State Of New York v. Grand River Enterprises Six Nations, LTD. et al
Filing
225
DECISION AND ORDER. Plaintiff's motion (Dkt. 204) is GRANTED in part and DENIED in part; Defendants' Request to Amend the Scheduling Order (Dkt. 210, 211) is GRANTED; Defendants' motion (Dkt. 212) is GRANTED in part and DENIED in part. Signed by Hon. Leslie G. Foschio on 12/15/2020. (SDW)
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
____________________________________
STATE OF NEW YORK,
DECISION
and
ORDER
Plaintiff,
v.
GRAND RIVER ENTERPRISES SIX NATIONS, LTD.,
NATIVE WHOLESALE SUPPLY COMPANY, INC.,
14-CV-910A(F)
Defendants.
____________________________________
APPEARANCES:
LETITIA A. JAMES
New York State Attorney General
Attorney for the Plaintiff
LESLIEANN CACHOLA,
BRANT B. CAMPBELL,
CHRISTOPHER K. LEUNG,
JOHN P. OLESKE,
Assistant Attorneys General, of Counsel
120 Broadway
New York, New York 10271
FRIEDMAN KAPLAN SEILER & ADELMAN LLP
Attorneys for Defendant Grand River Enterprises
ERIC O. CORNGOLD,
JEFFREY R. WANG, of Counsel
7 Times Square, 27th Floor
New York, New York 10036
LIPPES MATHIAS WEXLER FRIEDMAN LLP
Attorneys for Defendant Native Wholesale Supply
SCOTT S. ALLEN,
MICHAEL G. ROSSETTI,
DENNIS C. VACCO, of Counsel
1400 Liberty Building
Buffalo, New York 14202
In this action Plaintiff seeks damages and injunctive relief based on Defendants’
alleged violations of federal and state law applicable to the possession, shipment and
sale of untaxed cigarettes in New York State, specifically the Contraband Cigarette
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Trafficking Act, 18 U.S.C. §§ 2341-2346 (“the CCTA”), the Prevent All Cigarette
Trafficking Act, 15 U.S.C. §§ 375-378 (“the PACT Act”), N.Y. Public Health Law § 1399ll, and N.Y. Tax law §§ 471, 480-b, and 1814. In the Third Amended Complaint (Dkt.
164) (“the TAC”) Plaintiff alleges Defendant Grand River (“GRE”) manufactures in
Ontario, Canada and transports large quantities of cigarettes without pre-payment of the
required New York State excise tax of $4.35 per pack ($43.50 per carton of 10 packs) to
Defendant Native Wholesale (“NWS”) which distributes the cigarettes to wholesalers or
retail outlets located on Indian reservations within New York State who in turn resell the
untaxed cigarettes to Indian and non-Indian retail purchasers, or GRE ships such
cigarettes to on-reservation distributors within New York State, as well as one in
Ontario, at NWS’s direction. The Scheduling Order, filed April 28, 2020, upon
consultation with the parties, required all document production was to be completed by
October 30, 2020 (Dkt. 177).
By papers filed October 9, 2020, Plaintiff moves to compel Defendants’
responses to Plaintiff’s discovery requests specifically Plaintiff’s First Set of Document
Production Requests and First Set of Interrogatories, and Plaintiff’s Second Set of
Document Production Requests and Second Set of Interrogatories (together “Plaintiff’s
discovery requests”) (Dkt. 204) (“Plaintiff’s motion”). Also before the court is
Defendants’ Motion to Compel filed October 23, 2020 (Dkt. 212) (“Defendants’ motion”)
seeking to compel document production pursuant to Defendants’ Requests for
Production of Documents served April 27, 2020 (Dkt. 209-2) and Defendants’ request to
modify the Scheduling Order (Dkt 177) to extend the period for document production by
90 days in response to the present coronavirus pandemic, supported by affidavits filed
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by Defendants on October 23, 2020 (Dkt. 210; 211) (“Defendants’ Request to Amend
the Scheduling Order”).
1.
Plaintiff’s Motion to Compel
Plaintiff’s discovery requests generally seek documents and information
pertaining to Defendants’ business organization, finances and commercial relationships
with respect to the manufacture and shipment by Defendants of untaxed cigarettes
primarily into Indian reservations located within New York State, particularly NWS’s
facility located in Perrysburg, New York, for the period 2010 to the present time.
Plaintiff also requests sanctions pursuant to Fed.R.Civ.P. 37(a)(5)(A). Dkt. 205 at 1. In
Defendants’ opposition, Defendants represent that Defendants intend to and will
produce all documents responsive to Plaintiff’s discovery requests at issue on Plaintiff’s
motion relevant to Plaintiff’s allegations in the TAC that Defendants’ activities regarding
the shipment of untaxed cigarettes into New York State, and to one location in Ontario,
and constitute a joint venture thereby imposing vicarious liability for violations of both
applicable federal and state law. See Dkt. 208 at 5.
Defendants also represent Defendants have been impeded in their ability to
search for and produce copies of the requested documents because of tribal and local
governmental restrictions on Defendants’ ability to conduct regular business activity in
both in Ontario (GRE) and New York State (NWS) imposed by tribal and governmental
authorities in response to the present coronavirus pandemic. Dkt. 208 at 8-9
(referencing affidavits of Ryean Warburton, GRE’s Chief Financial Officer, and Erlind
Hill, NWS’s manager. Dkts. 210; 211). Mr. Warburton’s affidavit describes greater
restrictions imposed by the Six Nations of the Grand River Reserve, where GRE is
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located, than those imposed by the Province of Ontario. Dkt. 210 ¶ 6. As a result,
according to Mr. Warburton, GRE was required to limit staffing for its normal on-site
manufacturing operations, including its ability to access GRE’s business records
necessary to comply with Plaintiff’s discovery requests, Dkt. 210 ¶¶ 12, 20, nor could
GRE employ third-parties to assist in performing such work or obtain on-site assistance
of counsel to engage in document review. Id. ¶ 21. GRE’s document production ability
was further hampered, as stated by Warburton, by a criminal computer hacking incident
which resulted in a loss of GRE records. Dkt. 210 ¶ 24. Mr. Hill, on behalf of NWS,
describes similar impediments to NWS’s timely compliance with Plaintiff’s discovery
requests based on restrictions imposed by New York State as well as the Seneca
Nation of Indians on whose reservation NWS’s business operation is located and
conducted. See Dkt. 211 (passim). Defendants also assert, in partial mitigation of
NWS’s failure to produce, Plaintiff has received considerable amounts of responsive
information such as NWS’s balance sheets and profit and loss statements including
records documenting GRE’s cigarette sales to NWS and NWS’s cigarette sales to other
Indian resellers of GRE cigarettes in New York, as detailed in NWS’s Monthly
Operational Reports filed in connection with NWS’s Chapter 11 proceeding in the
Bankruptcy Court of this district, beginning in November 2011 and continuing through
the recent termination of the proceeding in August 2020 from which, as Defendants
claim, responses to Plaintiff’s discovery request are ascertainable. 1 Dkt. 208 at 6.
