FLAME S.A. v. INDUSTRIAL CARRIERS, INC. et al
Filing
377
ORDER granting in part and denying in part 323 Motion for Sanctions; granting in part and denying in part 326 Motion for Sanctions. Plaintiff Glory Wealth's motion for sanctions and for reconsideration of the discovery order, ECF No. 3 23, is GRANTED IN PART and DENIED IN PART, in that the Court awards sanctions but denies reconsideration. Plaintiff Flame's motion for sanctions and for reconsideration of the discovery order, ECF No. 326, is GRANTED IN PART and DENIED IN PART, in that the Court awards sanctions but denies reconsideration.. Signed by Magistrate Judge Lawrence R. Leonard and filed on 8/8/14. Copies distributed to all parties 8/8/14. (ldab, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Norfolk Division
FLAME S.A.,
Plaintiff,
GLORY WEALTH SHIPPING PTE. LTD.,
Consolidated Plaintiff,
CIVIL ACTION NO. 2:13-cv-658
v.
INDUSTRIAL CARRIERS, INC., et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
To the surprise of absolutely no one familiar with this case, now before the Court are
motions for sanctions filed by both Plaintiff Flame, S.A., ("Flame") and Consolidated Plaintiff
Glory Wealth Shipping Pte. Ltd ("Glory Wealth"). ECF Nos. 326, 323. In their motions, both
Plaintiffs allege that Defendant Freight Bulk Pte. Ltd. ("FBP") violated this Court's prior Orders
compelling FBP to respond to certain discovery requests promulgated by Plaintiffs. In addition,
both Plaintiffs ask the Court to reconsider its prior discovery Orders which limited the scope of
discovery with respect to the Defendants. This latest round of discovery disputes centers on the
Plaintiffs' belief that FBP has deliberately violated this Court's Orders by refusing to produce
relevant documents, and by denying that it has certain categories of documents that Plaintiffs
believe it must, in fact, have. Accordingly, Plaintiffs seek, as a sanction under Federal Rule of
Civil Procedure 37(b), either entry of a default judgment against FBP, or, in the alternative, a
ruling from the Court that certain facts with respect to Plaintiffs' alter ego claims are established.
Plaintiffs also seek attorneys' fees and costs in connection with their pursuit of these motions and
as a penalty for the additional expense they claim to have incurred because of FBP's late or nonproduction of documents.
I. Genesis of the Motions for Sanctions
The genesis of this latest dispute began in early July, when the parties traveled to
Istanbul, Turkey to depose four non-party fact witnesses produced by FBP, and subsequently,
were supposed to travel to Odessa, Ukraine to take the second deposition of named-Defendant
Viktor Baransky.1 Due to a multitude of concerns, the parties never went to Odessa and were
unable to depose Mr. Baransky as scheduled. Days later, on July 11, 2014 and at the request of
the parties, the undersigned convened a telephone conference to address "ongoing discovery
issues." ECF No. 317. During the conference, among other topics,2 Flame advised it had filed a
motion to compel, its fifth, because FBP was still not producing discovery as ordered by the
Court in its prior discovery orders issued on April 30, 2014, ECF Nos. 209, 210.3 Flame sought
from the Court an Order directing FBP to comply with the Court's previous discovery orders.
Instead, the Court directed the parties to Federal Rule of Civil Procedure 37(b) to remedy any
alleged violations of this Court's Orders, and set a briefing schedule for the filing of any
sanctions motions if a party believed that the Court's Orders were, in fact, being disobeyed. ECF
No. 318. Thus, Flame's fifth motion to compel was denied, ECF No. 331, and subsequently,
both Glory Wealth and Flame filed motions for sanctions against FBP, ECF Nos. 323, 326. In
these motions, Plaintiffs also ask the Court to reconsider the April 30, 2014 discovery orders and
1The Court notes that Flame, Glory Wealth and Defendant FBP each disagree even on how to spell Mr. Baransky's
last name. The Court uses the spelling from the December 12, 2013 deposition upon oral examination of Viktor
Baransky, which was filed as part of the record in this case. ECFNo. 51.
: See ECF No. 333 for the full hearing transcript.
3ECF No. 209 ruled on Glory Wealth's motions, and ECF No. 210 ruled on Flame's motions. For purposes of this
Order, the Court refers to the April 30,2014 discovery orders collectivelyas"the discoveryorders."
2
expand discovery to the sixty known entities that Mr. Baransky is alleged to control. Id. FBP
filed an opposition to both motions, ECF No. 334, and both Plaintiffs replied, ECF Nos. 340,
342.
II. Brief Background
In the discovery orders, the Court granted in part Glory Wealth and Flame's motions to
compel, and ordered FBP to respond to Plaintiffs' discovery requests, "but only as to those
requests specifically tailored to named Defendants in this litigation." ECF Nos. 209 at 3-8; 210
at 3-8. Providing further explication, in its ruling the Court incorporated the holding from E.I.
DuPont de Nemours and Co. v. Kolon Industries, Inc., 286 F.R.D. 288, 298 (E.D. Va. 2012), to
provide the parties with specific direction as to the scope of discovery that would be authorized,
by stating the following:
Documents that relate to any ownership interest [that any named Defendant:
Industrial Carriers, Inc. ("ICI"), Vista Shipping Inc. ("Vista"), FBP, Viktor
Baransky, or Sergei Baransky] holds or has held in any other business entity
during the relevant time period [2008, the date from which Glory Wealth's
London arbitration award is calculated, forward] must be produced, and the
motion to compel is granted to that extent.
ECF No. 209 at 3-4; 210 at 4 (quotation marks omitted). The Court then specifically enumerated
to which Requests for Production ("RFP") FBP was compelled to respond, and to which ones it
was not so compelled. ECF Nos. 209 at 5; 210 at 5, 7. The discovery parameters promulgated
by the Court should have been perfectly clear, especially when viewed in connection with the
RFPs to which FBP was compelled to respond, in comparison with those to which it was not.
For instance, FBP was compelled to produce documents in response to Flame's Third RFP No.
