Garth O. Green Enterprises et al v. Standard Plumbing Supply
Filing
616
ORDER granting in part and denying in part 461 Motion in Limine and for Discovery Sanctions. Signed by Magistrate Judge Evelyn J. Furse on 1/29/2018. (jwt)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
GARTH O. GREEN ENTERPRISES,
INC. et al.,
ORDER GRANTING IN PART AND
DENYING IN PART MOTION IN LIMINE
AND FOR DISCOVERY SANCTIONS
(ECF NO. 461)
Plaintiffs & Counterclaim
Defendants,
Case No. 2:15-cv-556-RJS-EJF
v.
District Judge Robert J. Shelby
RANDALL HARWARD, et al.,
Magistrate Judge Evelyn J. Furse
Defendants & Counterclaim
Plaintiffs.
Counterclaim Defendants Garth O. Green Enterprises, Inc., Garth O. Green, and
Michael Green, (the “Greens”), bring their Motion in Limine and for Sanctions Regarding
Standard’s Deficient Discovery Responses Re: Damages. (Mot. in Limine & for
Sanctions Re: Standard’s Deficient Disc. Resps. Re: Damages (“Mot.”), ECF No. 461.)
Specifically, the Greens contend Counterclaim Plaintiff Standard Plumbing Supply Co.,
Inc., (“Standard”), failed to provide a computation of damages as required by Federal
Rule of Civil Procedure 26 and failed to produce documents related to its damages.
(Mot. 3, ECF No. 461.) The Greens ask this Court to terminate Standard’s claims for
damages or exclude any evidence to support its damage claims. (Id. at 1.) In either
event, the Greens seek their attorney’s fees spent on discovery in the case. (Id.) As
evidence of the harm suffered, the Greens argue they had to serve certain Rule 33
interrogatories and Rule 34 document requests aimed at discovering Standard’s
damages, which Standard should have disclosed under Rule 26(a)(1), and Standard
failed to reply fully to them. (Id. at 4-6, 33-44.) The Greens further contend they
attempted to take Standard’s Rule 30(b)(6) deposition to discover the alleged damages,
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but Standard failed to prepare its witness for deposition on the issue of damages. (Id. at
7-14.) Additionally the Greens assert Standard improperly instructed its management
team not to answer damages questions in their depositions that the Greens noticed in
an attempt to determine the damages alleged. (Id. at 14-19.) Having considered the
briefing on the motion, the Court 1 finds Standard failed to make its required 26(a)(1)
disclosures, causing harm to the Greens. The Court GRANTS the Motion in part and
DENIES the Motion in part. 2 Specifically, the Court compels further disclosure to
comply with Rule 26, grants further deposition of Standard’s 30(b)(6) witness and a few
members of the management team at Standard’s expense, and awards $5,000 to the
Greens to compensate them for the harm caused by Standard’s failure to disclose.
DISCUSSION
I.
Timeliness
Standard asks this Court to deny the Greens’ Motion as untimely. (Standard
Plumbing Supply Co. Inc.’s Mem. in Opp’n to Defs.’ Mot. in Limine & for Sanctions Re:
Standard’s Deficient Disc. Resps. Re: Damages (“Opp’n”) 1, ECF No. 480.) The Court
ordered the parties to meet and confer by April 28, 2017 on any discovery issues
regarding disclosures, document requests, interrogatories, requests for admission, and
deposition occurring before March 31, 2017. (ECF No. 324; Apr. 6, 2017 H’rg Tr. 128130, ECF No. 461-6.) At the hearing, the Court clarified that if the parties did not intend
to contest the completeness of the discovery but rather file a summary judgment based
on insufficient evidence or seek a motion in limine for failure to disclose, they did not
1
On February 9, 2017, the District Judge referred this case to Magistrate Judge Evelyn
J. Furse under 28 U.S.C. § 636(b)(1)(A). (ECF Nos. 196 & 388.)
2
The Court has read all of the submissions and finds oral argument unnecessary.
DUCivR 7-1(f).
