Atmosphere Hospitality Management, LLC v. Shiba Investments, Inc. et al

Filing 173

ORDER granting 147 Motion for Attorney Fees and issuing briefing schedule on motion for sanctions. Signed by U.S. District Judge Karen E. Schreier on 1/9/2015. (KC)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
ATMOSPHERE HOSPITALITY
MANAGEMENT, LLC,

CIV. 13-5040-KES

Plaintiff,
vs.
ZELJKA CURTULLO,

ORDER ON MOTION FOR
ATTORNEY’S FEES AND MOTION
FOR SANCTIONS

Defendant,
and
SHIBA INVESTMENTS, INC.,
KARIM MERALI, and
Defendants and
Third-Party Plaintiffs,
vs.
JAMES HENDERSON,
Third-Party Defendant.
Plaintiff, Atmosphere Hospitality Management, LLC, requests attorney’s
fees in connection with its first motion to compel discovery. Separately,
Atmosphere moves for sanctions against defendants/third-party plaintiffs,
Shiba Investments, Inc., and Karim Merali. The court grants in part and denies
in part the motion for attorney’s fees and orders further briefing on the motion
for sanctions.

BACKGROUND
Atmosphere brought this action against Shiba and Merali to resolve
issues related to a licensing contract and management contract between the
parties that allowed Shiba to operate a hotel it owned under Atmosphere’s
brand, “Adoba.” Following numerous discovery disputes, Atmosphere moved to
compel certain items of discovery. Docket 98. The court held a hearing on that
motion, and granted most, but not all, of the relief requested by Atmosphere.
Docket 135. Subsequently, Atmosphere filed the pending motion for attorney’s
fees relating to the first motion to compel discovery. Docket 147. The same day,
Atmosphere also filed a motion for sanctions pursuant to Federal Rule of Civil
Procedure 37(b)(2)(A) based on a failure to comply with the court’s order on the
motion to compel responses to the first set of discovery. Docket 150.
DISCUSSION
I.

Motion for Attorney’s Fees
A.

Standard

The court may award attorney’s fees in connection with a motion to
compel. See Fed. R. Civ. P. 37. In instances where the motion to compel is
granted in part and denied in part, the court “may, after giving an opportunity
to be heard, apportion the reasonable expenses for the motion.” Fed. R. Civ. P.
37(a)(5)(C).
B.

Discussion

At the hearing on September 29, 2014, the court found that Atmosphere
was entitled to attorney’s fees for the motion to compel and instructed
Atmosphere to file a motion outlining the amount requested for that motion.
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See Docket 169 at 36 (transcript of hearing). Atmosphere requested a total of
$22,337 in attorney’s fees for attorneys Sara Frankenstein and Jana Smoot
White along with an intern and a paralegal. Atmosphere has also requested
$5,498.71 in expenses based on services provided by Computer Forensic
Resources, Inc. (CFR) to obtain electronic discovery connected to several of the
discovery requests subject to the first motion to compel. The court must
evaluate those requests to determine whether they are reasonable. To do so,
the court multiplies the number of hours reasonably expended by the
reasonable hourly rates. See Finley v. Hartford Life & Accident Ins. Co., 249
F.R.D. 329, 332-33 (N.D. Cal. 2008). The burden is on the moving party to
prove that the request for attorney’s fees is reasonable. Tequila Centinela, S.A.
de C.V. v. Bacardi & Co., 248 F.R.D. 64, 68 (D.D.C. 2008).
Attorney Frankenstein billed at an hourly rate of $250. Attorney Smoot
White billed at $210 per hour. Atmosphere was billed at a rate of $100 per
hour for the time of an intern and a paralegal. Recently, Magistrate Judge
Duffy found that in the District of South Dakota, “the hourly rates of attorneys’
fees have ranged from $145 per hour to $250 per hour.” Anspach v. United of
Omaha Life Ins. Co., Civ. No. 10-5080-JLV, 2011 WL 4832563, at *1 (D.S.D.
Oct. 12, 2011). Defendants do not object to the rates in this instance.1 Docket
159 at 3. The court finds that the hourly rates charged by plaintiff’s counsel
are reasonable.