76: "All documents concerning the relationship between any of the Defendants and Sea Traffic
Shipping Co., Columbus Maritime Shipping Corporation, Tech Project LLC and MKTM Ltd. for
the period January 1, 2008 to present." ECF No. 201 at 7. It was not compelled to produce
documents in response to Flame's Third RFP No. 77: "Any and all correspondence and/or
documents concerning the corporate structure of Sea Traffic Shipping Co., Columbus Maritime
Shipping Corporation, Tech Project LLC and MKTM Ltd."
Id.
Inasmuch as the Court's
discovery orders ruled on each discovery request before it, FBP had clear instruction as to its
obligations to comply. Further, finding that FBP's position was not substantially justified and
that other circumstances did not make an award of expenses unjust, the Court also awarded fees
to Glory Wealth and Flame pursuant to Rule 37(a)(5)(A).4
Apparently dissatisfied with the Court's specified bounds of discovery, Plaintiffs filed a
motion to reconsider, asking that discovery "include all companies that Mr. Baransky admittedly
owns or controls, as originally requested by Flame." ECF No. 233 at 2. On June 4, 2014, the
motion was denied because there had not been an intervening change in controlling law, a proffer
of new evidence not available earlier, or a need to correct a clear error of law or to prevent
manifest injustice. ECF No. 274 at 1 (citing Fed. R. Civ. P. 54(b)). Shortly thereafter, Senior
U.S. District Judge Doumar continued the trial date, and gave the parties additional time to
complete discovery. ECF No. 281. Discovery closed on July 15,2014. ECF No. 268 at 2.
III. Plaintiffs' Claim that FBP Failed to Comply with the Discovery Orders
Plaintiffs now claim that FBP has failed to comply with the discovery orders and ask for
sanctions under Rule 37. Specifically, Plaintiffs cite no less than nine categories of requested
discovery that FBP has not produced in violation of the discovery order:
1. Corporate Records (ECF Nos. 324 at 7-9; 327 at 4-6).
2. Emails Sent or Received by Victor Baransky (ECF Nos. 324 at 9-10; 327 at 6-8).
3. Supporting Documentation for Bank Records (ECF Nos. 324 at 10-11; 327 at 8-10).
4To date, however, neither Flame norGlory Wealth have yet submitted a motion substantiating their fees and costs,
asthey were directed to do by the Court's discovery orders. ECF Nos. 209 at 9; 210 at 8.
4. Attachment to the Loan Agreement Between Sea Traffic Shipping Co. and FBP (ECF
Nos. 324 at 11-12; 327 at 10-11).
5. Charters for the M/V CAPE VIEWER and HARMONY FALCON (ECF Nos. 324 at
12-13; 327 at 11-13).
6. Documents from Industrial Carriers Inc. ("ICI") (ECF Nos. 324 at 13; 327 at 14).
7. Audit Documentation and Correspondence (ECF No. 327 at 13-14).
8. All Attachments to Emails and Other Documents (ECF No. 327 at 14-16).
9. Defense Evidence (ECF No. 327 at 16-17).
FBP generally responds to these allegations in four ways: (1) the requested discovery is not
subject to the Court's discovery orders, and thus, FBP was under no obligation to produce it; (2)
FBP has produced documents it claims are responsive (but which Plaintiffs dispute); (3) FBP has
produced documents it claims are responsive (which Plaintiffs do not dispute); and (4) FBP does
not have the requested documents, blaming recordkeeping standards in Ukraine. ECF No. 334.
In addition to asking the Court to reconsider the discovery orders to expand discovery to over
sixty entities that Viktor Baransky holds or controls, Plaintiffs ask for and propose the following
sanctions under Rule 37(b)(2)(A) for FBP's failure to obey the discovery order: (1) strike FBP's
amended answer and enter default judgment against FBP in favor of Plaintiffs, ECF No. 327 at
30; or (2) designate certain matters or facts as established as true, and preclude FBP from
introduction of evidence at trial to defend against the designated matters, id, specifically,
designate as established for purposes of the action that the Vista Group/Baransky controlled
entities are alter egos of each other. ECF No. 340 at 6.
The Court's task in determining whether FBP has violated the Court's discovery orders is
complicated by the parties' general focus on their summarization of the categories of information
about which they dispute, rather than on the specific RFPs to which the Court ordered FBP to
respond. While this focus is understandable because of the volume of discovery requests,
nonetheless the Court did not compel FBP to respond to general requests for categories of
information. Instead, it compelled FBP to respond to specifically enumerated RFPs, by holding,
for example:
Accordingly, Glory Wealth's emergency motion to compel, ECF No. 173, is
GRANTED as to the following First Requests for Production of Documents:
request numbers 1-33, 35-70, 72-75, 77, 87, 95-129, 131-132, 135, 138-144, 146147, 149-160, 163, 167-169. FBP is directed to respond to those requests for
production. The motion is DENIED as to request numbers 71, 78-86, 88-94, 130,
133-134, 136-137, 145, 148, 161-162, 164-166, 170, and FBP is not required to
produce documents responsive to those requests.
ECF No. 210 at 5. Hence, the Court first must tackle the question of which, if any, specific
discovery requests to which FBP was compelled to respond did it fail to respond in violation of
the Court's discovery orders.5 Next, if the Court finds that FBP has violated the Court's
discovery orders, then it must determine if sanctions under Rule 37 are appropriate, and if so,
what type of sanction is necessary.
IV. Analysis of FBP's Compliance with the Court's Discovery Orders
A. Corporate Records
Flame's First RFP No. 4, and Second RFP Nos. 1, 2,6, 7, 8, 15,17, 26, 54, 58, and 59 all
deal with corporate records and structure of the named defendants, including ICI. Similarly,
Glory Wealth's First RFP Nos. 4, 13, 19 and 67 seek the same type of information. Moreover,
RFP No. 53 seeks records exchanged among the named defendants and certain other entities
concerning the attached vessel, the CAPE VIEWER. FBP responded that it has produced all
responsive documents for FBP and Vista; that because "corporate governance formalities in
Ukraine are less stringent than in the U.S." many documents, such as board meeting minutes and
5For organizational purposes the Court will adopt the parties' categories of information in analyzing the question of
FBP's compliance with the discovery orders, but nonetheless must look to the specific RFPs themselves to
determine whether FBP has complied with or violated the Court's Orders compelling itto respond.
records evidencing corporate structure, simply do not exist; that tax records do not exist because
"neither [FBP nor Vista] is obligated to pay any taxes;" and that employee records, i.e.