2
need to meet and confer on those issues. (Apr. 6, 2017 H’rg Tr. 128-130, ECF No. 4616.) At a subsequent hearing, the Court explicitly stated that it did not include a deadline
for filing the proposed motion in limine on damages because it “wanted to leave that
open.” (June 28, 2017 Hr’g Tr. 17, ECF No. 463.) The Greens sought subsequent
extensions of their projected filing date, which the Court granted, but the Court never set
a deadline to file a motion in limine on damages. The Greens subsequently filed this
Motion in Limine, and the Court considers it timely filed.
II.
Damages Disclosure Requirements Under Rule 26
The Greens contend Standard failed to provide its computation of damages.
Under Federal Rule of Civil Procedure (“Rule”) 26(a)(1)(A)(iii), parties must, prior to a
discovery request, provide other parties with
a computation of each category of damages claimed by the disclosing party—
who must also make available for inspection and copying as under Rule 34 the
documents or other evidentiary material, unless privileged or protected from
disclosure, on which each computation is based, including materials bearing on
the nature and extent of injuries suffered.
Fed. R. Civ. P. 26(a)(1)(A)(iii). In its Notes to the 1993 Amendments of Rule 26(a), the
Advisory Committee explains that Rule 26(a)
imposes a burden of disclosure that includes the functional equivalent of a
standing Request for Production under Rule 34. A party claiming
damages or other monetary relief must, in addition to disclosing the
calculation of such damages, make available the supporting documents
for inspection and copying as if a request for such material had been
made under Rule 34.
Fed. R. Civ. P. 26 Advisory Committee Notes, 1993 Amendments re: subdivision (a),
paragraph (1). Additionally, “[a] major purpose of the [rule] is to accelerate the
exchange of basic information about the case and to eliminate the paper work involved
in requesting such information, and the result should be applied in a manner to achieve
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these objectives.” Id., 1993 Amendments re: subdivision (a). Parties must adhere to
this Federal Rule of Civil Procedure for discovery to proceed smoothly.
Standard argues it provided what parties typically provide as damage
calculations in Rule 26(a)(1) disclosures, has since produced additional damages
information, and will supplement with information from its damages experts. (Opp’n 8,
ECF No. 480.) Standard also reminds the Court it will produce expert discovery when
ordered by the Court. (Id. at xxi-xxii, xxix, 8.) The Greens respond that the expert
discovery cutoff has no relevance to Standard’s discovery obligations because Rule
26(a) prevents a party from deferring damage discovery and calculations until it must
provide expert discovery. (Reply in Support of Mot. in Limine & for Sanctions Regarding
Standard’s Deficient Resps. re: Damages (“Reply”) 18, ECF No. 488.)
Standard made its initial disclosures on April 2, 2015, and failed to state an
estimated amount of damages or how it calculated its damages. (Defs. Richard N.
Reese & Standard Plumbing Supply Co., Inc.’s Initial Disclosures 5, ECF No. 461-1.)
Standard supplemented its disclosures a day later but did not change its damages
disclosure. (Defs. Richard N. Reese & Standard Plumbing Supply Co., Inc.’s 1st Am.
Initial Disclosures (“Initial Disclosures”) 5, ECF No. 480-3.) The initial disclosures read
as follows:
Standard Plumbing seeks damages from Plaintiffs for intentional
interference with economic relations, defamation, deceptive trade
practices, civil conspiracy, unjust enrichment, wrongful lien, abuse of
process, breach of contract, and an award of attorneys’ fees and costs.
Information necessary to compute these amounts is not available at this
stage of the litigation. Therefore, Standard Plumbing cannot presently
provide a computation of damages and reserves the right to do so as
discovery in this matter continues.
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(Id.) Standard also stated that it had provided or would provide all documents in
support of its claims at the time of its initial disclosures. (Id.) From the record, Standard
does not appear to produce any documents until over a year later on August 15, 2016
when it produced documents bearing document numbers “Standard 00001-0891.” (Mot.
6, ECF No. 461.)
On December 30, 2016, Standard further disclosed “a preliminary but finite
calculation” from March 20, 2015 of its lis pendens damages equaling $1,449,789.07.