Plaintiff strongly disputes Defendants’ rationale for non-production as set forth by
1
To cite an example of such information, Plaintiff states that according to these records, Defendants
shipped 40 million packs of untaxed GRE cigarettes into New York State between April and September
2020. Dkt. 218 ¶ 2.
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Messrs. Warburton and Hill. Specifically, Plaintiff contends that Defendants’ reliance on
tribal and governmental coronavirus-related barriers to justify Defendants’ failure to
provide by October 30, 2020, document production lacks credulity, Defendants proffer
no rationale for Defendants’ failure to serve sworn answers to Plaintiff’s interrogatory
requests in compliance with Fed.R.Civ.P. 33(b), particularly those interrogatories
seeking facts surrounding Defendants’ ownership and Defendants’ use of F.O.B.
shipping notations for shipments of the GRE cigarettes to NWS. Dkt. 215 at 2. More
particularly, Plaintiff argues current ownership information for NWS is necessary
because of NWS’s assertion that it is immune from suit by Plaintiff regarding Plaintiff’s
claims pursuant to the CCTA which precludes suit by a state against an Indian-owned
entity as provided in 18 U.S.C. § 2346(b)(1). Plaintiff notes that NWS’s answers to
Plaintiff’s Second Set of Interrogatories requesting such ownership information referred
only to one Arthur Montour, Jr., a Seneca Nation member as NWS’s owner, who has
been deceased for at least two years, according to Plaintiff, a fact not disputed by NWS
and Plaintiff therefore argues NWS has thus failed to identify current NWS’s ownership
since Mr. Montour expired in completely responding to Plaintiff’s interrogatories on this
issue.
In opposition to Defendants’ asserted inability to produce based on the asserted
restrictions stemming from the coronavirus, Plaintiff submits such excuse lacks
credibility and is unpersuasive as according to publicly available information GRE has,
despite the stated virus-related limitations imposed on general business activity in
Ontario, as well as Defendant’s respective Grand River tribal authority, maintained
cigarette production at its plant, Dkt. 215 at 4. As well, Plaintiff maintains NWS’s
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attorneys should have been able to assist in preparing NWS’s answers to Plaintiff’s
interrogatory requests and in obtaining responsive documents notwithstanding State
and tribal restrictions, similar to those affecting GRE in Ontario, intended to prevent
spreading the virus. Dkt. 215 at 4. Plaintiff also opposes Defendants’ contention that
Defendants’ document production obligations are satisfied by Plaintiff’s possession, as
an NWS creditor, of NWS’s Monthly Operational Reports filed in NWS’s Chapter 11
proceedings on the ground the Plaintiff is entitled to the underlying documents in order
to ascertain the “accuracy” of the information submitted by NWS in such monthly
reports. Dkt. 215 at 3. Finally, Plaintiff reiterates its demand that Defendants provide
personal contact information for witnesses identified in Defendants’ disclosure required
by Fed.R.Civ.P. 26(a). Id.
In further opposition to Defendants’ request for modification of the Scheduling
Order, Plaintiff’s supplemental briefing, filed October 30, 2020, contends Defendants’
request lacks a showing of good cause required by Fed.R.Civ.P. 16(b)(4). Dkt. 217 at
3-4. According to Plaintiff, Defendants’ affidavits asserting Defendants’ inability to
comply with the October 30, 2020 deadline for document discovery despite exercising
reasonable diligence are perjurious, Dkt. 217 at 4, because, despite Mr. Warburton’s
and Mr. Hill’s averments, Defendants have over the past five months continued to ship
and distribute untaxed cigarettes into New York State. According to Plaintiff, GRE has
since June 2020 fully resumed manufacturing cigarettes, has been hiring workers, and
its CEO was able to interact with GRE’s counsel in Ontario to ameliorate an intra-tribal
dispute between GRE’s CEO and another Grand River Nation member, Dkt. 218 ¶¶ 4-5,
arising from a large virus spreading social event hosted by GRE’s principal owner, Ken
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Hill, at a private venue. Id. ¶ 6 (attaching two color photographs). Plaintiff also asserts
that further delay in readying this case for disposition on the merits will severely
prejudice Plaintiff in that additional losses of $43.5 million in uncollected excise tax
revenue will be suffered by Plaintiff unless Defendants are enjoined from continuing
violations of applicable federal and state law. Id. ¶ 7.
Defendants counter, Dkt. 219, by pointing out that, contrary to Plaintiff’s
assertions, Defendants have timely served answers to Plaintiff’s interrogatories, Dkt.
219 at 4, 9, and the Defendants’ affidavits in support of Defendants’ request for
additional time to provide document discovery demonstrate that Defendants’ operations
staffing was much lower than normal with employees suitable for document production
tasks limited to off-site functions, Dkt. 218 at 8, see November 4, 2020 Supplemental
Affidavit of Ryean Warburton, Dkt. 220 ¶ 2 (representing GRE’s operations during the
past six months was limited to “skeleton staff”), and that such on-site staff lacked
capability to engage in document production required to respond to Plaintiff’s discovery
requests. Dkt. 220 ¶ 2 (describing such staff as maintenance workers and occupational
health personnel), and that more recently overall GRE staffing was only at 50-60% and
dedicated to production and manufacturing work, by personnel not suitable for litigationrelated work such as the document production as issue. Id. ¶ 3. Mr. Warburton also
describes the very recent increase in coronavirus cases in Southern Ontario as
foreshadowing added tribal and provincial restrictions the exact nature of which are
unforeseeable at present. Id. ¶¶ 4-5.