"workbooks," are "highly confidential personal documents" that are not in the possession of FBP
or Vista because "such companies do not have any 'official' employees in Ukraine" and
therefore cannot be produced. ECF No. 334 at 3-5. With respect to any documents regarding
ICI, the company against which both Flame and Glory Wealth have judgments, FBP represented
that neither FBP nor Vista are related to ICI, and neither they nor Viktor Baransky have any
documentation from that company. Id. at 3-4.
Despite Plaintiffs' insistence that documentation such as board minutes, corporate
governance structure, tax records and the like must exist, FBP has represented it has produced
those records which it possesses, but, for a variety of reasons, including the fact that Ukrainian
rules and practices do not require the creation and maintenance of such records, there exist no
other records to produce. Pursuant to Fed.R.Civ.P. 26(g)(1), by signing discovery requests,
parties certify that after reasonable inquiry they believe that their responses to discovery requests
are complete and correct as of the time made and that those responses and or objections are
warranted by existing law. See In re Outside Wall Tire Litigation, No. l:09-cv-01217, 2011
WL 5357913 (E.D. Va. Nov. 7, 2011). Under these circumstances, FBP cannot be said to have
violated the Court's discovery orders by failing to produce records it has certified do not exist.6
On the other hand, FBP has not certified that no such records exist with respect to ICI.
Instead, is asserted that FBP, Vista, and Mr. Baransky do not have control over any such records.
FBP insisted that "FBP or [sic] and Vista are in no way related to ICI and its sister companies,
6There are, of course, otherremedies a party can pursue when another party does not produce records it is expected
to have within its control. See. e.g.. Glover v. BIC Corp., 6 F.3d 1318, 1329 (9th Cir. 1993) (holding that "[a]s a
general proposition, the trial court has broad discretion to permit a [fact-finder] to draw adverse inferences from a
party's failure to present evidence, the loss of evidence, or the destruction of evidence. While a finding of bad faith
suffices to permit such an inference, it is not always necessary.").
and therefore are not in possession of any documentation of ICI." ECF No. 334 at 3-4. FBP
then explained in a footnote "[a]s Victor Baransky, FBP and Vista do not have any
documentation of ICI, as more fully explained in subsequent section, this response is similarly
true per all other Plaintiffs' requests regarding ICI documentation." Id. at 4 n.4. As a result, no
documents regarding ICI were produced.
Nonetheless, despite the claim that Mr. Baransky has no control over ICI and therefore
cannot produce any of its documents, throughout its memorandum FBP represents that Victor
Baransky controls every other corporate entity referenced in this litigation: "Victor Baranksy
remaining, as he always was, the sole beneficiary of all his companies." Id. at 3. "To avoid any
possible confusion, FBP states that at all times Victor Baransky was, and currently is, the sole
ultimate beneficial owner of FBP, Vista and all of FBP's sister companies." Id. at 6. "Victor
Baransky is not trying to sever any links, having confidently admitted at the time of the
[document] production on July 14, 2014 and admitting now that he is the sole beneficial owner
of Vista, FBP and all of FBP's sister companies." Id. "[A]t this stage of the suit, Plaintiffs
should drop the pretense that there could be someone else behind FBP, Vista and their sister
companies other than Victor Baransky, as Plaintiffs' own admissions make it abundantly clear
that there is Victor Baransky and no one else behind all his companies and success." Id. at 20.
Claiming no responsibility to do so, Mr. Baransky "voluntarily" produced documents relating to
all of FBP's sister companies: "Production of all of FBP's sister companies' and holding
company's (Hachi Holdings) ownership documentation on July 14, 2014 was done voluntarily,
as directly responsive documentation relates only to FBP and Vista, and such directly responsive
documentation was all produced long time prior to July 14, 2014." Id. at 6. In short, FBP claims
Mr. Baransky controls every entity involved in this lawsuit, with the sole exception of ICI.7 The
Court does not accept this representation, and FINDS, therefore, that FBP has violated the
Court's discovery orders compelling it to produce documents from ICI that are responsive to
Flame's First RFP No. 4 and Second RFP Nos. 1, 2, 6, 7, 8, 15, 17, 26, 54, 58, and 59, and to
Glory Wealth's RFP Nos. 4, 13, and 67.
At the first discovery hearing this Court held on April 9, 2014, the Court specifically
advised then-counsel for FBP that, having found that Plaintiffs had made a prima facie case as to
their contention that the defendant companies were alter egos of each other such that discovery
on this subject would be permitted, Mr. Baransky was required to produce documents over all
defendant companies over which he exercised control. ECF No. 147 at 26-28. Mr. Baransky, an
18% shareholder of ICI, along with his father, a named co-defendant in Glory Wealth's amended
complaint, together control ICI with 51% of its shares. Deposition of Viktor Baransky, 25:1922, ECF No. 51 at 25. The Court, having ordered Mr. Baransky, through the RFP directed to
FBP, to produce the documents of those named Defendants over whom he exercised control,
Later in its submission FBP made the following argument:
At the beginning, there was just Victor Baransky, personally. Then, there was Vista. Later, Vista
flowered with other sister companies, one of such companies being FBP. It is FBP's ship in the
District. So, the focus is on Cape Viewer, FBP, Vista and Victor Baransky personally. Logical
connection for the April 30, 2014 order seems clear. FBP substantially complied with such Court
Order. Furthermore, it produced all banking records, for all times, and supporting documentation
for all incoming payments, for all companies for all times, among thousands of other documents
produced in this case and relevant to the alter ego cause of action. Did FBP have a right not to
produce the bulk of such documentation, per the April 30, 2014 discovery Order? Absolutely! It
was done not because FBP was required to do so, but because Victor Baransky, personally, gave
orders to various companies to provide such documentation to FBP for subsequent production to
Plaintiffs, without waiving any rights. As mentioned in the previous pleadings, such ability of a
common owner to order anything per any of his/her companies is an axiom which yet does not
have direct bearing on the legal question of when one company is deemed to be in control or
possession of documentation of another company. As per such legal standard, there is indeed no
control or possession by FBP of any of its sister companies' documentation.
