motion to Enforce Discovery
There is no explanation for the discovery issues here other than the Defendants'

refusal to comply with the Court's discovery orders. A week after the Court issued the July
14, 2016 order enforcing its March 24, 2016 order, Plaintiffs' counsel conferred with
Defendants counsel and explained how the supplemental discovery responses failed to
comport with the Court's order adopting the Master's Report. Plaintiff provided a written
itemization detailing the deficiencies, and gave Defendants until August 8, 2016 to comply.
According to Plaintiffs, Defendants failed to meaningfully supplement their discovery
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responses and still continue to withhold information the Court ordered them to produce.
Specifically, Plaintiffs claim Defendants have failed to produce (1) unredacted consumer
lists (Production Requests # 8, 9 & 10); (2) the identity of the entity that sold them the lists
(Interrogatory # 4); (3) the complete chain of correspondence involving the sale of the lists
(Production Requests 3, 4 & 6); and (4) electronic records of emails with the Zero Debt
defendants and the data used to prepare letters to the class members.
Plaintiffs cite examples of Defendants' noncompliance, including objections and partial
or qualified responses. For instance, Defendants respond to a number of requests by
providing answers only "upon information and belief." See Interrog. 8–9, ECF No. 63-2;
Req. Prod. 3, 6, ECF No. 63-3. Also, Defendants' responses are incomplete and fail to
meet the substance of the requests. See Interrog. 4, 5, 7–9, ECF No. 63-2; Req. Prod.
21–23, 28–29, ECF No. 63-3. Plaintiffs illustrate by pointing to Requests for Production 41
and 42, and Interrogatory 4:
41. All documents preserved by you in response to the subpoena served
on you a copy of which is attached as Exhibit A.
Reply: Defendant has destroyed no documents, certainly since receiving
notification of this litigation. By and large, Defendant does not destroy
documents, in any event.
. . . 42. Each and every document involving, memorializing or relating to
any complaints, investigations, inquiries, reinvestigations, audits,
administrative proceedings, and civil or criminal actions regarding request
and/or receipt of consumer reports and/or consumer credit information at
any time.
Reply: Defendant has not been a party to litigation related to the sale of
consumer data other than these claims and the claims pending in Florida.
Upon information and belief, Plaintiffs are aware of and in possession of
that Complaint.
. . . 4. For any consumer list you accessed, used, or sold that included
data concerning either Plaintiff in the five years preceding the filing of the
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complaint, identify
a. the date on which you accessed the list;
b. the date on which you provided or sold the list;
c. the identity of the subscriber to whom you provided the list;
d. the permissible purpose certified to you by your subscriber;
e. the individual or entity from whom you obtained the data comprising
the list;
f. any certification you provided to the individual or entity from whom
you purchased the list and the person who made the certification.
Answer: Defendant has produced the invoices between Nationwide
Marketing and 1-800-Zero Debt. The data on the invoices does not
indicate exactly what was sold to 1-800-Zero Debt. At this point,
Defendant is able to confirm that a list was sent to Zero Debt on February
1, 2012 and March 19, 2012. Each time, Zero Debt confirmed that the
information would be used for a permissible purpose and that the list
would only be used on one occasion.
Mot. Enforce 8–11, ECF No. 63.
In response, Defendants do not contend that they have complied fully with the Court's
discovery orders. Instead, they argue the merits of the case, and claim that (1) they have
repeatedly reached out to Plaintiffs' counsel to discuss the responses, (2) they are
confused by Plaintiffs' assertion that they have continued to object to Plaintiffs' requests,
(3) Plaintiffs "have ample discovery" because they conducted a three-hour deposition of
one of the Defendants, Leon Saja, and (4) they are continuing to gather documents in order
to prepare supplemental discovery responses. Resp. 2–5, ECF No. 64.
None of those points remedy the fact that Defendants have had multiple opportunities
to fully comply with the Court's orders and have failed to do so. Instead of objecting to the
Discovery Master's report when it was issued back in December 2015, Defendants have

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engaged in delay tactics and willful noncompliance.
Civil Rule 37(b)(2) authorizes the Court to sanction behavior when a disobedient party
fails to show that noncompliance was substantially justified, or that an award of reasonable
expenses and fees would be unjust. Defendants have not provided adequate reasons for
the repeated noncompliance. In its earlier order, the Court warned them that "any further
failure to cooperate with the progression of the case or to comply with an order of the Court
will be treated as conduct tantamount to bad faith, and will result in harsher sanctions under
Civil Rule 37." The Court will issue those harsher sanctions now: (1) Defendants shall pay
the Plaintiffs' reasonable expenses, including attorney fees, incurred with the present
motion, see ECF Nos. 63, 67; (2) Defendants shall pay the Plaintiffs' reasonable expenses,
including attorney fees, incurred with the Plaintiffs' motions to compel filed on March 13,
2015, see ECF Nos. 25, 26, 30, 40, 44; (3) Defendants shall pay Plaintiffs' share of the
Discovery Master's fees and expenses associated with his appointment and resolution of
the earlier discovery issues through the report issued on December 10, 2015; and
(4) Defendants shall pay the entirety of the Discovery Master's fees and expenses
associated with his upcoming assessment of the discovery issues.
If the Defendants continue to defy the Court's orders, the Court will impose harsher
sanctions, including directing that certain designated facts be taken as established for
purposes of the action as to Plaintiffs' claims, prohibiting Defendants from supporting or
opposing designated claims or defenses, or from introducing designated matters in
evidence, and treating the noncompliance as contempt of the Court. See Fed. R. Civ. P.
37(b)(2).
III.