As regards Defendants’ failure to provide document discovery responsive to
Plaintiff’s First and Second Requests, it is basic that in responding to a request to
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produce documents pursuant to Fed.R.Civ.P. 34(a), a responding party is required to
engage in good-faith reasonable effort to identify and locate all responsive documents
subject to objections based on lack of relevance, overbreadth, undue burdensomeness
and privilege. See Guillory v. Skelly, 2014 WL 4542468, at * 10 (W.D.N.Y. Sept. 11,
2014) (citing Kenneth v. Nationwide Mutual Fire Ins. Co., 2007 WL 3533887, at * 15
(W.D.N.Y. Nov. 13, 2007)). Here, significantly, Defendants have committed to all of
Plaintiff’s document production requests provided such requests are limited to
“documents relating to the sales of [GRE] cigarettes to NWS,” Dkt. 208 at 5, within New
York State, and Defendants’ “distribution of such cigarettes to on-reservation
wholesalers,” Dkt. 208 at 11 (referencing TAC ¶¶ 55-65), thus conceding that, if so
limited, Plaintiff’s document requests seek relevant information and are not burdensome
or overly broad.
It is well-established that discovery requests which seek documents beyond the
“subject matter of the action” are irrelevant and should be precluded. Daval Steel
Prods. V. M/V Fakredine, 951 F.2d 1257, 1367 (2d Cir. 1991); Bishop v. County of
Suffolk, 248 F.Supp.3d 381, 391 (E.D.N.Y. 2017) (“[t]he locus of the line between
discovery reasonably calculated to lead to admissible evidence and the proverbial
fishing expedition is determined . . . by the allegations of the pleading”) (internal citation
and quotation marks omitted); Murphy v. Board of Education of the Rochester City
School District, 2000 WL 33945849, at * 1-2 (W.D.N.Y. Sept. 11, 2000) (rejecting in
large part plaintiff’s motion to compel seeking discovery “so impermissibly broad and
far-reaching that legitimate demands for relevant information and documents get lost in
the morass of inappropriate and irrelevant requests”). Here, Plaintiff’s document
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requests seek all of Defendants’ business records without limitation by specific
reference to the allegations in the TAC. See, e.g., Dkt. 206-11 (requesting “[a]ll of your
[GRE] financial records . . ..”). While the TAC does allege NWS distributes GRE
cigarettes throughout the United States including New York State, Dkt. 164 ¶ 9, a fair
reading of the TAC also reveals its key allegations are directed to Defendants’ activities
relating to the cigarettes produced by GRE in Ontario and shipped into New York State
by Defendants, in accordance with NWS’s directions, to which cigarettes Plaintiff
alleges the New York State excise tax is applicable. Accordingly, the court views the
subject matter of the TAC as limited to Defendants’ business organization, relationships,
finances, and operations only with respect to the delivery and distribution by Defendants
of GRE untaxed cigarettes within New York State in violation of the applicable federal
and state laws. However, Defendants’ commitment to provide such discovery, while
encouraging, is not a substitute for the actual production required by Rule 34(c) and
Defendants are therefore obligated to comply fully with Plaintiff’s requests subject to the
limitation on the scope of such requests as herein found by the court. Accordingly,
Defendants’ objection to the broad scope of Plaintiff’s document requests is sustained
and Defendants’ production of responsive documents shall be limited to GRE sales and
shipments of GRE cigarettes to NWS and other resellers, including those located on
Indian reservations within New York State, wholesale and retail, of GRE cigarettes as
directed by NWS during the period of 2010 to present. As to Plaintiff’s document
requests, Plaintiff’s motion (Dkt. 204) should therefore be GRANTED in part and
DENIED in part.
Defendants also maintain Defendants have provided answers to Plaintiff’s
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interrogatories; however, an examination of Defendants’ answers, Dkt. 206-17 at 7
(GRE), Dkt. 206-16 (NWS), indicates Defendants’ answers do not comply with
Fed.R.Civ.P. 33(b)(1)(B) which requires interrogatories be answered, if the requested
“party is a public or private corporation, a partnership, an association, or a governmental
agency, by any officer or agent, who must furnish the information available to the party,”
under oath. Fed.R.Civ.P. 33(b)(3). Additionally, Defendants’ objection to Plaintiff’s
interrogatories requesting explanatory information regarding Defendants’ use of F.O.B.
designation for shipments of GRE cigarettes to NWS or to NWS’s distributors as
requesting a legal conclusion is without merit. Under U.C.C. § 2-319(1), an F.O.B.
designation signifies the point in the sales transaction at which the risk of loss passes to
the recipient purchaser. The court fails to see how Plaintiff’s request for what
essentially is a business consideration constitutes a request for a legal opinion
regarding the rationale for Defendants’ selection of the F.O.B. for Defendants’ cigarette
shipments and Defendants provide no authority for Defendants’ refusal to answer the
interrogatory. See also Nimkoff v. Dollhausen, 262 F.R.D. 191, 195 (E.D.N.Y. 2009)
(discussing Rule 33(c) contention interrogatories may ask, inter alia, the requested party
“‘to explain how the law applies to the facts’” (quoting Strauss v. Credit Lyonnais, S.A.,
242 F.R.D. 199, 233 (E.D.N.Y. 2007)). Plaintiff’s motion regarding Defendants’
inadequate answers to Plaintiff’s Interrogatories should therefore be GRANTED.
Defendants’ refusal to provide contact information, specifically home addresses
and telephone numbers if known to the disclosing party, for its witnesses disclosed in
accordance with Fed.R.Civ.P. 26(a)(1) (“Rule 26(a)(1)”), is also without merit. By its
terms, the rule requires disclosure of “the name and, if known, the address and
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telephone number” of potential witnesses. Fed.R.Civ.P. 26(a)(1)(A)(i). It is generally
recognized that providing counsel’s address in lieu of that of the disclosed witness does
not comply with Rule 26(a)(1) which requires the home addresses and telephone
numbers of disclosed witnesses who are employees of the disclosing party. See 6
Moore’s FEDERAL PRACTICE—Civil § 26.22(4)(a)(1) (200) (citing caselaw).
