Blasi et al v. United Debt Services, LLC et al

Filing 236

ORDER granting in part 222 Motion for Attorney Fees. Fees and costs in the amount of $156,366.22 are awarded against defendant AMG Lead Sourdce. Further, as an additional sanction based on the prior motion for sanctions (Doc. 190 ), default judgment is awarded against that defendant for all claims in Name Seeker's crossclaim. Any additional relief requested in the motion for sanctions and the motion for attorney's fees and costs is denied. Signed by Magistrate Judge Terence P. Kemp on 5/23/2017. (agm)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Peter Blasi, et al.,
Plaintiffs,
v.

:
:
:
:

United Debt Services, LLC,
et al.,
Defendants.

Case No. 2:14-cv-83
JUDGE GEORGE C. SMITH
Magistrate Judge Kemp

:
ORDER

As the Court explained in an Opinion and Order filed on
February 21, 2017 (Doc. 213) this Fair Credit Reporting Act case
involves a crossclaim filed against AMG Lead Source, one of the
defendants, by Name Seeker, Inc., another defendant.

In that

order, the Court detailed Name Seeker’s efforts to obtain
discovery from AMG, including the apparent spoliation of evidence
by AMG after it received discovery requests pertaining to that
evidence.

The Court had set the matter for a hearing on a motion

for sanctions, but that hearing was canceled when AMG indicated
that it no longer would defend the case or oppose the motion for
sanctions.

The Court concluded, under those circumstances, that

it was “reasonable to conclude that AMG intentionally destroyed
relevant evidence both in violation of its obligations under the
Federal Rules of Civil Procedure and in contravention of orders
of this Court.”

Doc. 213, at 4.

The next question addressed by the Court was what sanctions
were appropriate.

The Court, at Name Seeker’s request, struck a

motion to dismiss for lack of personal jurisdiction which AMG had
filed.

It also considered whether to impose the sanction of a

default judgment on the crossclaim, but because there was a
discovery order in place which, if followed, might supply Name
Seeker with some of the information which AMG had withheld or

destroyed, the Court deferred a ruling on that particular
sanction.

It noted, however, that if the discovery did not cure

the prejudice to Name Seeker which AMG’s misconduct had caused,
it would consider entering default judgment.

Id. at 5.

Finally,

the Court determined that Name Seeker was entitled to an award of
attorneys’ fees, and directed it to submit an itemization of its
costs and fees.
Since the date of that order, a number of additional
developments have occurred.

First, on March 10, 2017, Name

Seeker filed its motion for fees, asking the Court to award it
fees and costs in the amount of $156,366.22.

It seeks that award

against both AMG and its counsel, Brian Melber.

The motion

asserts that the rates charged by the various attorneys and
others who worked on the case - which include a blended rate of
$460.00 per hour for attorneys from the Manatt, Phelps & Phillips
firm, $305.00 per hour for a senior paralegal, $285.00 per hour
for a senior litigation support staff member, and $350.00 per
hour for local counsel from McGlinchey Stafford PLLC - are
reasonable.

It also is supported by declarations from attorneys

A. Paul Heeringa and Richik Sarkar, both of which support the
assertion that the amount of fees and costs incurred in seeking
discovery from AMG was reasonable and necessary, and a
declaration from John R. Clingerman, who works in the field of
computer forensics, and who also performed services in this case.
The only opposition to that motion was filed by Mr. Melber.
He submitted a declaration explaining why he believes that any
sanctions should be imposed only against AMG and not against him.
Name Seeker filed a reply memorandum which addresses Mr. Melber’s
declaration.
The other development, communicated by counsel during the
course of a telephone conference with the Court, is actually a
non-development: the discovery which AMG had agreed to provide in
-2-

the order referred to in the Court’s February 21, 2017 order (see
Doc. 212), has not been provided.

AMG did not respond to written

discovery, did not turn over any additional electronic devices,
and AMG did not appear for deposition.

Consequently, there is no

evidence in the record which would support a determination that,
as to its crossclaim, Name Seeker has not been severely
prejudiced by AMG’s failure to provide discovery and its
destruction of evidence.

Additionally, after the Court permitted

Mr. Melber to withdraw as counsel for AMG, it has not retained
other counsel, and is now unrepresented.