(Opp’n xxix, ECF No. 480; Expert Witness Report of Russell K. Booth (“Booth Report”)
15, ECF No. 461-32.) On January 30, 2017, Standard disclosed it incurred attorney
fees and costs of $496,658.06 through December 30, 2016 as part of a stand-alone
motion for attorney fees. (Opp’n xxix, ECF No. 480; Burton Aff. Re: Atty. Fees, ECF
Nos. 172-11 & 180.) Notably, Standard could have disclosed the lis pendens number
with its initial disclosure without any difficulty and could have easily run its attorney fees
expenditures to that date and disclosed them. At this point in the litigation, Standard
has remaining claims for intentional interference with economic relations, abuse of
process, and two declaratory relief claims. (Ans. to Countercls. 11-14, ECF No. 486.)
On its face Rule 26 requires Standard to provide the Greens both with a
computation of each category of damages it claims and with the non-privileged
documents on which it bases those calculations. Standard has never asserted a fixed
number for damages. The Greens had a right to know from the outset approximately
how much Standard thought the Greens had damaged it and how it arrived at that
number. Such disclosure does not prevent a party from changing theories as the case
proceeds. Thus Standard has no basis to withhold its estimation or calculation.
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Standard’s failure to provide the Greens with an estimation and calculation of its
damages violates Rule 26(a)(1)(A)(iii)’s requirements.
On July 1, 2016, the Greens requested all documents relating to Standard’s
damages. (Pls.’ 1st Request for Prod. of Docs. From Defs & Countercl. Pls. Standard
Plumbing Supply Co., Inc. & Richard Reese Req. # 7, ECF No. 461-2.) On August 3,
2016, Standard responded that “documents generated or made in the regular course of
business which are responsive to this Request, if any, and not otherwise privileged,
have been or will be produced.” (Standard Plumbing Supply Co., Inc., & Richard N.
Reese’s Resp. to Green’s 1st Request for Prod. of Docs., ECF No. 461-3.) Standard
produced approximately 900 documents to the Greens on August 15, 2016 and made
further productions in October 2016, November 2016, and January 2017 of
approximately 300 more documents. (Mot. 6, ECF No. 461.) Not until May 2017 did
Standard produce its annual profit and loss statements for the five locations at issue
and a consolidated profit and loss statement for the years 2013-2017. (Id. at 26-27.) At
that same time, Standard also offered to make millions of pages of documents
containing financial data available in support of its damages. (Id. at 28-29.) The
attorney billing records up until April 2015 and the lis pendens expert report, at a
minimum, existed at the time of initial disclosures, but Standard did not produce them
until two years after the disclosures. This failure clearly violates Rule 26.
Standard also contends that discovery remains open, and the scheduling order
does not require supplementation under Rule 26(e) until after the close of discovery.
(Opp’n 3, ECF No. 480.) The Court notes that Standard has a duty to supplement its
discovery responses and disclosures in a timely manner. Fed. R. Civ. P. 26(e). On
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June 30, 2017, the Court made this point explicitly to the parties telling them to review
their productions and that supplementation may not wait until the end of the case.
(June 30, 2017 H’rg Tr. 81-82, ECF No. 467.) The last day for supplementation under
Rule 26(e) does not excuse an initial failure to disclose or a failure to disclose in a timely
manner after learning of new information required to make a disclosure or discovery
response complete. Under these facts, the Court finds Standard failed to comply with
Rule 26(a)(1) damages disclosure requirements.
III.
Standard’s Failure was Neither Substantially Justified Nor Harmless
Rule 37 dictates that “[i]f a party fails to provide information or identify a witness
as required by Rule 26(a) or (e), the party is not allowed to use that information or
witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless.” Fed. R. Civ. P. 37(c)(1). Thus whether a district
court excludes evidence not produced in compliance with Rule 26(a) turns on whether
the violation is justified or harmless. See Jacobsen v. Deseret Book Co., 287 F.3d 936,
952 (10th Cir. 2002) (noting court’s authority to admit expert testimony that violates Rule
26(a)).