Defendants do note that the rate is on the high end of the acceptable
range. Docket 159 at 3. A rate at the high end of the range is appropriate for
“[e]xperienced, partner-level trial counsel[.]” See Anspach, 2011 WL 4832563,
at *1.
1

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Next, the court must determine whether the number of hours spent on
the motion to compel was reasonable. Rule 37 requires a causal connection
between the expenses incurred and the discovery violation. See Tequila
Centinela, 248 F.R.D. at 69. Expenses that would be incurred as part of the
ordinary and necessary course of litigation are not recoverable, even if they
bear a relationship to the motion to compel. Id.
Atmosphere submitted affidavits detailing the time billed that
Atmosphere believes is compensable. Defendants object that the amount of
time is excessive for a run-of-the-mill motion to compel, that the billing entries
are not specific enough, and that the charges dealing with the inspection of
Merali’s computer are not related to the motion to compel. Docket 159.2
The motion to compel in this instance was not routine or simple.
Although the legal issues were not overly complicated, there were numerous
discovery issues and those issues were fact intensive. The motion also entailed
review of a substantial number of documents and discovery responses.
Additionally, resolving the motion to compel required writing an initial brief
and a reply brief and attending a hearing. This motion to compel is more
complex and time-consuming than an average motion to compel. Atmosphere’s
request for fees is not unreasonable on that basis.
The billing entries do reflect instances where Atmosphere was billed for
activity in the ordinary or necessary course of litigation, such as the exchange

Defendants request that the court award an amount between $1,050
and $2,000. This appears to be based on the amounts awarded in other cases.
Because defendants’ proposed amount bears no relationship to the facts of this
case, those figures are arbitrary. See Anspach, 2011 WL 4832563, at *3.
2

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and review of discovery. Even though those activities are related to the motion
to compel, Atmosphere would have needed to review the discovery in the
ordinary course of litigation. See Tequila Centinela, 248 F.R.D. at 70 (“Here,
time spent discussing ongoing issues such as the status of and adequacy of
Bacardi’s discovery responses do not necessarily constitute hours reasonably
spent on filing the motion to compel nor do they directly arise from it.”).
Similarly, the fees billed by CFR to obtain the electronic discovery were not a
direct result of defendants’ conduct that resulted in the motion to compel
because Atmosphere would have incurred similar expenses to review the
electronic discovery in the ordinary course of litigation. After review of the
billing entries submitted,3 the court finds that Atmosphere is entitled to recover
fees for 22.3 hours billed by Attorney Frankenstein, 22.2 hours billed by
Attorney Smoot White, 20.5 hours billed by the intern, and 0.8 hours billed by
the paralegal on the motion to compel.
Even when work is directly related to a motion to compel, a party is not
entitled to be reimbursed for duplicative efforts. See id. at 71 (recognizing that
parties should generally not be reimbursed for nonproductive or duplicative
work). The determination of how much to reduce a claim for fees is committed
to the court’s discretion and need not be precisely computed. Id. at 71-72
(reducing a fee award by 10 percent to compensate for any potential redundant
billing).

The court disagrees with defendants that the billing entries lack the
requisite specificity. The entries are not ambiguous and clearly state which
time entries relate to the motion to compel.
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Atmosphere requests reimbursement for over 20 hours of time billed by
an intern. While the intern’s lower billing rate may roughly balance out the
larger amount of time spent on each task, it also resulted in time billed by
Attorney Frankenstein to review and revise drafts created by the intern. It is
unclear exactly how much time would have been required for Attorney
Frankenstein to draft those documents herself. Importantly, Atmosphere bears
the burden of demonstrating that its fee request is reasonable. Because the
court has already reduced the number of hours and because the total number
of hours expended on the motion does not appear otherwise unreasonable, the
court finds that a further reduction of 10 percent sufficiently accounts for any
duplicative billing.
Based upon those determinations and using the rates proposed by
Atmosphere, the court finds that the following are reasonable attorney’s fees in
connection to the motion to compel: $5,575 for Attorney Frankenstein (22.3
hours at $250 per hour); $4,662 for Attorney Smoot White (22.2 hours at $210
per hour); $2,050 for time billed by the intern (20.5 hours at $100 per hour);
and $80 for time billed by the paralegal (0.8 hours at $100 per hour). This
equates to an award of $12,367. The court will reduce that amount by 10
percent to account for any duplicative billing, resulting in an award of
$11,130.30.
In instances where a motion to compel is granted in part and denied in
part, the court may apportion the reasonable expenses between the parties.
Fed. R. Civ. P. 37(a)(5)(C). The court granted the motion to compel with respect
to 17 of 24 requests for production. Docket 162 at 4. The court finds it is
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appropriate to allocate the expenses in that proportion. This results in an
award to Atmosphere of $7,883.96 ($11,130.30 in fees multiplied by

17

), plus 6

24

percent sales tax, for a final award of $8,357.
II.