Id. at 18-19. As is clear in both the discovery orders and this Court's ruling from the bench, FBP was required to
produce all responsive documents that concerned any of the named Defendants, i.e. ICI, Vista, FBP, Viktor
Baransky and Sergei Baranksy. ECF Nos. 209,3-4; 210at 3-4.; 147 at 22, 26-28.
specifically ordered FBP to answer the above-referenced RFPs.
ECF Nos. 209, 210.
FBP
admits that Mr. Baransky controls every relevant entity, with the notable exception of ICI, a
position this Court has already rejected. Id. The District Judge affirmed this ruling. ECF No.
192. Accordingly, by failing to produce any relevant documents with respect to ICI, FBP has
violated this Court's discovery orders.
Finally, the Court also FINDS that FBP violated the discovery orders by failing to
produce the afore-described "workbooks." Regardless of their confidentiality, which could have
been addressed with a protective order, FBP repeatedly declared that Mr. Baranksy is the sole
beneficial owner of FBP and all of its sister companies. As the sole beneficial owner, he has
control over the records of all individuals who work for those companies, whether they are
"official employees" under Ukrainian law or not. Accordingly, those records should have been
produced.
B. Viktor Baransky Emails
Both Flame and Glory Wealth issued numerous RFPs that, conceivably, would have
required the production of emails sent by or to Viktor Baransky. See, e.g., Flame Second RFP
Nos. 14 (correspondence concerning bank transfers and loan agreements between and among
each of the Defendants); 18 (emails by and/or between any of the Defendants and/or any third
parties relating to, inter alia, Viktor Baransky's position and interest in any of the Defendants);
19 (copies of emails between Defendants and shipbrokers relating to each of the Defendants'
purchase, charter or operation of, inter alia, the CAPE VIEWER); Glory Wealth RFP Nos. 11
(emails between Viktor Baransky and Sergei Baransky relating to defendants' purchase, charter
or operation of, inter alia, the CAPE VIEWER); 22 (emails by any auditor relating to each of the
Defendants and their subsidiaries); 29 (emails by and/or between any of the Defendants and/or
10
any third parties relating to, inter alia, Viktor Baransky's position and interest in any of the
Defendants).8 FBP responded that "FBP believes that the scope ofthe Court's discovery order
encompasses only Victor Baransky's e-mail communications in his capacity as Director of FBP,
and there are no such e-mails." ECF No. 334. This follows on FBP's representation in an earlier
pleading that the Court's Order did not include Viktor Baransky as a Defendant to whom the
discovery order applied. ECF No. 313 at 9. Flame quite correctly points out that the Court's
Order was not so limited. ECF No. 327 at 7. In fact, the Court's discovery orders were quite
explicit that FBP was "required to respond to discovery requests that are specifically tailored to
the named Defendants in this action, regardless of whether the Defendant has been served or
entered an appearance. " ECF No. 209 at 4; 210 at 4 (emphasis added). FBP's attempt to limit
its response to Viktor Baransky's emails in his capacity as Director of FBP violates this Court's
discovery order that each RFP that FBP was compelled to respond to be answered as to each
named defendant.
FBP further responds by claiming that it voluntarily produced all business
communication e-mails of Victor Baransky on July 14, 2014, the day before the close of
discovery, even though "in FBP's opinion, [it] was under no obligation to do so." ECF No. 334
at 7. Despite FBP's "opinion," this Court's discovery orders were clear, and FBP was obligated
to provide responsive documents long before the close of discovery. The Court's discovery
orders required FBP to comply no later than one week from the date of the orders, i.e. by May 7,
2014. ECF Nos. 209 at 5; 210 at 7. FBP never sought an extension of time from the Court to
comply with the discovery orders. Belated compliance with a Court Order more than two
months after the Court's deadline and one day before the close of discovery does not constitute
8These are just a few examples of RFPs that called for the production of emails in Viktor Baransky's possession.
As long as the discovery orders compelled FBP to respond to a specific RFP, if emails existed which were
responsive tothe category of documents requested, then they should have been produced.
11
compliance. See. e.g., Green v. John Chatillon & Sons, 188 F.R.D. 422 (M.D.N.C. 1998)
(dismissing action with prejudice under Rule 37(b) for plaintiffs failure to provide discovery
over eight months after the original requests and over two months after being ordered by the
magistrate judge to do so).
Accordingly, the Court FINDS that FBP violated the Court's
discovery orders by failing to timely produce responsive emails.
C. Supporting Documentation for Bank Records
Flame's Second RFP Nos. 9, 14, 20, 22, 25, and 27, and Third RFP 84, 88, 92 and 96
sought the production of records concerning bank accounts, bank transfers and other financial
records pertaining to the Defendants.9 Glory Wealth's RFP Nos. 25, 26, 52 and 53 were similar.
Flame contends that, while some bank records have been produced, other records should have
been, include Mr. Baransky's personal bank records. Flame also argued that, while bank records
for Sea Traffic Shipping Co. ("Sea Traffic") were produced for 2008, 2009, 2010, 2011, and
2013, they were not produced for 2012, the year funds were provided from Vista to Sea Traffic
for the purpose of a loan to FBP for the purchase of the CAPE VIEWER. ECF No. 327 at 10.
Consequently, "Flame suspects that additional documents exist and are being withheld." ECF
No. 327 at 9-10; ECF No. 342 at 9-11. Glory Wealth referenced testimony from the deposition
of Ms. Bobrenko, a fact witness, and suggested that documents supporting notations and
descriptions found within the cash ledgers must exist and therefore should have been produced.