“‘The determination of whether a Rule 26(a) violation is justified or harmless is
entrusted to the broad discretion of the district court.’” Woodworker's Supply, Inc. v.
Principal Mut. Life Ins. Co., 170 F.3d 985, 993 (10th Cir. 1999) (quoting Mid-America
Tablewares, Inc. v. Mogi Trading Co., 100 F.3d 1353, 1363 (7th Cir. 1996)). “[T]he
court should consider the following factors: (1) the prejudice or surprise to the party
against whom the testimony is offered; (2) the ability of the party to cure the prejudice;
(3) the extent to which introducing such testimony would disrupt the trial; and (4) the
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[proffering] party’s bad faith or willfulness.” Jacobsen, 287 F.3d at 953 (quoting
Woodworker's, 170 F.3d at 993). Furthermore,
where the exclusion of evidence under Rule 37(c)(1) has the necessary
effect of a dismissal, . . . , district courts should, in conjunction with the
traditional Woodworker's inquiry, carefully explore and consider the
efficacy of less drastic alternatives, ordinarily reserving the extreme
sanction of dismissal for cases involving bad faith or willfulness or
instances where less severe sanctions would obviously prove futile.
HCG Platinum, LLC v. Preferred Prod. Placement Corp., 873 F.3d 1191, 1206 (10th Cir.
2017).
A. Prejudice or Surprise to the Greens
Standard’s failure to provide a computation of its damages impermissibly
prejudiced the Greens because the Greens had to proceed through discovery without
knowing the basis for the damages claims, making discovery in defense of such claims
difficult.
The Greens argue Standard’s lacking Rule 26(a) disclosures forced them to
request damages information through Interrogatories and Requests for Production of
Documents under Rules 33 and 34, to which Standard failed to respond fully. (Mot. 3334, 55-59, ECF No. 461.) In its Opposition, Standard argues that the Greens failed to
meet and confer on the Interrogatories and Requests for Production of Documents
regarding damages or to seek a motion to compel, and thus the Court cannot award
sanctions. (Opp’n 4-6, ECF No. 480.)
Rule 37(c)(1) does not require a meet and confer prior to seeking to exclude
evidence at trial. As a policy matter, omitting the meet and confer requirement makes
sense for the context in which a party usually invokes the rule—at trial or on the eve of
trial when an opponent attempts to introduce evidence never previously disclosed. In
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this case, the Court ordered the parties to meet and confer by April 28, 2017 on any
discovery issues regarding disclosures, document requests, interrogatories, requests for
admission, and deposition occurring before March 31, 2017. (ECF No. 324; Apr. 6,
2017 Hr’g Tr. 128-130, ECF No. 461-6.) With Rule 37(c)(1) in mind, the Court clarified
that if the parties did not intend to contest the completeness of the discovery but rather
file a summary judgment based on insufficient evidence or seek a motion in limine for
failure to disclose, they did not need to meet and confer on those issues. (Apr. 6, 2017
H’rg Tr. 128-130, ECF No. 461-6.) As the Greens seek a motion in limine and not a
motion to compel on the issues, the Court finds they had no obligation to meet and
confer on these issues prior to bringing this Motion.
Standard further contends the Greens have not suffered any prejudice because
discovery remains open, and it has produced relevant financial information. (Opp’n 3,
ECF No. 480.) The attorney fees numbers previously provided are now a year out of
date. While Standard stated in court that it only intends to claim these two types of
damages, (Apr. 6, 2017 H’rg Tr. 5-6, ECF No. 461-6), it never amended its Rule
26(a)(1) disclosures to reflect that or otherwise made its statements binding. Notably, at
the hearing Standard’s counsel said as to damages categories, “Now there may be
others, but these are the two general buckets.” (Id.) Additionally Standard alleged
numerous categories of damages in its 30(b)(6) deposition not covered by either
attorney fees or the lis pendens report, e.g. reputational damages, damages to the
business profits, and loss of time of employees and owners. (Standard 30(b)(6) Dep.
15-19, ECF No. 480-12). For these reasons, Standard has not produced all of the
relevant damages estimates and calculations.