Motion for Sanctions
A.

Standard

Federal Rule of Civil Procedure 37(b)(2) states:
If a party or a party’s officer, director, or managing agent . . . fails
to obey an order to provide or permit discovery, including an order
under Rule 26(f), 35, or 37(a), the court where the action is
pending may issue further just orders. They may include the
following:
(i)

directing that the matters embraced in the order or other
designated facts be taken as established for purposes of the
action, as the prevailing party claims;

(ii)

prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from introducing
designated matters in evidence;

(iii)

striking pleadings in whole or in part;

(iv)

staying further proceedings until the order is obeyed;

(v)

dismissing the action or proceeding in whole or in part;

(vi)

rendering a default judgment against the disobedient party;
or

(vii)

treating as contempt of court the failure to obey any order
except an order to submit to a physical or mental
examination.

“Instead of or in addition to the orders above, the court must order the
disobedient party, the attorney advising that party, or both to pay the
reasonable expenses, including attorney’s fees, caused by the failure, unless
the failure was substantially justified or other circumstances make an award of

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expenses unjust.” Fed. R. Civ. P. 37(b)(2)(C). To impose sanctions under Rule
37, “there must be an order compelling discovery, a willful violation of that
order, and prejudice to the other party.” Chrysler Corp. v. Carey, 186 F.3d
1016, 1019 (8th Cir. 1999). Sanctions must be “ ‘just’ and relate to the claim at
issue in the order to provide discovery.” Hairston v. Alert Safety Light Products,
Inc., 307 F.3d 717, 719 (8th Cir. 2002) (citation omitted).
B.

Discussion

At the hearing on September 29, 2014, the court ordered defendants to
produce responses to Requests for Production 2, 5, 7, 8, 9, 10, 13, 15, 16, 18,
20, and 21 and Request for Admission 9.4 The court asked defense counsel
how much time would be required to produce those responses. Defense counsel
stated that ten days would be a sufficient amount of time. Therefore, the court
ordered that defendants respond to those discovery requests within ten days of
the hearing.
On October 13, 2014, Atmosphere filed the instant motion for sanctions
based on defendants’ failure to provide the responses ordered by the court.
Docket 150. On November 3, 2014, defendants responded to the motion for
sanctions, claiming that they responded on October 14, 2014, which was
within the time frame ordered by the court. Atmosphere then replied, noting an
error in defendants’ calculation of time and contending that many of the late
responses were inadequate. Docket 163.

4

The court also compelled responses to Requests for Production 11, 12,
and 14 but gave defendants thirty days to respond to those requests.
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As an initial matter, defense counsel stated that he based his time
computation on Local Rule 6. See Docket 158. Local Rule 6 does not exist.
Instead, defense counsel appears to have relied on an outdated version of
Federal Rule of Civil Procedure 6, which was amended in 2009. See 4B Charles
Alan Wright et al., Federal Practice and Procedure § 1162 (3d ed.) (“Prior to the
2009 amendments, when the applicable time period for taking some action was
less than eleven days, Federal Rule 6(a) excluded ‘intermediate’ Saturdays,
Sundays, and legal holidays from the computation of time.”). The current Rule
6 provides a straightforward method of computing time. See Fed. R. Civ. P.
6(a). Based on the current method of computing time, defendants’ response
was due October 9, 2014. Because it was not filed until October 14, 2014, the
response was not timely.
Even if defendants’ supplemental discovery responses were timely,
Atmosphere contends that defendants’ responses to the following discovery
requests were inadequate. Atmosphere provided copies of defendants’ discovery
responses as of November 17, 2014. Docket 164-1.
REQUEST FOR PRODUCTION 2: In overruling defendants’ law of the
case objection, the court ordered defendants to respond to this request. Docket
169 at 19. Defendants responded to Request for Production 1,5 but failed to