ECF No. 324 at 11.
Conversely, FBP represented that it produced all personal and business bank records: "In
fact, FBP provided to Plaintiffs all bank statements, for all Victor Baransky entities and Victor
Baransky personal accounts, for all times." ECF No. 334 at 7. It represented that the 2012 bank
9 Flame also seeks enforcement of its Third RFP No. 78, but the Court denied Flame's motion to compel with
respect to that RFP. ECF No. 210 at 7.
12
records for Sea Traffic had, in fact, been produced, and identified the specific bates stamp
numbers of the relevant documents. Id. at 9. Further, FBP explained that Glory Wealth had
misunderstood Ms. Bobrenko's testimony, which was taken with the assistance of an interpreter
because Ms. Bobrenko does not speak English, such that no other documents exist. Id. at 17. To
Flame's suspicion that additional documents exist and are being withheld, FBP responded:
"Flame is wrong." Id. at 9.
In sum, Plaintiffs claim that FBP has not produced all of Victor Baransky's personal
banking records and other banking records, that more banking records must exist, and therefore
that FBP is withholding them in violation of the Court's discovery orders. FBP claims that it has
produced all of Victor Baransky's banking records, that all other banking records which exist
have been produced, and therefore that there are no other records which exist to produce. Once
again, by signing FBP's discovery responses, counsel for FBP certified, pursuant to Rule 26(g),
that after reasonable inquiry he believed that the responses to discovery requests were complete
and correct as of the time made. Moreover, in FBP's memorandum in opposition to plaintiffs'
motions for sanctions, counsel for FBP represented to the Court pursuant to his obligation under
Rule 11(b) that all responsive documents have been produced and no other records exist.
Plaintiffs' suspicions that other records must exist are insufficient.
Accordingly, the Court
FINDS that FBP has not violated the Court's discovery orders with respect to the production of
bank records.
D. Attachment to Loan Agreement Between Sea Traffic and FBP
Through their RFPs, Flame and Glory Wealth sought the production of the loan
agreement between Sea Traffic and FBP, which provided FBP with the funds necessary to
purchase the CAPE VIEWER. Specifically, Flame's Second RFP Nos. 45-47, and Third RFP
13
Nos. 100-103 all pertained to the loan agreement, as did Glory Wealth's RFP Nos. 55-58. The
Court ordered FBP to produce documents in response to these RFPs, although it limited Flame's
Third RFP Nos. 101 and 103 to records pertaining to FBP. ECF Nos. 209 at 5; 210 at 7.
Plaintiffs contend that FBP failed to produce an attachment to the loan agreement which
purported to provide for the terms of the loan's repayment. ECF Nos. 327 at 11; 324 at 11-12.
There appears to be no doubt that this record exists, as it was described by Ms. Bobrenko in her
deposition.
ECF No. 327 at 11. FBP contends that it produced the attachment, albeit late
because the document allegedly was not created until March 2014, despite the fact the loan was
completed in 2012. ECF No. 9-10. In its reply, Flame attached as Exhibit 5 the document which
FBP represents is the pertinent attachment to the loan agreement. ECF No. 342-1. Based on the
Court's review of this exhibit, it is apparent that this document is not the attachment which set
forth the terms of the repayment of the loan from Sea Traffic to FBP. Instead, the document,
dated March 21, 2014, pertains to a ship management agreement between Vista and FBP, and
pertains not at all to the loan between Sea Traffic and FBP.
There is no dispute that there exists an attachment to the loan agreement between Sea
Traffic and FBP which delineates the loan repayment terms. Although the aforementioned
Exhibit 5 was identified by FBP as that attachment, clearly it is not. Accordingly, the Court
FINDS that FBP violated the discovery orders that it produce all relevant documents in response
to the aforementioned RFPs, which should have included the attachment to the loan agreement.
E. Charters for CAPE VIEWER and HARMONY FALCON
Included among Plaintiffs' RFPs were requests directed towards the production of
documents evidencing the charter of vessels by the named Defendants, specifically, Flame's
Second RFP Nos. 19, 35-39, 62 and Third RFP No. 104, and Glory Wealth's RFP Nos. 45, 46
14
and 48. The Court ordered FBP to respond to each of these RFPs. ECF Nos. 209 at 5, 7; 210 at
5. According to Flame, although FBP owns the CAPE VIEWER, Vista chartered the vessel to
Noble Chartering for the voyage that brought the ship into this jurisdiction, but FBP did not
produce any agreement between Vista and FBP providing for such arrangement. ECF No. 327 at
13. Moreover, Plaintiffs allege FBP failed to produce any documents regarding the charter of the
HARMONY FALCON, a vessel owned by ICI for which Vista was paid hire in October 2008
(which was at or near the time ICI declared bankruptcy). Id; ECF No. 324 at 11-12. FBP
contended that it did, in fact, produce all documentation regarding the charter of the CAPE
VIEWER to Noble Chartering, referencing specific bates numbered documents. ECF No. 334 at
11.
It further represented that documents with respect to the charter of the HARMONY
FALCON were lost, and thus cannot be produced.
Id.
FBP then referenced an earlier
submission to the Court, ECF No. 319, wherein it provided a lengthy explanation regarding the
lost documents. In short, this was a last-minute charter, things were hectic, an employee who
possessed the charter document left the company, and the email account in which the document
was kept lapsed, thereby causing the loss of the electronic copy of the document. ECF No. 319
at 2-6.
With respect to CAPE VIEWER charter, Flame did not contest in its reply FBP's
representation that it produced the responsive documents. Glory Wealth did not assert in its
motion for sanctions that FBP failed to produce the CAPE VIEWER charter. Accordingly, the
Court FINDS that FBP did not violate the Court's Order in connection with the CAPE VIEWER
charter. With respect to the HARMONY FALCON charter, as Flame notes, FBP's explanation
of why it cannot produce the charter agreement was in the form of a pleading by an attorney, and
not a sworn affidavit or declaration. Plaintiffs ask the Court to find that FBP's explanation is
15
unbelievable, and consequently sanction it either by entering a default judgment against FBP or
by making a finding that ICI fraudulently conveyed the right to charter the HARMONY
FALCON to Vista. ECF Nos. 324 at 13; 342 at 15.