The Court will now

address the two open issues: are additional sanctions warranted
against AMG, and should Mr. Melber be held liable for any
monetary sanctions levied against his former client?
I.

Additional Sanctions

Granting a default judgment against AMG is appropriate for
two different reasons.

The first does not require the Court to

consider AMG’s disregard of its discovery obligations and the
Court’s discovery orders.

That is because “[t]he failure of a

corporation to have counsel appear and represent it is not only
the basis for an entry of a default under Rule 55(a), but where
the Court accords the Defendant notice and opportunity to be
heard on a motion for a default judgment under Rule 55(b), also
supports the entry of a judgment by default under Rule 55(b).”
Hutton Constr., Inc. v. Northeast Florida Contractors, Inc., 2008
WL 2645547, *9 (E.D. Tenn. June 30, 2008).

The absence of

counsel also justifies imposition of a default judgment as a
discovery sanction if the corporate party previously failed to
comply with discovery orders, since the corporate party, once it
is no longer represented by counsel, cannot actively litigate the
case.

See, e.g., Barette Outdoor Living, Inc. v. Michigan Resin

Representatives, LLC, 2013 WL 1799858 (E.D. Mich. April 5, 2013).
Since both those situations are present in this case, it is now
-3-

appropriate to award Name Seeker a default judgment on its
crossclaim.
The current version of that crossclaim (Doc. 196) alleges
claims for contractual indemnity, breach of contract, fraud,
civil conspiracy to commit fraud, deceptive trade practices, and
spoliation of evidence.

It seeks both declaratory relief on the

claims for indemnification and monetary damages, attorneys’ fees,
and costs.

To the extent that Name Seeker asks for non-monetary

relief, that will be part of the default judgment.

Any other

relief, particularly damages, will have to await further
proceedings in the case.
The Court will also grant additional sanctions in the form
of an award of attorneys’ fees and costs.

AMG has not, of

course, contested the amounts requested.

The Court has not

conducted a searching review of the fee request given the absence
of any adversary briefing, but it has reviewed it sufficiently
thoroughly to satisfy itself that, at least as a prima facie
matter, the time expenditures all appear related to AMG’s
misconduct and they fall within a reasonable range.
Consequently, the Court will award the full amount of fees and
costs as an additional discovery sanction.
II.

Mr. Melber

The Court begins its discussion of this issue by summarizing
the facts contained in Mr. Melber’s declaration.
As Mr. Melber understands Name Seeker’s argument, it accuses
him of failing to prevent the deletion of files from the AMG
laptop in question and of making false representations to the
Court about the state of the evidence.

He responds as follows.

First, he notes that, according to Name Seeker, the
materials in question were deleted from the laptop the day before
he obtained possession of it.

He also states that he personally

told the possessor of the laptop not to tamper with it in any way
-4-

and advised that person of the consequences which flow from
spoliation of evidence.

To the extent that an agreed order

relating to the laptop suggests otherwise, Mr. Melber says that
was an error.

He otherwise denies generally making any

unequivocal representations to Name Seeker’s counsel that
subsequently turned out to be false, and asserts that whatever
factual information he passed on was given to him by others and
did not come from his personal knowledge.
In its reply, Name Seeker argues that Mr. Melber’s
declaration is too vague to support his assertion that he took
reasonable steps to preserve the laptop evidence.

It cites

authority for the proposition that counsel are under a continuing
duty to make efforts to preserve evidence and that Mr. Melber has
not recited any facts showing that he discharged this duty.
Next, citing to this Court’s holding in Brown v. Tellermate
Holdings Ltd., 2013 WL 1363738 (S.D. Ohio April 3, 2013), Name
Seeker contends that Mr. Melber was not entitled simply to rely
on information conveyed to him by his client, but had an
independent duty to verify that information before making
representations to opposing counsel and to the Court.

Third, it

discounts Mr. Melber’s claim that the language in certain orders
to the effect that he was in possession of the laptop before
August 18, 2016 was in error, noting that Mr. Melber had several
chances during the drafting stage to correct this supposed error
but failed to do so.

Name Seeker makes a number of additional

arguments as well, including the fact that not only a laptop but
a thumb drive were altered, and that Mr. Melber fails to explain
how the relevant files on that drive came to be deleted.
It goes without saying that in order for a court to sanction
an attorney for his or her client’s abuse of the discovery
process or disregard of court orders relating to discovery,
“[t]he record [must] fully support[] that determination.”
-5-

Thomas

E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 527 (2d Cir.
1990).