Defendants’ reliance on Tamas v. Family Video Movie Club, Inc., 304 F.R.D. 543
(N.D.Ill. 2015) (“Tamas”), to avoid providing such contact information, is unavailing. In
Tamas, the court approved defendant’s compliance with Rule 26(a)(1) allowing the
defendant to provide counsel’s address in lieu of that of the disclosed witnesses which
defendant designated as persons within defendant’s “control group,” Tamas, 304 F.R.D.
546, because of the “exorbitant” number of employees, 3,300, whom defendant had
identified. Id. However, such an exemption from the otherwise unambiguous
requirements of Rule 26(a)(1) does not find support within the text of the rule nor do
Defendants cite to any authority within the Second Circuit approving any such similar
exception as that approved in Tamas. Moreover, here, unlike the 3,300 witnesses in
Tamas, the number disclosed by Defendants is not “exorbitant” so as to warrant a
similar accommodation. Specifically, GRE disclosed 10 employees; NWS disclosed 2
employees. Accordingly, the undersigned declines to follow Tamas and exclude those
individuals from the general requirements of Rule 26(a)(1) as persons within
Defendants’ “control group.” Moreover, it appears the court’s approval in Tamas of the
use of counsel’s address for that of the “control group” was based on convenience, a
factor not necessarily authorized by the rule. See Luke’s Catering Service, LLC v.
Cuomo, __ F.Supp.3d __, 2020 WL 5425008, at *9 (W.D.N.Y. Sept. 10, 2020) (court not
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required to follow precedent from other district courts) (citing Camreta v. Greene, 563
U.S. 692, 709 n. 7 (2011) (“A decision of a federal district court judge is not binding
precedent in either a different judicial district, the same judicial district, or even upon the
same judge in a different case.”)). Plaintiff’s motion on this issue should therefore be
GRANTED.
(2)
Defendants’ Request to Modify the Scheduling Order.
Turning to Defendants’ Request to Modify the Scheduling Order, the court
observes that although Defendants’ request is belated in that Defendants should have
earlier advised Plaintiff and the court that the restrictions caused by the pandemic were
interfering substantially with Defendants’ ability to comply timely with Plaintiff’s
production requests and requiring additional time for Plaintiff’s requested document
production, nevertheless it is difficult, without conducting an evidentiary hearing to
ascertain the precise validity of Defendants’ asserted impediments to production which,
in the circumstances, the court in its discretion, declines to undertake, to gainsay
Defendants’ representations regarding the impact of governmental and tribal regulations
related to control of the virus on Defendants’ ability to conduct normal document
production. The parties are no doubt aware of this court’s considerable effort to
maintain its own functioning in a safe manner in response to the coronavirus. See
General Order filed Dec. 8, 2020 (recognizing the difficulties presented to the court,
counsel, parties, witnesses, jurors and the public in accessing the court caused by the
virus and directing numerous responsive measures to ensure public safety).
Additionally, as to GRE’s circumstances, the court is hampered by the lack of
information explaining the extent to which civil litigation and related pretrial discovery
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activity has been restricted in Southern Ontario by virus-related regulations. Moreover,
courts have been prompted to stay discovery based on the coronavirus itself
establishing good cause for the delay. See Garbutt v. Ocwen Loan Servicing, LLC,
2020 WL 1476159, at *2 (M.D.Fla. Mar. 26, 2020) (“good cause exists based on the
disruption to business caused by the spread of Covid-19”). In granting a 60-day stay of
discovery, the court in Garbutt stated “[t]he situation caused by the virus makes it
reasonable to stay discovery for a period of time.” Id. Here, Defendants request an
additional 90 days to respond to Plaintiff’s discovery requests. Under the present
circumstances, including a rising coronavirus infection rate and related deaths from the
virus, the court finds itself constrained to accept Defendants’ representations at this
time. Based on Defendants’ representations, the court therefor finds good cause for the
request. Accordingly, Defendants’ request should be GRANTED. An Amended
Scheduling Order consistent with the foregoing will be filed by the court.
(3)
Defendants’ Motion to Compel.
Defendants’ motion consists of two parts. First, Defendants seek to compel
Plaintiff’s responses to Defendants’ discovery requests broadly directed to the Plaintiff’s
legal authority to regulate the sale of cigarettes on Indian reservations located within
New York State as well as Plaintiff’s policies and enforcement activities relating thereto
respecting such sales. See Dkt. 213 at 5-6 (summarizing Defendants’ requests) (“first
category”). Second, Defendants seek to require Plaintiff to comply with Plaintiff’s
previous agreement to provide documents from the files of various state agencies
relating to the manufacture, importation and sale of GRE cigarettes into New York State
through Defendants’ joint venture as alleged by Plaintiff and any excise tax due on such
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sales (“second category”). See Dkt. 213 at 8-9 (summarizing Defendants’ First
Document Production Requests to which Plaintiff committed to provide production). To
facilitate Plaintiff’s production, Defendants limited Defendants’ requests to five state
agencies from which Plaintiff should provide responsive documents, Dkt. 213 at 9 n. 5,
however, Plaintiff asserts it agreed to search the records of three agencies. Dkt. 221 at
7. Plaintiff represents it has served eight document productions providing 3,500
documents consisting of 20,000 pages. Dkt. 221 at 7. Defendants also assert Plaintiff
failed to provide a privilege log in support of its work-product objections to various
Defendants’ discovery requests within the second category of Defendants’ requests for
production, Dkt. 213 at 10, which Plaintiff has agreed to provide. Dkt. 221 at 6. Like
Plaintiff, Defendants also assert Defendants are entitled to Defendants’ expenses in
connection with Defendants’ motion pursuant Fed.R.Civ.P. 37(a)(5)(A). Dkt. 213 at 11.
