Equal Employment Opportunity Commission v. FRY'S ELECTRONICS, INC.

Filing 231

ORDER IMPOSING SANCTIONS FOR DISCOVERY ABUSES AND STAYING CASE by Judge Robert S. Lasnik; Defendant shall, within seven days of the date of this Order, pay $25,000 to each of the plaintiffs (the EEOC, Mr. Lam, and Ms. Rios) through their attorneys and $25,000 to the Clerk of Court. (TF) cc: Financial

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
_______________________________________
)
EQUAL EMPLOYMENT OPPORTUNITY
)
COMMISSION,
)
)
Plaintiff,
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v.
)
)
FRY’S ELECTRONICS, INC.,
)
)
Defendant.
)
_______________________________________)

No. C10-1562RSL
ORDER IMPOSING SANCTIONS
FOR DISCOVERY ABUSES AND
STAYING CASE

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On May 10, 2012, the Court granted in part plaintiffs’ motion for sanctions in the

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above-captioned matter. The Court found that defendant had spoliated evidence, including sales

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performance data, MOPARS, and computer hard drives from the Renton store at which plaintiffs

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Lam and Rios had worked. At the time, the Court believed that the prejudicial effect of the

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spoliation could be counteracted by (a) instructing the jury that one of the justifications for firing

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Mr. Lam was pretextual and (b) allowing plaintiff considerable leeway in arguing what

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information might have been gleaned from the computer hard drives had they not been destroyed

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by defendant. The Court also indicated some concern regarding the efficacy and thoroughness

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of defendant’s searches: A Team information requested by plaintiffs was located only after the

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Court ordered a second search. Finally, the Court noted that there was a lack of evidence to

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support plaintiffs’ assertion that certain types of investigative documents regarding Ms. Rios’

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ORDER IMPOSING SANCTIONS
AND STAYING CASE

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sexual harassment complaint had been created and then destroyed.
During a Rule 30(b)(6) deposition held on May 30, 2012, plaintiffs learned for the
first time that Minasse Ibrahim had been accused of sexual harassment in 2001 and that an
investigation had been conducted. Defendant intentionally withheld this information and the
related documents from discovery by raising unfounded objections and “negotiating” a
narrowing of the discovery requests. For all of the reasons stated in its Order to Show Cause
(Dkt. # 217), the Court finds that defendant’s conduct in this respect was unfair, unwarranted,
unprincipled, and unacceptable. The responsive, relevant, unprivileged sexual harassment
documents should have been turned over without objection or delay. The failure to do so until
after defendant’s summary judgment motion was fully briefed and shortly before arbitration
began prejudiced plaintiffs. Not only did they incur significant costs to bring the newly-revealed
information to the attention of both tribunals, but their preparatory efforts were necessarily
interrupted by this dispute. In addition, the value of depositions and discovery responses that
had gone before were suddenly placed in doubt: plaintiffs did not have the opportunity to
question witnesses regarding the prior accusations and have yet to fully evaluate the truthfulness
of those written and oral responses that they did receive.
Other conduct and omissions, though of less immediate relevance to the primary
issues in this case, have made the Court doubt defendant’s complete commitment to candor and
highlighted the very real possibility that the integrity of the judicial process has been
compromised. Even after defendant’s objections to certain discovery requests were overruled
and it was ordered to produce documents, defendant took it upon itself to redact responsive
information, presumably on an unstated and unapproved confidentiality basis. These omissions
made it difficult for plaintiffs to contact potential witnesses and/or rebut testimony presented
during the arbitration. The urgent presentation of hundreds of pages of phone records from
October 7, 2007, to March 31, 2008, with the fallacious argument that they were “relevant to the
EEOC and Ms. Rios’s allegations that ‘countless’ offensive text messages from Minasse Ibrahim
ORDER IMPOSING SANCTIONS
AND STAYING CASE