And, although there is surprisingly little case law

directly addressing this point, it seems obvious that the party
requesting sanctions has at least an initial burden of proof with
respect not only to whether sanctionable conduct has occurred,
but also with respect to whether the misbehaving party’s attorney
may have been involved in it.

In many cases, the two go hand in

hand, or it is apparent that the client failed properly to
respond to discovery only because of incorrect advice given by
counsel, in which case it is entirely appropriate to impose
sanctions on the offending attorney.
This case, on its face, presents a different issue.

The

primary discovery failures here include the destruction of
electronic files, both from a laptop computer and a thumb drive,
and a subsequent refusal to participate in the discovery process
at all.

Certainly, the latter decision cannot be attributed to

Mr. Melber, who appears to have been more than reasonable in
stipulating to orders which required his client to produce
information and appear for depositions, only to have the client
back out of those arrangements.

The more significant question is

whether Mr. Melber had any personal involvement in deleting the
electronic files or in failing to take reasonable steps to
prevent his client from doing so.
On this key issue, Mr. Melber has sworn that his client did
all of these things both without his knowledge and contrary to
the advice he gave.

If his declaration on these matters is

credited, it would appear that, short of physically wresting the
devices from his client’s grasp, he had no ability to prevent the
file deletions.

Name Seeker points to the discrepancy between

the text of orders to which Mr. Melber stipulated and his
assertion that he did not have the laptop until after the
deletion had taken place as evidence of his culpability, but that
-6-

is too thin a thread on which to hang the significant sanctions
being sought here.

In the Tellermate case which Name Seeker

cites, before determining that counsel should be sanctioned, the
Court held a three-day evidentiary hearing in order to make a
full record of whether sanctionable conduct occurred and, if so,
who was responsible.

A hearing was scheduled in this case on the

motion for sanctions, but Name Seeker elected not to go forward,
even though it was aware at that time that it would be asking
that Mr. Melber be sanctioned along with his client.

It had

other ways of gathering evidence on this issue, but there is no
indication that it pursued them.

Perhaps at some point there

will be evidence from which it can be inferred that Mr. Melber
was complicit with AMG in the destruction of these files, but
that evidence is not currently before the Court, or is not of
sufficient probative value to allow the Court to make that
decision.

Under these circumstances, the Court declines to

extend the monetary sanctions to Mr. Melber.
The Court also notes that Name Seeker has asked it to impose
monetary sanctions not only against AMG but also against its
principals.

They are not parties to this case.

Any award of

sanctions against them, on any type of vicarious liability
theory, would be improper when they have not been joined as
parties, put on notice of the possibility of personal
responsibility for monetary sanctions, or had the chance to
defend themselves.

Again, given the current procedural posture

of the case, the Court concludes that such an award would not be
appropriate, and it declines Name Seeker’s invitation to do so.
III.

Order

For the foregoing reasons, Name Seeker’s motion for
attorneys’ fees and costs (Doc. 222) is granted in part.

Fees

and costs in the amount of $156,366.22 are awarded against
defendant AMG Lead Source.

Further, as an additional sanction
-7-

based on the prior motion for sanctions (Doc. 190), default
judgment is awarded against that defendant for all claims in Name
Seeker’s crossclaim.

Any additional relief requested in the

motion for sanctions and the motion for attorneys’ fees and costs
is denied.
IV.

Motion for Reconsideration

Any party may, within fourteen days after this Order is
filed, file and serve on the opposing party a motion for
reconsideration by a District Judge.

28 U.S.C. §636(b)(1)(A),

Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 14-01,
pt. IV(C)(3)(a).

The motion must specifically designate the

order or part in question and the basis for any objection.
Responses to objections are due fourteen days after objections
are filed and replies by the objecting party are due seven days
thereafter.

The District Judge, upon consideration of the

motion, shall set aside any part of this Order found to be
clearly erroneous or contrary to law.
This order is in full force and effect even if a motion for
reconsideration has been filed unless it is stayed by either the
Magistrate Judge or District Judge.

S.D. Ohio L.R. 72.3.

/s/ Terence P. Kemp
United States Magistrate Judge

-8-