As dubious as FBP's explanation for the loss of the HARMONY FALCON'S charter
sounds, the Court at this juncture is not tasked with making findings of fact and conclusions of
law as to the merits of this particular claim. Although FBP's explanation was not provided by
sworn affidavit or declaration, nonetheless the pleading was submitted by counsel for FBP
pursuant to Rule ll(b)'s requirement of good faith. Absent some other evidence that FBP's
explanation is false, the Court cannot find that FBP has violated the Court's discovery orders by
failing to produce evidence which it claims was lost.10
F. Documents from ICI
Both Plaintiffs proffered RFPs requiring production of documents pertaining to ICI, the
specific entity against whom both Plaintiffs have judgments. Flame contends that FBP failed to
comply with its Second RFP Nos. 5, 28-34, and 61, to which FBP was compelled to respond by
the Court's discovery order. ECF No. 210 at 5. Flame also contends FBP failed to comply with
its first RFP Nos. 1-2, to which FBP was compelled to respond by the Court's earlier Order
granting Flame's first motion to compel. ECF No. 149. In addition, Glory Wealth contends that
FBP failed to respond to its RFPs pertaining in whole or in part to ICI, Nos. 1,3-4,16-22,25-29,
30-32, 36-37, 39-46, 49, 67-70, 72, 75, 95-110, and 123, to which FBP was compelled to
respond by the Court's discovery order. ECF No. 209 at 5. FBP responded by claiming that it
provided what few documents were kept in Viktor Baransky's possession, but otherwise
reiterated its claim that neither FBP, Mr. Baransky, or Vista had any ICI documents. ECF No.
10 This is not to say that such a finding may not be made at the trial of this matter, orthat an adverse inference may
not be drawn from FBP's loss of evidence. See Glover, 6 F.3d at 1329.
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334 at 12-13.
The Court has already rejected FBP's argument. See Section IV.A., supra. As discussed,
the Court was quite explicit in relaying its finding at the April 10 hearing that Mr. Baransky has
control over the documents in possession of the named Defendants. ECF No. 147 at 26-28.
FBP's objection to this Court's ruling was overruled by the District Judge. ECF No. 192. As
Flame pointed out and FBP did not contest, ICI is still an active company. ECF No. 327 at 14.
Accordingly, the Court rejects FBP's claim there are no documents which can be produced from
ICI, and therefore the Court FINDS that FBP has violated the Court's discovery orders that it
produce all relevant ICI documents in response to the aforementioned RFPs.
G. Audit Documentation and Correspondence
Flame contends that FBP failed to comply with the Court's discovery orders that it
produce documents in response to Flame's Second RFP Nos. 10, 11, and 24, which sought
documents regarding correspondence with corporate auditors. The Court's discovery orders
compelled FBP to produce these records. ECF No. 210 at 5. FBP responded that it provided
suchdocuments in May, 2014, and identified by batesstamp numbers specific records. ECF No.
334 at 12. In its reply, Flame contends that additional audit reports concerning ICI in 2007,
Vista in 2009, and the Palmira Group (which includes FBP and Vista) in 2010-12, were not
produced. ECF No. 342. Nonetheless, Flame identifies the ICI audit, which was filed by FBP
with the Court at ECF No. 319-1, and references the Vista and Palmira Group audits by bates
stamp numbers, indicating that it, in fact, has those documents. Although Flame contends that
FBP did not produce these documents, ECF No. 342 at 16 ("FBP has failed to produce all
responsive documents regarding audit reports pertaining to named Defendants"), no information
was provided to the Court as to where the aforementioned ICI, Vista and Palmira Group audit
17
reports came from, how they were obtained, or whether they are complete. Accordingly, the
Court has an insufficient basis to determine whether its discovery orders were violated in
connection with the audit documentation and correspondence records.
H. Email Attachments
Through its discovery requests Flame sought relevant emails, and to the extent responsive
emails originally included attachments, those attachments should have been produced, absent
some privilege which has not been asserted in this dispute. See Section IV.B, supra. Instead,
FBP stated that any production of emails was voluntary, and cited the unrest in Ukraine as a
reason it did not promptly "voluntarily" produce the email attachments. FBP represented that
over the course of several weeks, it engaged in the cumbersome process of searching for
attachments to "tens of thousands" of emails, and has produced them over time. ECF No. 334 at
13-14. Further, FBP admitted that it had not fully complied with the Court's discovery orders to
produce all relevant documents within seven days when it represented that "FBP will produce all
such attachments within a week, before the current tentatively-scheduled early August date for
Victor Baransky deposition." Id.
The Court has already found that FBP failed to comply with the discovery orders when it
belatedly produced emails as late as the close of discovery. Section IV.B, supra. Production of
the attachments to the emails, for identical reasons, should have begun as soon as the Court
issued its discovery orders. At no time did FBP request an extension of time to comply with this
Court's discovery orders. For the reasons explained in Section IV.B supra, the Court FINDS
that FBP violated the discovery orders by failing to timely produce the email attachments
included in the relevant RFPs.
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I. Defense Evidence
Lastly, Flame contends that FBP violated the Court's discovery orders by not producing
documents in response to its Second RFP No. 67, which it has summarized as calling for
"defense evidence." In its discovery orders, the Court specifically denied Flame's motion to
compel FBP's response to its Second RFP No. 67. ECF No. 210 at 5 ("The Motion is DENIED
as to request numbers 60 and 67, and FBP is not required to produce documents responsive to
those requests."). Accordingly, FBP has not violated the discovery orders with respect to RFP
No. 67 and "defense evidence."