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constituted severe or pervasive sexual harassment” shows a disturbing lack of candor toward the
tribunal, appears to have been nothing but an attempt to draw attention from plaintiffs’
previously-filed motion to supplement the record, and further distracted plaintiffs as they were
preparing for arbitration. More troubling yet is the accumulation of evidence suggesting that Art
Squires, the Renton Store Manager, did take notes during his investigation of Ms. Rios’ sexual
harassment claims, but that the notes, like the 2001 complaint documents, have been removed
from the files where one would expect to find them. Finally, the June 5, 2012, disclosure of a
document containing allegations of sexual harassment against Mr. Squires, the person tasked
with investigating Ms. Rios’ complaint, suggests that additional surprises and revelations may
yet be in store.
The Court has at its disposal an array of rules and powers with which to ameliorate
the effects of defendant’s destruction of evidence, discovery violations, and late disclosures.
Rule 37(b), for example, applies to defendant’s redaction of information and untimely
productions after the Court had ordered disclosure. Because discovery sanctions serve multiple
purposes, ranging from coercion and compensation to deterrence and punishment (see, e.g.,
Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, 784 n.10 (9th Cir. 1983)), the
Court is authorized to, among other things, designate facts as established, prohibit the offending
party from pursuing a defense, strike pleadings, and/or enter default judgment against the
disobedient party. Fed. R. Civ. P. 37(b)(2)(A). “Rule 37 sanctions must be applied diligently
both ‘to penalize those whose conduct may be deemed to warrant such a sanction, [and] to deter
those who might be tempted to such conduct in the absence of such a deterrent.’” Roadway
Express, Inc. v. Piper, 447 U.S. 752, 763-64 (1980) (quoting National Hockey League v.
Metropolitan Hockey Club, 427 U.S. 639, 643 (1976)).
Section 1927 of Title 28 authorizes an award of costs, expenses and reasonable
attorney’s fees associated with defendant’s bad faith submission of the cell phone records.
Although the statute sets a very high threshold before a party will be required to reimburse its
ORDER IMPOSING SANCTIONS
AND STAYING CASE

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opponent for a portion of its attorney’s fees, defendant’s filing of its motion to supplement the
record falls outside the acceptable realm of zealous advocacy, was frivolous and/or intended to
harass, and unreasonably and vexatiously multiplied these proceedings. One could also argue
that § 1927 applies to defendant’s overall discovery tactics, which made it extremely difficult for
plaintiffs to pursue their claims and multiplied these proceedings unreasonably and vexatiously.
Defendant’s initial discovery responses consisted of little more than baseless, blanket objections
which forced plaintiffs to file motions to compel and ultimately resulted in a slow trickle of
responsive documents over the course of many months. This conduct has impeded plaintiffs’
efforts throughout this litigation, thereby significantly increasing the costs of prosecuting the
action.
The Court has already found that defendant’s unprincipled objections and
negotiations to avoid disclosing the 2001 sexual harassment complaint against Mr. Ibrahim
violated Local General Rule 3(d). Such obstruction exposes defendant to attorney’s fee awards
and “such other sanctions as the court may deem appropriate.”
Finally, district courts have the inherent power “to manage their own affairs so as
to achieve the orderly and expeditious disposition of cases.” Ready Transp., Inc. v. AAR Mfg.,
Inc., 627 F.3d 402, 404 (9th Cir. 2010). In certain respects, the inherent powers are “both
broader and narrower than other means of imposing sanctions. First, whereas each of the other
mechanisms reaches only certain individuals or conduct, the inherent power extends to a full
range of litigation abuses.” Chambers v. Nasco, Inc., 501 U.S. 32, 46 (1991). Second, the
imposition of sanctions under the inherent powers generally requires a finding of subjective bad
faith or improper purpose. Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001). Having reviewed
the record in this matter and heard the arguments of counsel, the Court finds that defendant has
interposed objections to discovery requests and filed at least one motion for improper purposes.
The Court also finds that there is no good faith explanation for the failure to disclose the 2001
sexual harassment complaint or for the series of late disclosures regarding facts, issues, and the
ORDER IMPOSING SANCTIONS
AND STAYING CASE