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As to documents, on May 10, 2017, Standard finally offered to produce for
inspection what appears to include all its financial records. (E-mail from Burton to
Monson, May 10, 2017, 3, ECF No. 461-7.) In providing these documents for
inspection, the Greens would have to pay for any copying and submit the documents
chosen for copying to Standard for approval, among other requirements. (Id.)
This
wholesale turning over of financial information does not comply with Rule 26(a)(1)’s
requirement to produce documents supporting the damage calculations. If Standard’s
experts intend to review any of the materials Standard offers for inspection, Standard
should have produced those documents already. Shifting the burden to pay for the
search and production to the Greens does not qualify as compliance with Rule 26(a)(1).
Standard offers that it produced summaries of its financial information that contain all of
the information the Greens need. (Id.) Of course, Rule 1006 of the Federal Rules of
Evidence clearly requires the proponent of any summary to make available the original
documents used in preparation of that summary. Standard’s offer appears by its own
account to include far more documents than just those used to produce the summaries.
(Id.) Therefore, the offer fails to satisfy Rule 26(a)(1).
As further evidence of the prejudice the Greens have suffered, they point to the
30(b)(6) deposition and the depositions of management witnesses, which they took only
to find the individuals had no knowledge about damages or Standard had instructed
them not to answer the questions. (Mot. 54-55, ECF No. 461.) Standard contends the
Greens took those depositions knowing the deponents had no relevant damages
information. (Opp’n x-xiii, xxiv-xxvi, 8-9, ECF No. 480.) Standard’s initial disclosures do
not state that any of the deposed individuals had knowledge of its damages. (Suppl.
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Initial Disclosures 2-5, ECF No. 480-3.) Furthermore, Standard tried to dissuade the
Greens from taking a number of these depositions by explaining the witnesses had no
relevant information after dismissal of the Greens’ claims. (E-mail from Burton to
Mumford & Monson, Jan. 12, 2017, 1, ECF No. 480-11; Opp’n xxv, ECF No. 480.) The
Greens deposed these individuals nonetheless. Mathew Larsen appears to have
knowledge about damages and Standard’s financial positions given his decision to
follow his attorney’s advice to refuse to testify about the financial performance of the
Sprinkler World stores at issue. (Larsen Dep. 34-35, 38-40, 47-48 ECF No. 461-36.)
The same is true of Mathew Freeman, Standard’s director of sales and distribution.
(Freeman Dep. 13, 63-65, ECF No. 461-37.) As to Ms. Drake’s and Standard’s 30(b)(6)
deposition, Standard has tacitly acknowledged the problems with those depositions
through its offer to reopen both depositions. (E-mail from Burton to Monson, May 10,
2017, 3, ECF No. 461-7.) The Court does find Standard’s actions in these depositions
further harmed the Greens in their attempt to determine the damages information
Standard should have disclosed in its initial disclosures.
B. The Ability of Standard to Cure the Prejudice
Further disclosure of the damages categories and calculations, the documents
supporting these, the reopening of the depositions, and an award of fees and costs may
ameliorate the prejudice the Greens have suffered.
The Greens first and foremost seek dismissal of the two causes of action seeking
damages against them and all discovery costs. Alternatively, they seek amended
written discovery responses, productions of damages documents not previously
produced, a computation of each category of damages, and identification of the
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documents supporting each category, and redeposition of Standard and their
management team, along with costs and fees previously expended. (Mot. 58-59, ECF
No. 461.)
Standard argues that it offered, more or less, exactly this compromise on May
10, 2017. (Opp’n xxi, ECF No. 480.) With respect to the 30(b)(6) deposition, Standard
offered to allow the redeposition of Mr. Reese both as an individual and corporate
representative for eight hours, two of which Standard would pay for. (E-mail from
Burton to Monson, May 10, 2017, 3, ECF No. 461-7.) As to Ms. Drake’s deposition,
Standard offered to allow her redeposition for two hours at Standard’s expense. (Id.)
If the Greens could take these redepositions, and those of Mr. Larsen and Mr.