J. Summary of Findings
In sum, the Court FINDS that FBP did not violate the Court's discovery orders in
connection with its production of the supporting documentation for bank records, the charter
parties for the CAPE VIEWER and HARMONY FALCON, audit documentation and
correspondence, and defense evidence. However, the Court FINDS that FBP has violated the
Court's discovery orders by failing to produce documents pertaining to ICI, including corporate
records, and the attachment to the loan agreement between Sea Traffic and FBP evidencing the
loan repayment terms. In addition, the Court FINDS that FBP violated the discovery orders by
failing to produce, in a timely fashion, Viktor Baransky's emails and the attachments thereto.
Having found that its discovery orders have been violated, the Court turns now to the question of
whether and what sanctions under Rule 37(b) are appropriate.
V. Appropriateness of Sanctions
A. Standard for Sanctions under Rule 37(b¥2)(A)
"If a party ... fails to obey an order to provide or permit discovery ... the court where
theaction is pending may issue further just orders. They may include the following:
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(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) rending 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.
Fed. R. Civ. P. 37(b)(2)(A). To determine whether sanctions under Rule 37(b) are appropriate,
the Court considers the Anderson factors: "(1) whether the non-complying party acted in bad
faith, (2) the amount of prejudice that noncompliance caused the adversary, (3) the need for
deterrence of the particular sort of non-compliance, and (4) whether less drastic sanctions would
have been effective." Anderson v. Found, for Advancement, Educ. & Emp't ofAm. Indians, 155
F.3d 500, 504 (4th Cir. 1998) (citation omitted). As long as the "sanctions do not involve
dismissal, they fall squarely within thejurisdiction of the magistrate judge." Financial Markets
Infl, Inc. v. Booz Allen Hamilton, Inc., No. l:ll-cv-1299, 2013 WL 5538341, at *1 (E.D. Va.
Oct. 7,2013) (citing28 U.S.C. § 636). The Court considers each factor in turn.
B. Application
I. Whether FBP Acted in Bad Faith
The first Anderson factor requires the Court to consider whether FBP acted in bad faith
when it violated the discovery orders. The Court finds that FBP acted in bad faith. To
characterize the discovery disputes in this matter as extensive is an understatement. Notably,
almost all disputes can be traced back to FBP's non-compliance or "stonewalling" tactics. See
Anderson, 155 F.3d at 504 ("The district court's opinion adequately supports a conclusion that
the [non-complying party] acted in bad faith. The Foundation stonewalled ondiscovery from the
inception of the lawsuit."). Even now, in the opposition brief to the motions for sanctions, just
20
like in Anderson, FBP gives "inconsistent answers" for its non-compliance with discovery
obligations, and instead attempts to excuse its disobedience by shifting the blame to "the archaic
nature of Ukraine's law." See ECF No. 334 at 5. While FBP claims that its "approach to its
discovery obligations always was and is sincere," ECF No. 334 at 2, again, just like in Anderson,
FBP "completely fails to explain why" it failed to produce discovery in accordance with this
Court's discovery orders.
155 F.3d at 504-505. Moreover, even though the bounds of this
Court's discovery orders were made explicitly clear from the beginning, FBP continues to parse
words and narrowly interpret those orders to its own benefit. See ECF No. 334 at 7 ("As stated
previously, FBP believes that the scope of the Court's discovery order encompasses only Victor
Baransky's e-mail communications in his capacity as Director of FBP, and there are no such emails."). The Court need not revisit its previously stated findings as to why such narrow
interpretations of the discovery orders are unacceptable. See Sec. IV., supra. Accordingly, the
Court finds that FBP acted in bad faith.
2. The Amount ofPrejudice FBP's Non-compliance Caused Plaintiffs
The second Anderson factor to be considered is the amount of prejudice that FBP's non
compliance with the Court's discovery orders caused the Plaintiffs. In accordance with the
expedited nature of this admiralty proceeding, the compliance with all discovery deadlines was
necessary to ensure a just and efficient resolution to this case. However, FBP has not complied
with this Court's discovery orders, as discussed in detail above, even though the Court has
continued the trial date, and granted numerous extensions of discovery deadlines for the benefit
of all parties. FBP's violation of the Court's discovery orders by failing to produce documents it
was required to produce or producing them months after it was required to do so certainly
impacted the Plaintiffs' ability to fully examine the fact witnesses who were deposed in Istanbul
21
in earlyJuly. Plaintiffs have the burden of proof in this matter, and the Court finds that continual
delays in the production of discovery by FBP have prejudiced the ability of Plaintiffs to gather
the necessary evidence to put on their case in chief.
FBP's actions (or omissions) have
needlessly increased the expense, annoyance, and delay of these proceedings. Anderson, 155
F.3d at 505 ("In addition to the expense, annoyance, and delay of prosecuting his case,
Anderson's claim became junior to that of another claimant suing the Foundation in Tennessee
state court due to the delay in prosecuting Anderson's Virginia case."). Accordingly, the Court
finds that FBP's non-compliance with the discovery orders prejudiced Plaintiffs.
3 & 4. The Needfor Deterrence and the Effectiveness ofLess Drastic Sanctions
The third factor the Court must consider is the need for deterrence of the particular sort of
non-compliance demonstrated by FBP, and the fourth factor is the effectiveness of less drastic
sanctions. "The deterrence and lesser sanctions factors are somewhat intertwined." Anderson,
155 F.3d at 505. The Court has already sanctioned FBP in this matter under Rule 37 awarding
fees and costs to Plaintiffs for failure to comply with its discovery obligations. This did not deter
further failures and non-compliance, so the Court finds that this less drastic sanction was not
effective. "[T]he continued abuses cited by the court as evidence of [FBP's] bad faith demanded
some form of punishment. Lesser sanctions did not deter such behavior." Id. (citing Mutual
Fed. Sav. And Loan Ass'n v. Richards & Assocs., 872 F.2d 88, 94 (4th Cir. 1989) (entry of
default judgment sends an "unmistakable message to them and others that the judicial system
will not tolerate repeated misconduct never wholly remedied in the future.")). Accordingly, the
Court finds both there is great need for deterrence of this type of discovery abuse, and that less
drastic sanctions such as those previously imposed proved ineffective to deter FBP's non
compliance.