In the first category of Defendants’ requests, Defendants seek documents
reflecting Plaintiff’s communications with a broad array of organizations such as the
National Association of State Attorneys General, various federal agencies, and any
Indian tribes regarding sales of cigarettes in Indian Country as defined in 18 U.S.C. §
115 including sales by Defendants, the applicability of New York tax and public health
laws to the sale of cigarettes in Indian Country and Plaintiff’s enforcement of such laws,
documents relating to Plaintiff’s participation in the 1998 Tobacco Master Settlement
Agreement, a 2004 North American Free Trade Agreement (“NAFTA”) arbitration
brought by GRE’s principals, Plaintiff’s investigator reports concerning purchases of
Defendants’ untaxed cigarettes in Indian Country, communications with other
government agencies regarding enforcement of the CCTA and PACT Act, and
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documents relating to other proceedings under NAFTA relating to the importation,
distribution and sale of cigarettes in Indian country, see Defendants’ First Set of
Document Requests Nos. 4, 5, 14, 17, 18, 19, 20, 21, 22, 24-27, 34, 35, 36) (referenced
in Dkt. 213 at 4-5).
Plaintiff opposes Defendants’ requests as stated in the first category, addressed
to Plaintiff’s authority to enforce Plaintiff’s cigarette excise tax upon Indian cigarette
sales within New York State, based on a lack of relevancy, Dkt. 221 at 8, and, even if
relevant, because Defendants’ requests are not proportional to the needs of the case as
outlined in the TAC’s claims or Defendants’ putative affirmative defenses, i.e., not
formally asserted by Defendants in an answer to the TAC. Dkt. 221 at 13, n. 7.
However, Plaintiff does not oppose Defendants’ motion on this latter ground.
Defendants contend that Defendants’ requests in the first category are relevant
to the equitable defenses of waiver and estoppel, unclean hands and laches, and
judicial and/or collateral estoppel, albeit not yet formally pleaded in this case by
Defendants. See Dkt. 222 at 7. More specifically, Defendants seek the disputed
discovery in order to disprove Plaintiff has “the legal authority to regulate” the
“manufacture, sale and distribution of cigarettes in Indian Country.” Dkt. 213 at 4.
Defendants assert the requested documents will establish that Plaintiff has previously
admitted it lacks such authority which, based on the equitable defenses Defendants
evidently intend to assert, 2 bars Plaintiff’s present efforts to do so as alleged in the TAC.
Id. Defendants’ contention fails at the outset.
2 Defendants asserted such defenses in Defendants’ Answer to the Second Amended Complaint. See
Dkt. 124 ¶¶ 144 (waiver-estoppel), 145 (unclean hands-laches), 167 (judicial-collateral estoppel, 168
(forbearance) (GRE); Dkt. 122 ¶¶ 5 (waiver-estoppel), 8 (unclean hands-laches), 29 (judicial-collateral
estoppel), 30 (forbearance) (NWS).
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First, whether Plaintiff’s present cigarette excise tax scheme enacted in 2010
directed to sales of cigarettes on Indian reservations is applicable to Defendants’
shipments and distributions of untaxed cigarettes into New York State as the TAC
alleges presents a question of law calling for judicial determination, not a subject for fact
discovery which Defendants seek. See, e.g., Weil v. Retirement Plan Administrative
Committee of the Terson Company, Inc., 913 F.2d 1045, 1048-49 (2d Cir. 1990)
(reviewing question of statutory interpretation of Internal Revenue Code de novo as a
matter of law) (vacated in part on other grounds, 933 F.2d 106 (2d Cir. 1991); see also
R.T. Vanderbilt Co., Inc. v. United States, 2010 WL 2706282 at *8 (Ct.Cl. July 8, 2010)
(interpretation of Internal Revenue Code as applied to issues in case presents a
question of law for courts and not a subject to deposition testimony). More pertinently is
the New York cigarette excise tax scheme at issue in the instant case, see N.Y. Tax
Law §§ 471; 471-e, as amended in 2010, which requires all cigarettes for sale in New
York State be received and stamped by a licensed tax agent reflecting pre-payment of
the state’s cigarette excise tax prior to being made available to retailers. For Indian
retailers, the 2010 tax law permits wholesale purchases based on a prior approval by
the Plaintiff’s Department of Taxation and Finance of an amount of cigarettes which
may be sold to Indian retailers without payment of the excise tax by the retailer or the
purchaser on an amount of cigarettes calculated by the Department as the Indian
reservation’s probable cigarette demand, or using a coupon-based purchase system for
such sales representing estimated personal use by Indian customers of a reservation
and a corresponding refund to the wholesaler-tax agent representing the prepaid tax on
permitted sales to Indian retailers. This 2010 enactment of the State’s cigarette excise
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tax enforcement scheme was unqualifiedly upheld by the Second Circuit in Oneida
Nation of New York v. Cuomo, 645 F.3d 154, 168 (2d Cir. 2010) (“Oneida”) (N.Y. Tax
Law § 471-e as amended in 2010 permissibly imposes excise tax collection on nonIndian, on-reservation retail cigarette purchases while exempting from the state excise
tax retail cigarette purchases by qualified tribal members). In Oneida, the court also
approved both the prior approval and coupon systems created by N.Y. Tax Law § 471-e
which limited the availability of tax-exempt cigarettes for on-reservation Indian retail
purchases while preventing tax-free sales of such tax-exempt cigarettes to non-exempt
non-Indian purchasers because of the resulting limited supply of cigarettes available to
Indian retailers, based on the estimated personal use purchase authorization
established by § 471-e, for sale to non-Indians. See Oneida, 645 F.3d at 171, 172-74.
As the Second Circuit in Oneida noted
“A state ‘does not interfere with [t]he tribes’ power to regulate tribal
enterprises’ simply by imposing its [cigarette] excise tax on sales to nonmembers.”
Oneida, 645 F.3d at 165 (quoting Washington v. Confederated Tribes of Colville
Reservation, 447 U.S. 134, 159 (1980)). As Judge Wesley’s detailed consideration of
the caselaw and statutes relevant to the issues presented in Oneida makes plain, the
question of Plaintiff’s authority in this case to enforce the 2010 excise tax scheme,
which is the basis for the TAC, against Indian resellers of Defendants’ cigarettes is
quintessentially a legal question, not a fact issue warranting discovery as Defendants’
request is irrelevant to Defendants’ equitable defenses. Thus, Defendants’ attempt to
demand document production from Plaintiff in support of Defendants’ assertion that the
TAC seeks to unlawfully regulate Indian markets in untaxed cigarettes is futile as the
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“regulation” Plaintiff seeks to impose by enforcing the 2010 amendments to New York
Tax Law § 471 against illegal trafficking in untaxed cigarettes and sales to non-tax
exempt purchasers by Indian retailers in Indian Country within New York State, i.e.,
reservations, is, according to Oneida, an entirely lawful exercise of New York State’s
governmental power over cigarette sales within the State.