Discovery Master

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The re-appointment of attorney Daniel Sharkey as Discovery Master will promote
efficiency, conserve judicial resources, and expedite the ultimate resolution of the litigation.
Fed. R. Civ. P. 53. He is hereby re-appointed as Discovery Master under Civil Rule 53, and
is authorized and empowered to supervise, manage, and make recommendations to the
Court regarding the disposition of discovery disputes, the completion of discovery, and any
other discovery-related issues that arise. His earlier-filed affidavit satisfies Civil Rule
53(b)(3)(A).
On April 29, 2014, Plaintiffs filed a motion to certify class. On July 7, 2014, a
stipulated order was entered holding the motion in abeyance pending the completion of
discovery, and permitting Plaintiffs to "submit a supplemental memorandum of facts and
authorities and Defendants may submit its response." Stip. Or., ECF No. 20. A new briefing
schedule was to have been established following a scheduling conference, but after the
conference was held, a scheduling order was not entered. On August 13, 2014, the parties
submitted a Joint Discovery Plan and proposed the following dates:
As to Class Claims:
•
•
•
•
•
•
•

Fact discovery, including fact depositions:
Experts and expert reports:
Expert rebuttal reports:
Expert depositions:
Updated motion for class certification filed:
Response to updated motion filed:
Reply to Response filed:

8/15/15
5/15/15
6/15/15
7/15/15
8/15/15
9/15/15
10/9/15

As to Individual Actions:
•

Fact discovery:

8/15/15

Before discovery ended, Plaintiffs filed their motions to compel, the Court appointed
the Discovery Master, and Defendants delayed the proceedings. Now, the Discovery

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Master should (1) ascertain exactly how much of discovery has been completed,
(2) supervise the exchange of the remaining discovery, (3) detail the extent of Defendants'
noncompliance with discovery to date, (4) recommend specific Rule 37 sanctions in light
of that noncompliance, and (5) help the parties agree upon the following scheduling order
and briefing schedule for the updated motion to certify class:
As to Class Claims:
•
•
•
•
•

All remaining class discovery:
Updated motion to certify class filed:
Response to updated motion filed:
Reply to Response filed:
Dispositive motion deadline:

MM/DD/YY
MM/DD/YY
MM/DD/YY
MM/DD/YY
30 days after disposition of motion
to certify class

As to Individual Actions:
•

All remaining fact discovery:

MM/DD/YY

Because the renewed need of a Discovery Master is almost entirely Defendants' fault,
the Court will shift the cost of the Discovery Master's remaining work onto the Defendants.
The Discovery Master shall be compensated at his usual rate and reimbursed for
reasonable travel expenses. The fees and expenses of the Discovery Master shall be paid
entirely by the Defendants, subject to redistribution by the Court upon the recommendation
of the Discovery Master or in the discretion of the Court.
The Discovery Master's re-appointment shall become effective immediately, and the
parties shall schedule an initial meeting with the Discovery Master to take place no later
than January 27, 2017. If the parties cannot reach an agreement that leads to the
completion of discovery, the filing of a renewed motion to certify class, and a firm
scheduling order for the remainder of the case, the Discovery Master shall make
recommendations to the Court regarding the contested issues. The Discovery Master may
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conduct hearings and conferences with the parties in the manner and at the times and
locations he deems appropriate. If he so chooses, he may outline the details and
procedures governing the supervision and management of discovery in a further order, and
submit the order to the Court after consultation with counsel.
ORDER
WHEREFORE, it is hereby ORDERED that Defendants' Motion to Dismiss [66] is
DENIED.
IT IS FURTHER ORDERED that Plaintiffs' Renewed Motion to Enforce Discovery [63]
is GRANTED. The parties shall CONTACT the Discovery Master by January 13, 2017 and
schedule an initial meeting to take place no later than January 31, 2017.
IT IS FURTHER ORDERED that Plaintiffs have 14 days from the date of this order
to FILE an itemization of their reasonable fees and expenses identified for reimbursement
above.
SO ORDERED.
s/Stephen J. Murphy, III
STEPHEN J. MURPHY, III
United States District Judge
Dated: January 10, 2017
I hereby certify that a copy of the foregoing document was served upon the parties and/or
counsel of record on January 10, 2017, by electronic and/or ordinary mail.
s/David P. Parker
Case Manager

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