Freeman at Standard’s expense, following an appropriate 26(a)(1) disclosure, then that
would cure much of the prejudice from the failure to disclose.
C. The Extent of Disruption to the Trial
The Court has not set a trial date in this matter. Because sufficient time still
exists prior to trial for Standard to provide the Greens with this information, testimony on
its damages should not disrupt trial once litigation reaches that stage.
D. Standard’s Bad Faith or Willfulness
Finally, each party accuses the other of bad faith withholding of information in
discovery. Standard raises the Greens’ noncompliance with discovery as an apparent
excuse for its own noncompliance. (Opp’n xxx-xxxi, ECF No. 480.) Noncompliance
with discovery by one party does not excuse the other party from its discovery
obligations. Jacobsen, 287 F.3d at 954 (noting that one party’s noncompliance with
Rule 26 should not excuse the other party’s noncompliance). The Greens’ failure to
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comply with their discovery obligations does not impair Standard’s ability to calculate
and disclose its own damages.
As to Standard’s bad faith or willfulness, Standard’s actions cause this Court
concern. In particular, the Court has repeatedly sanctioned parties for refusing to
produce a damage disclosure prior to its expert report. The continued attempt to delay
damages discovery until late in the case runs expressly counter to Rule 1 and Rule 26.
This Court will continue to sanction parties who take this position. Further, the Rules
expressly prohibit instructions not to answer in a deposition except in three
circumstances, none of them present here. Counsel for Standard has no excuse for
giving instructions not to answer based on the confidentiality of financial information.
(See Mot. 13, ECF No. 461; 30(b)(6) Dep. 77:3-80:23, ECF No. 461-35.) Without
question, the confidentiality of financial information does not supply a basis upon which
an attorney can instruct a witness not to answer or a witness can refuse to answer. The
Court finds Standard attempted to block discovery of its financial information without a
basis to do so under the law. The Court understands Standard’s reluctance to provide
financial information to a competitor, but avenues exist to ameliorate that problem.
Rather than attempting to address the issue directly, Standard engaged in willful
conduct.
The Court’s order allowing some narrowing of the inquiry into Standard’s
finances by no means reflects any legitimacy in the wholesale refusal to produce
information or testify about finances. On March 24, 2017, Standard sought an order
limiting the Greens “from inquiring as to Standard’s financial information unrelated to the
Sprinkler World transaction and acquisition.” (Proposed Order, ECF No. 274-1.) This
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Court rejected such a narrowing of discovery. Nevertheless, Standard did finally bring
the motion for a protective order, (ECF No. 274), and did begin to try to address its
deficiencies prior to the Greens bringing this motion. (E-mail from Burton to Monson,
May 10, 2017, 3, ECF No. 461-7.)
IV.
Conclusion
Under the Woodworker’s factors, the Court finds Standard’s violation harmful and
not justified but will allow Standard to cure its Rule 26(a) disclosure deficiencies now
with additional disclosure. The Court ORDERS Standard to provide a damages
estimate and calculation for each category of damages it intends to claim at trial within
fourteen (14) days of this Order. The Court ORDERS Standard to identify with
specificity each document on which its bases its damages calculation and provide a
copy of those documents to the Greens within fourteen (14) days of this Order at its own
expense. Further, after Standard completes this production within fourteen (14) days of
this Order, the Court, pursuant to Rules 26 and 37, bars Standard from using
documents to prove its damages that it had in its possession, custody, or control prior to
making this supplemental production, but failed to produce to the Greens in compliance
with this Order. The Court also ORDERS the redeposition of Standard’s 30(b)(6)
witness, Mr. Larsen, Mr. Freeman, and Ms. Drake on the issue of damages. Standard
will bear the costs of the redepositions and pay the attorney fees for the depositions.
The Court further ORDERS Standard to pay the Greens $5,000 to compensate for the
delay in the receipt of this information and the need to bring a Motion to obtain it. The
Court does not award more money because the Greens could have addressed these
issues earlier and in a less expensive manner through a short form discovery motion(s).
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SO ORDERED this 29th day of January 2018.
BY THE COURT:
Evelyn J. Furse
United States Magistrate Judge
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