Nor is there any merit to Defendants’ theory that Defendants’ discovery requests
at issue in Defendants’ first category of document production requests are relevant to
Defendants’ putative equitable defenses of waiver and estoppel, laches and unclean
hands, forbearance and judicial estoppel (“the equitable defenses”). “Waiver is . . . the
intentional surrender of a legal right by act or omission; equitable estoppel applies when
a party misrepresents or conceals material facts and knows or should know that another
party will act as a result; laches bars a party’s claim in equity where the party has
unreasonably delayed in a prejudicial manner; unclean hands prohibits awarding
equitable relief to a party that has acted fraudulently or deceitfully to gain an unfair
advantage . . ..” City of New York v. Fedex Ground Package System, Inc., 314 F.R.D.
348, 356-57 (S.D.N.Y. 2016) (“Fedex Ground”) (citing New York v. United Parcel
Service, Inc. 160 F.Supp.3d 629, 645-46 (S.D.N.Y. 2016)). Defendants’ rationale for
Defendants’ putative equitable defenses is based on Defendants’ assertions that
Plaintiff has been “entirely inconsistent over time” in stating its “legal authority” to
regulate cigarette sales on Indian reservations within its borders. Dkt. 222 at 6
(underlining added). This assertion in turn appears to be predicated upon what the
Second Circuit described in Oneida as a policy of “forbearance,” Oneida, 645 F.3d at
159, adopted initially by Plaintiff’s Department of Taxation and Finance (“DTF”)
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beginning in 1988 with respect to enforcement of proposed regulations imposing the
cigarette excise tax on cigarettes sold by Indians to non-Indians subject to the tax,
despite the Supreme Court’s approval of such regulations in Dep’t. of Taxation & Fin. of
N.Y. v. Milhelm Attea & Bros., Inc., 512 U.S. 61, 78 (1994) (citing Moe v. Confederated
Salish and Kootenai Tribes of Flathead Reservation, 425 U.S. 463, 483 (1976)
(upholding state law requiring Indian retailers on tribal land to collect state cigarette tax
imposed on sales to non-Indians)). Such “forbearance,” was, according to Judge
Wesley’s opinion in Oneida, the result of official concerns over “additional litigation, civil
unrest, and failed negotiations between the State and individual nations and tribes,”
stemming from the State’s attempts to enforce the regulations and unsuccessful efforts
to obtain cooperation of effective Indian tribes in implementing the regulations. Id.
Plaintiff’s administrative “forbearance” ended in 2010, shortly before the June 20, 2010
enactment of amended provisions of the New York Tax Law imposing the excise tax on
all cigarettes sold within New York State including “those intended for resale to taxexempt Indians,” Oneida, 645 F.3d at 160, along with stamps on each pack to show the
cigarette tax was prepaid, which is the legal basis of the TAC.
Defendants’ reliance on Plaintiff’s prior forbearance as supporting Defendants’
putative equitable defenses is also groundless because the alleged § 471 violation does
not relate to the forbearance policy. It is significant that the regulations creating the
excise tax collection scheme prior to 2010, which limited purchases by Indian retailers
to probable annual demand for cigarette consumption requiring use of State approved
coupons, in 1998 to implement § 471-e, were either repealed in 1998 or not adopted in
2003 and 2005 in connection with legislative attempts to collect excise taxes on
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cigarette sales to non-Indians on Indian reservations. See Cayuga Indian Nation of
N.Y. v. Gould, 930 N.E.2d 233, 235-40 (N.Y.) (“Gould”) (noting that following enactment
of Tax Law § 471-e in 2003 requiring collection of the excise tax on sales of cigarettes
on Indian reservations, the required implementing regulations by the Department of
Taxation and Finance were “never formally adopted” nor did the Department timely
adopt new regulations as the 2005 enactment required), cert. denied, 562 U.S. 953
(2010). Thus, Plaintiff’s “inconsistencies,” with respect to enforcement of the excise tax
on non-exempt sales by Indian retailers as Defendants allege, do not relate back to any
legally extant regulations which could be then enforced and as a result subject the TAC
to Defendants’ putative equitable defenses. Moreover, it is also clear that, as of 2010,
Plaintiff’s forbearance policy was revoked based on amendments to N.Y. Tax Law § 471
which had not been implemented for “practical reasons,” Gould, 930 N.E.2d at 237; see
also Oneida, 648 F.3d at 160, and that the absence of enforcement during the prior
four-year period, Gould, 930 N.E.2d at 239-40, was predicated upon DTF’s perceived
difficulties in “addressing the calculation or collection of taxes arising from onreservation retail sale of cigarettes,” id. at 239-40, not whether Plaintiff has authority to
impose such tax.
Generally, “[g]overnment officials . . . are given broad discretion in their decisions
whether to undertake enforcement actions.” Gagliardi v. Village of Rawling, 18 F.3d
188, 192 (2d Cir. 1994) (citing Heckler v. Chaney, 470 U.S. 821, 831 (1985) (“decision
not to prosecute or enforce, whether through civil or criminal process, is a decision
generally committed to an agency’s absolute discretion”)). In a recent case in which
NWS was cited as one of 22 shippers of untaxed contraband cigarettes in violation of
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the CCTA and the PACT Act, the Second Circuit described plaintiff’s lawsuit to enforce
the CCTA and PACT Act against defendant, a common carrier for the shippers, for
statutory penalties and injunctive relief as a “civil enforcement action[ ].” New York v.