Atmosphere notes that defendants’ response to Request for Production
1 includes 96 pages of material that was not previously provided in response to
that request. Docket 163 at 3. Because Request for Production 1 is not before
the court at this time, the court makes no ruling on that issue. Additionally,
Atmosphere states that Exhibit 9 submitted in response to Request for
Production 1 did not include any drafts of the contracts at issue, which
opposing counsel agreed to provide at the meet and confer conference. This
court previously admonished defense counsel that he was required to follow
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respond to Request for Production 2. Additionally, defense counsel did not
produce a privilege log as instructed by the court. With respect to the
December 31, 2011, email, defendants did not produce the attachment.
According to Atmosphere and computer forensic specialist Dan Meinke,
defendants have continued to obstruct Atmosphere’s efforts to obtain electronic
discovery from hotel computers and Merali’s cell phone, and the mirror images
of those electronic devices had not been made available to Atmosphere.
Defendants’ failure to respond violates the court’s order on the motion to
compel.
REQUEST FOR PRODUCTION 5: The court granted Atmosphere’s
motion to compel a response to Request for Production 5. Docket 169 at 26.
Atmosphere indicates that defendants are in possession of mirror images of the
computers at issue. Docket 163 at 4-5. Defendants did not respond to this
discovery request following the court’s order compelling defendants to respond.
That failure to respond violates the court’s order on the motion to compel.
REQUEST FOR PRODUCTION 8: The court granted the motion to
compel employee records but limited the time frame to 2011-2013. Docket 169
at 26-27. The court included the nondisclosure agreement and list of
employees in its order. Atmosphere did not include defendants’ Exhibit 2, but
contends that while defendants included W-2s for 2011-2013, the response did
not include any nondisclosure agreement. No mention is made of the list of
employees. To the extent defendants did not provide the nondisclosure
agreement and a list of employees, this response is insufficient.
through on agreements made at the meet and confer. Docket 169 at 15-16.
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REQUEST FOR PRODUCTION 9: The court granted the motion to
compel from April 2013 to the present. Defendants’ response refers to Exhibit
2. According to Atmosphere, Exhibit 2 contains only W-2s from 2011 to 2013.
Even if that represented all the required information, it does not respond to the
request for production’s time frame. This response is insufficient.
REQUEST FOR PRODUCTION 10: The court granted the motion to
compel with respect to payments from Shiba to Kabamesa for 2011 and 2012.
In response, defendants provided four pages of the hotel’s general ledger from
January 1, 2011, to December 31, 2012. The four pages make no mention of
Kabamesa, nor does the response contain any of Kabamesa’s records. This
response is insufficient.
REQUEST FOR PRODUCTION 12: The court granted this motion to
compel a response in full because it was limited to the period of 2012 and
2013. Defendants provided utility bills from 2012 through October 2014 and
stated that additional records had been requested and would be provided upon
receipt. Docket 164-1 at 2, 11-16. It is unclear what additional records
Atmosphere thinks should be disclosed. If defendants acquire responsive
documents in the future, they should supplement this response, but at this
time the response appears sufficient.
REQUEST FOR PRODUCTION 13: This motion to compel production
was granted. Defendants’ response refers to Exhibit 5, which contains no
information on the account from which payments were made. This response is
insufficient.

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REQUEST FOR PRODUCTION 14: This motion to compel production
was granted. Defendants’ response refers to Exhibit 6, which contains a
general ledger detailing utility and other payments for the hotel. This document
is not responsive to the request for production of records for the warehouse
and rental homes. This response is insufficient.
REQUEST FOR PRODUCTION 15: This motion to compel production
was granted. Defendants’ response refers to the hotel’s ledger but does not
show from which account or accounts any payments were drawn. This
response is insufficient.
REQUEST FOR PRODUCTION 16: The court granted the motion to
compel but limited the scope to the time period of 2010 to February 1, 2012.
Defendants produced one-page summaries for each month. The request for
production requested “a copy of all Opera system posting[s.]” Docket 163 at 8
(emphasis added). The documents provided do not show all postings. This
response is insufficient.
REQUEST FOR PRODUCTION 18: The court granted the motion to
compel but limited the time period to 2010 through 2012. In doing so, the
court found that “[t]his may lead to admissible relevant evidence[.]” Docket 169
at 29. Defendants did not produce any evidence. Instead, defendants
responded: “Objection – irrelevant; not reasonable [sic] calculated to lead to
admissible/relevant evidence. Atmosphere should have all relevant records in
their [sic] possession or have access thereto.” Docket 164-1 at 3. Defendants’
response directly contradicts the court’s order and is insufficient.