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C. Sanctions and Conclusion
Application of the Anderson factors as discussed above direct that a significant sanction
against FBP is necessary and appropriate for its violation of the discovery orders, both as a
deterrent and as a last-resort sanction.
Anderson, 155 F.3d at 505.
The district court in
Maryland has previously addressed why such significant sanctions are necessary, and this
discussion applies with equal force to the facts before this Court and FBP's violations of the
discovery orders.
A significantsanction award is crucial to vindicate the important principles of fair
play in the largely private world of civil discovery. In complex litigation such as
this, cases are shaped, if not won or lost, in the discovery phase. The rules of
discovery must necessarily be largely self-enforcing. The integrity of the
discovery process rests on the faithfulness of the parties and counsel to the
rules—both the spirit and the letter.
Poole ex rel. Elliott v. Textron, Inc., 192 F.R.D. 494, 507 (D. Md. 2000). Plaintiffs here attached
the CAPE VIEWER, a ship owned by FBP - a company owned by Mr.Baransky - as a means of
attempting to satisfy their judgments against ICI - a company in which Mr. Baransky had a
substantial interest. FBP's disobedience has directly impacted Plaintiffs' ability to prove that
Viktor Baransky's companies are alter egos for each other, which Plaintiffs must establish to
prove their case. The documents that FBP failed to produce, or produced very late, i.e. ICI
corporate records, Mr. Baransky's emails and attachments, the loan repayment terms at issue
regarding the CAPE VIEWER, and the employee work records, all conceivably would bear on
the issue of the extent to which the named Defendants intermingle corporate assets and
employees, and are, in fact, alter egos for each other. FBP's violation ofthe discovery orders has
made it that much more difficult for Plaintiffs to prove their alter ego theory, which may very
well have been the purpose of FBP's noncompliance. Accordingly, because of FBP's violation
ofthe discovery orders, and because ofits history ofrepeated abuses and non-compliance in this
23
matter, the following sanctions are appropriate.
First, pursuant to Federal Rule of Civil
Procedure 37(b)(2)(A)(i), the Court FINDS and designates as established for purposes of this
action that: 1) Freight Bulk Pte. Ltd and Vista Shipping, Inc. are alter egos of one another"; 2)
the loan from Sea Traffic Shipping Co. to Freight Bulk Pte. Ltd. for the purchase of the CAPE
VIEWER was a sham transaction for the sole purpose of avoiding creditors; and 3) had any
Industrial Carriers, Inc. documents been produced by FBP in compliance with the Court's
discovery orders, those documents would have been favorable to the Plaintiffs and harmful to the
Defendants. Second, pursuant to Federal Rule of Civil Procedure 37(b)(2)(A)(ii), FBP is
PROHIBITED at trial from: 1) offering any evidence with respect to repayments made under
the loan agreement between Sea Traffic Shipping Co. and Freight Bulk Pte. Ltd. for the purchase
of the CAPE VIEWER.
Third, pursuant to Federal Rule of Civil Procedure 37(b)(2)(C),
inasmuch as FBP's failure to comply with this Court's discovery orders was not substantially
justified and no other circumstances make an award of expenses unjust, FBP and its counsel
jointly are ORDERED to pay the reasonable attorneys' fees and expenses of Flame and Glory
Wealth in pursuing their motions for sanctions. Plaintiffs Flame and Glory Wealth are each
DIRECTED to submit, within thirty days from the date of this Order, a motion substantiating
their costs and fees pursuant to the factors enumerated in Robinson v. Equifax Info. Servs., LLC,
560 F.3d 235, 243-44 (4th Cir. 2009).
Once the Court reviews and determines the
reasonableness of Plaintiffs' costs and fees, an appropriate Order shall issue.
" As Glory Wealth noted in its reply brief, Plaintiffs still must ultimately prove at trial that Vista is the alter ego
and/or fraudulent transferee of Industrial Carriers, Inc., as alleged in the amended complaint.
12 The Court includes FBP counsel in the sanctions award because of counsel's unfounded and unjustified narrow
interpretation, see. e.g., Section IV.B., supra, of the scope of the discovery orders. See Fed.R.Civ.P. 37(b)(2)(C)
("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 ...").
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VI. Motions to Partially Reconsider Discovery Orders
Finally, both Flame and Glory Wealth moved for partial reconsideration of that part of
the Court's discovery orders limiting discovery to the named Defendants, and instead seek an
Order broadening the scope of discovery to include approximately sixty companies Plaintiffs
claim are owned and/or controlled by Mr. Baransky. Discovery in this case is closed, and trial
begins on August 26, 2014. As this Court has previously advised the parties, the Court is no
longer entertaining motions that would impact dates in the scheduling order, or the trial date. See
Great Am. Ins. Co. v. Gross, No. 3:05-cv-159, 2007 WL 1577503, at *14 (E.D. Va. May 30,
2007) ("District courts enjoy broad discretion in managing discovery matters.") (quoting
Crawford-El v. Britton, 523 U.S. 574, 598 (1998) ("Rule 26 vests the trial judge with broad
discretion to tailor discovery narrowly and to dictate the sequence of discovery . . . .")) (citing
Hinkle v. City of Clarksburg, 81 F.3d 416, 426 (44,h Cir. 1996) (observing that District Courts
"enjoy nearly unfettered discretion to control the timing and scope of discovery")). Accordingly,
Plaintiffs' motions for the Court to reconsider that part of its discovery orders limiting the scope
of discovery are DENIED.
VII. Conclusion
Plaintiff Glory Wealth's motion for sanctions and for reconsideration of the discovery
order, ECF No. 323, is GRANTED IN PART and DENIED IN PART, in that the Court awards
sanctions but denies reconsideration.
Plaintiff Flame's motion for sanctions and for
reconsideration of the discovery order, ECF No. 326, is GRANTED IN PART and DENIED
IN PART, in that the Court awards sanctions but denies reconsideration.
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It is so ORDERED.
LWRENCE R. LEONARD
UNITED STATES MAGISTRATE JUDGE
Norfolk, Virginia
August 8,2014
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