United Parcel Service, Inc., 942 F.3d 554, 599 (2d Cir. 2019) “‘Courts have routinely
held that, when acting in a capacity to enforce public rights in the public interest and
discharge statutory responsibilities, government entities are not subject to all equitable
defenses – such as laches or estoppel – that could ordinarily be invoked against a
private actor.’” Fedex Ground, 314 F.R.D. at 357 (quoting New York v. United Parcel
Serv., Inc., 160 F.Supp.3d at 640 (collecting cases)). Such defenses may be available
where the governmental party’s “role in the action more closely resembles that of a
private litigant.” Id. Relevantly, private litigants are not among plaintiffs permitted to
initiate actions under the CCTA and PACT Act. See 18 U.S.C. § 2346(b)(1) (permitting
civil actions to enforce the CCTA to be brought by “[a] State, through its attorney
general, a local government, through its chief law enforcement officer (or a designee
thereof), or any person who holds a permit under chapter 52 of the Internal Revenue
Code of 1986 . . .”); 15 U.S.C. § 378(c)(1)(A) (providing authority to enforce the PACT
Act is held by “a State, through its attorney general, or a local government or Indian
tribe that levies a tax subject to [the PACT Act] . . . .”). In the Fedex Ground case, the
court, based on these general principles, struck defendant’s affirmative defenses,
similar to Defendants’ putative equitable defenses in the instant action, of laches,
estoppel, and unclean hands, asserted by defendant against plaintiff’s CCTA claims.
Fedex Ground, 314 F.R.D. at 358 (citing caselaw).
Additionally, Defendants’ reliance on statements by Plaintiff’s representatives in
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earlier proceedings do not, as Defendants contend, even colorably establish Plaintiff
conceded it lacked authority to enforce Plaintiff’s cigarette excise tax at that time. See
Dkt. 213 at 407. For example, Defendants include a statement from New York State as
a party to Non-Participating Manufacturers adjustment proceedings in 2003, that the
State lacked “authority to effectively tax Native American cigarette sales.” Dkt. 213 at 6.
However, using a normal reading of the statement, it is reasonably clear that no
concession of such purported lack of tax authority is intended, as if that were the intent
the qualifier “effectively” used in the statement would be redundant. Thus, accurately
read, the statement strongly implies the state has such authority, contrary to
Defendants’ assertion. Further, as the New York Court of Appeals also emphasized in
Gould, prior to the 2010 enactments, the limitations which prompted the State’s
forbearance arose from perceived legal impediments in conducting DTF audits of Indian
retailers’ cigarette sales to non-Indians on Indian reservations as well Indian immunity
from suit to collect the unpaid excise tax from Indian sellers, Gould, 930 N.E.2d at 23738, a lack of cooperation by Indian retailers to facilitate the State’s enforcement efforts
against such retailers, and the failure to negotiate cooperation agreements with Indian
tribes to facilitate collection of applicable excise taxes, as well as physical violence by
Indian protesters erupting in opposition to the State’s efforts to seize contraband
cigarettes being transported to reservations on public highways. Id. Such valid
considerations underlying the State’s forbearance have nothing to do with any official
conduct suggesting a lack of legal authority sufficient to constitute a waiver of the state’s
ability to enforce the law. Rather, the judicially noted considerations reflect a frustration
in carrying out lawful statutory requirements in the context of Indian efforts to maximize
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the profitability of cigarette sales, untaxed, to non-Indians.
It is also significant that the TAC seeks to enforce Tax Law § 471[1] which
prohibits the possession of unstamped cigarettes shipped into the State by anyone
other than a licensed tax agent, TAC ¶ 27, with exceptions not relevant to the instant
case, N.Y. Tax Law § 471[2] which requires the prepayment of the excise tax by such
agents, TAC ¶ 24, and N.Y. Tax Law § 481[2](a) providing that possession of more than
400 unstamped cigarettes is presumptive evidence that such cigarettes are subject to
the excise tax. These provisions remained enforceable regardless of the State’s policy
of forbearance with respect to enforcement of the cigarette excise tax laws to sales on
Indian reservations. These provisions are specifically alleged to have been violated by
Defendants and undergird Plaintiff’s CCTA (TAC ¶¶ 42, 43) and PACT Act claims (TAC
¶¶ 45, 47). Moreover, a plain reading of the TAC indicates Defendants, after all, are not
alleged to have violated Tax Law § 471 as Indian retailers illegally selling untaxed
cigarettes to non-exempt retail purchasers which were the target of Tax Law § 471-e
and the subject of the DTF forbearance policy; rather Defendants are alleged to be
engaged in operating an illegal supply apparatus for importing and distributing large
quantities of unstamped, untaxed cigarettes into New York State and thus in violation of
the State’s exclusive licensed tax agent-wholesaler requirement involving N.Y. Tax Law
provisions, particularly § 471[1], that remained unaffected by the Plaintiff’s forbearance
policy for the period 1988-2020. Defendants’ argument is therefore based on a
fundamentally erroneous premise. Therefore, Defendants’ alleged cigarette excise tax
evasion operation was not within the scope of the State’s forbearance policy and thus it
does not protect Defendants’ from liability in this action. Nor are Defendants alleged to
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be cigarette wholesalers or effective Indian tribes. As such, Plaintiff’s claims as alleged
in the TAC remain viable.
Defendants’ reliance on Professor Davis, Dkt. 222 at 9 (citing 2 Kenneth Culp
Davis, Administrative Law Treatise § 17.06 (1st ed. 1958)), to support Defendants’
contention that governmental parties are subject to the defense of estoppel is unavailing
as the caselaw cited to support that proposition pertains to disputes by litigants over
routine zoning, civil service and retroactive sales tax calculation disputes; none involve
an enforcement action involving vindication of a major public policy such as the instant
action in which Plaintiff as a State government seeks to dismantle a massive evasion of
Plaintiff’s cigarette excise policy based on Defendants’ maintaining a highly lucrative
system of introducing, in violation of several cigarette tax laws, vast amounts of
contraband cigarettes into the New York State market for purchase and consumption by
non-tax exempt cigarette purchasers. As to Defendants’ asserted laches defense,
Plaintiff’s action was commenced in 2013 only two years following the Second Circuit’s
decision in Oneida, upholding the present State cigarette excise tax scheme with
respect to Indian sales, hardly indicative of unreasonable delay. Nor could Defendants
reasonably rely on the forbearance policy to their prejudice as justifying Defendants’
continued belief for thinking that such policy indicated Defendants’ illegal supply system
of untaxed, unstamped cigarettes for on-reservation sale to non-Indians was within the
scope of Plaintiff’s forbearance policy as it was not. Defendants’ alleged illegal supply
operation did not depend on how Indian retailers obtain cigarettes from lawful
wholesalers in New York, which was the object of the State’s forbearance policy, as
such retailers could, as the TAC alleges, have continued (and did continue), to obtain
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large amounts of Defendants’ contraband cigarettes for unlawful sales to non-Indians.