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REQUEST FOR PRODUCTION 20: The court stated that defendants
needed to either sign a document indicating that everything had been produced
with respect to this request for production, or produce the responsive
documents. Docket 169 at 30. Defendants did not respond to this part of the
court’s order.
REQUEST FOR PRODUCTION 21: The court granted the motion to
compel production of Merali’s calendar from October 2011 to December 2011.
Atmosphere indicates that the documents produced show only birthdays and
do not contain other information. Docket 163 at 9. Furthermore, Atmosphere
alleges that Merali has continued in his refusal to allow Atmosphere access to
the calendar on his cell phone. The calendar produced is insufficient, and
Merali’s refusal violates the court’s order on the motion to compel.
Turning to the elements laid out in Chrysler Corp., 186 F.3d at 1019,
here there was a court order on the motion to compel. Defense counsel was
present at the hearing and was aware of the court order. Based on defendants’
failure to file a timely response, and the fact that the responses eventually
provided were deficient as described above, the court finds there was a willful
failure to comply with the court’s order.6
Atmosphere argues that it has been prejudiced by the significant delay in
this case, by having to produce its experts’ supplemental reports without the
6

To the extent defense counsel’s response brief could be read as
suggesting that the failure to comply with the court’s deadline was the product
of oversight or clerical error, or was otherwise excusable, the court expects
attorneys practicing in the District of South Dakota to be aware of and follow
the Local Rules and the Federal Rules of Civil Procedure. Application of a rule
amended over five years ago, coupled with citation to a nonexistent local rule,
falls short of this standard of professional conduct.
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benefit of the discovery to which it was entitled, and by having to conduct four
depositions without the benefit of complete discovery. Docket 163 at 10-11.
This amounts to prejudice sufficient to support sanctions. Baker v. General
Motors Corp., 86 F.3d 811, 816-17 (8th Cir. 1996) (finding that the failure to
produce documents within the ten-day period ordered by the district court was
prejudicial because plaintiffs were prevented from researching issues
completely and were deprived of information which they were due) vacated in
part on other grounds by Baker v. General Motors Corp., 138 F.3d 1225 (8th Cir.
1998). In addition, the court notes that Atmosphere has filed two additional
motions to compel discovery and has incurred substantial expenses litigating
discovery issues.
At this time, the court is without the benefit of any briefing by
defendants concerning the imposition of sanctions. Defendants’ response to the
motion consisted entirely of the erroneous time computation. The court is
reluctant to impose sanctions without giving defendants an opportunity to be
heard on that issue. Counsel for plaintiff should describe the sanctions it is
requesting and submit an affidavit for a fee request by January 23, 2015.
Defendants will have until January 30, 2015, to respond to plaintiff’s request
for sanctions and to plaintiff’s fee request. Defendants should also explain what
steps they have taken to correct the insufficient discovery responses. In
determining sanctions, the court will consider, among other factors, whether
defendants have remedied their failure to comply with the court’s order on the
motion to compel. If defendants have not complied in full with the court’s order
at that time, the court will consider imposing any and all sanctions authorized
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under Rule 37, up to and including dismissal of the third-party complaint or
entry of a default judgment.
CONCLUSION
Atmosphere is entitled to recover a portion of its reasonable attorney’s
fees in connection with the motion to compel. Defendants have failed to comply
with the court’s order on the motion to compel. Accordingly, it is
ORDERED that the motion for attorney’s fees (Docket 147) is granted in
part, and defendants Shiba and Merali will pay Atmosphere a total of $8,357 in
attorney’s fees and sales tax.
IT IS FURTHER ORDERED that the parties will submit further briefing
on the motion for sanctions (Docket 150) as outlined in this order.
Dated January 9, 2015.
BY THE COURT:

/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE

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