In short, Defendants’ contention that the relevance of Defendants’ discovery requests
in the first category is support by Defendant’s putative equitable defenses is meritless.
The court therefore finds no support for the applicability of Defendants’ putative
waiver/estoppel or other equitable defense against the TAC.
Thus, even if Defendants’ discovery requests were relevant to Plaintiff’s claims
as alleged in the TAC, and as particularly directed to Defendants’ waiver defense, such
discovery should be denied as not “proportional to the needs of the case,” pursuant to
Fed.R.Civ.P. 26(b)(1) (“Rule 26(b)(1)”). Specifically, Rule 26(b)(1) permits discovery
that is relevant to a claim or defense and “proportional to the needs of the case,
considering the importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant information, the parties’ resources,
the importance of the discovery in resolving the issues, and whether the burden or
expenses of the proposed discovery outweighs its likely benefits.” Fed.R.Civ.P.
26(b)(1) (underlining added). Where a court finds that the discovery requests at issue
would, if allowed to proceed, move the case “down an unfruitful path,” MacKenzie
Architects, P.C. v. VLG Real Estate Developers, LLC, 2017 WL 4898743, at *3
(N.D.N.Y. Mar. 3, 2017), the discovery will be denied as “disproportionate to the needs
of the case,” in accordance with Rule 26(b(1). Here, because the document production
in the first category sought by Defendants is based on Defendants’ contention that
Plaintiff’s prior forbearance in declining to enforce New York’s excise tax upon onreservation cigarette sales to non-Indians is, according to Defendants, beyond the
authority of Plaintiff, thus supportive of Defendants’ putative equitable defenses, none of
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which are applicable to Plaintiff’s instant enforcement action acting as a statutorily
authorized governmental authority to enforce federal and state tax laws applicable to
Defendants’ alleged unlawful conduct and to bring the instant federal and state claims
alleged in the TAC, the court finds the requested discovery is lacking in importance to
the actual issues in the case, in which the primary question is Defendants’ liability for
violations of the CCTA, PACT Act and New York excise tax laws for trafficking in
untaxed cigarettes, rendering Defendants’ discovery requests in the first category as
fruitless, MacKenzie Architects, P.C., 2017 WL 4898743, at * 3, and that the burden of
the discovery on Plaintiff imposed by Defendants’ first category of discovery requests
therefore outweighs any plausible benefit. See id. The Second Circuit’s holding in
Oneida, explicitly upholding the present New York cigarette excise tax imposition and
collection scheme to apply to on-reservation cigarette sales enacted in 2010 also
undermines Defendants’ theory that Plaintiff’s forbearance of enforcement of the State’s
predecessor cigarette taxing scheme as applied to cigarette sales in Indian Country is,
on account of such forbearance, barred.
Moreover, it would be inequitable to find, by accepting Defendants’ asserted
equitable defenses as valid subjects for discovery, that because of the Plaintiff’s
decision to forbear enforcement based, inter alia, on a desire to avoid, at that time, civil
disorder, i.e., potential violence, in connection with Plaintiff’s active enforcement of the
State’s cigarette tax laws against non-exempt cigarette sales to non-exempt purchasers
from Indian retailers in an effort to stanch the widespread evasion of the State’s
cigarette excise tax laws, that Plaintiff should now be prevented from enforcement of the
State’s amended cigarette tax laws and related provisions of the CCTA and PACT Act.
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Simply put, the alleged violation of § 471 by Defendants is not related to New York’s
previous forbearance policy. Defendants’ motion to compel document discovery as to
the first category of documents should therefore be DENIED.
As to the document requests in the Defendants’ second category, Plaintiff shall
provide a privilege log as required by Fed.R.Civ.P. 26(b)(5) within 30 days for any
documents on which a privilege is asserted by Plaintiff. Defendants may within 10 days
serve objections to the claimed privileges. The court will determine the validity of such
objections and, if necessary, require the disputed documents be submitted to the court
for an in camera inspection.
4.
Sanctions
Fed.R.Civ.P. 37(a)(5)(A) requires the court award expenses, including
reasonable attorneys fees, of a motion to compel in favor of the prevailing party where
the motion was not substantially justified, i.e., not reasonably arguable or the award of
expenses would in the circumstances be unjust, i.e., where the ability to provide the
discovery at issue was beyond the responding party’s control, including allocation of
liability between counsel and the party to the extent either is found responsible for the
need for the motion. See Scott-Iverson v. Independent Health Association, Inc., 2017
WL 7598842, at * 2 (W.D.N.Y. Feb. 28, 2017)). Here, the court finds Plaintiff’s motion
was substantially justified to the extent of requiring Defendants to serve responsive
answers to Plaintiff’s interrogatories as required by Rule 33(b) and Defendants’ full
compliance with Rule 26(a)(1) for witness contact information; the court also has found
Defendants’ motion was without merit with respect to Defendants’ first category of
document requests but was meritorious with respect to Plaintiff’s failure to provide
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production, with a privilege log, for Defendants’ second category of production requests.
Accordingly, Plaintiff shall show cause not later than 20 days why Defendants’
expenses should not be awarded to the extent stated above; Defendants shall show
cause why Plaintiff’s expenses should not be awarded as stated above in connection
with Defendants’ motion to compel production regarding Defendants’ first category of
document production requests. The parties’ responses shall be filed within 10 days
thereafter; oral argument shall be at the court’s discretion.
CONCLUSION
Based on the foregoing, Plaintiff’s motion (Dkt. 204) is GRANTED in part and
DENIED in part; Defendants’ Request to Amend the Scheduling Order (Dkt. 210, 211) is
GRANTED; Defendants’ motion (Dkt. 212) is GRANTED in part and DENIED in part.
SO ORDERED.
/s/ Leslie G. Foschio
_________________________________
LESLIE G. FOSCHIO
UNITED STATES MAGISTRATE JUDGE
Dates: December 15, 2020
Buffalo, New York
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