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identity of witnesses, many of which go to the heart of plaintiffs’ claims.
The Court is once again left to determine whether to strike defendant’s answer and
enter default judgment against it. Defendant has deliberately engaged in deceptive practices that
undermine the integrity and orderly administration of these proceedings. Anheuser-Busch, Inc.
v. Natural Beverage Distribs., 69 F.3d 337, 348 (9th Cir. 1995). Dismissal is, however, a harsh
sanction, and the Court must consider the following factors when determining whether a
dispositive sanction is appropriate under either its inherent powers or Rule 37(b): (1) the
public’s interest in the expeditious resolution of litigation; (2) the Court’s need to manage its
docket efficiently and effectively; (3) the risk of prejudice to the party seeking sanctions; (4) the
public policy in favor of considering cases on the merits; and (5) the availability of less drastic
sanctions. Leon v. IDX Sys. Corp., 464 F.3d 951, 958 (9th Cir. 2006); Wanderer v. Johnston,
910 F.2d 652, 656 (9th Cir. 1990).
(1) Expeditious Resolution of Litigation
Discovery in this matter closes on July 8, 2012. Because arbitration of the
individual plaintiffs’ claims occurred earlier this month, most discovery contemplated by the
parties has already been completed. If dispositive sanctions are not awarded, discovery will
have to be extended in order (a) to allow plaintiffs to depose the newly-disclosed complainants
(Ms. Graves and Mr. Ibrahim) and their alleged harassers (Mr. Ibrahim and Mr. Squires), (b) to
allow plaintiffs to investigate Mr. Ibrahim’s assertion that Mr. Squires engaged in sexually
harassing conduct, and (c) to review defendant’s document retention, search, and disclosure
activities throughout the course of this litigation. Given that the arbitration proceedings are now
closed and the resolution of this case will have to be delayed in light of defendant’s conduct, the
first factor supports entry of dispositive sanctions.
(2) Efficient and Effective Docket Management
Due in large part to defendant’s tactics during discovery, this case has not
proceeded efficiently. Since March 2011, when defendant objected to every one of plaintiffs’
ORDER IMPOSING SANCTIONS
AND STAYING CASE

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requests for production, the parties have been in a pitched discovery battle that has generated
multiple motions and significant expenses. Worse yet, the effective administration of justice is
in question in this case. Defendant’s failure to disclose highly relevant information in response
to plaintiffs’ discovery requests casts doubt on its prior assertions of diligence, compliance, and
good faith and raises concerns regarding the veracity of its current assurances. The second
factor supports entry of dispositive sanctions.
(3) Risk of Prejudice to Plaintiffs
The risk of prejudice to plaintiffs is high, especially to the individual plaintiffs who
were on the eve of (if not in the midst of) arbitration when defendant finally disclosed the 2001
sexual harassment complaint against Mr. Ibrahim and the allegation that Mr. Squires had
repeatedly harassed subordinate female employees. With regards to this litigation, the risks
could be ameliorated somewhat by reopening discovery and giving the EEOC an opportunity to
follow up on the newly-disclosed information. As the EEOC pointed out, however, additional
months of discovery come at a cost and the agency has fixed resources. Furthermore, there
remains the nagging suspicion that the lately-discovered documents are only the tip of an iceberg
of information that was destroyed or effectively removed from files earlier in this litigation. The
third factor supports entry of dispositive sanctions.
(4) Public Policy Favoring Decisions on the Merits
The primary issues in this case are whether Mr. Rios was subjected to a hostile
work environment and whether Mr. Lam was fired for complaining of sexual harassment on Ms.
Rios’ behalf. The public has an interest in a determination of those issues based on the facts,
rather than by judicial fiat. While the public interest favoring decisions on the merits generally
points away from dispositive sanctions, it is possible that defendant’s destruction and failure to
disclose evidence, both known and unknown, has reduced the chances that an accurate
determination of the facts can ever be made. Nevertheless, the Court finds that this factor
supports a denial of dispositive sanctions.
ORDER IMPOSING SANCTIONS
AND STAYING CASE

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(5) Availability of Less Drastic Sanctions
There are a number of less drastic sanctions available to the Court, including
excluding evidence, striking defenses, and/or awarding monetary sanctions. The issue is
whether such lesser sanctions or any combination thereof will allow plaintiffs to adequately
prepare for trial and ameliorate the risk that defendant’s conduct will interfere with the rightful
decision of this case. Adriana Int’l Corp. v. Thoeren, 913 F.2d 1406, (9th Cir. 1990). In light of
the breadth of the destruction/loss of documents, the clear relevance of much of the information
that was belatedly disclosed, and the Court’s inability to ascertain the scope of defendant’s
discovery violations, only a tiered and aggressive response has a chance of undoing the prejudice
that plaintiffs have and, if left unchecked, will continue to suffer.

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For all of the foregoing reasons, it is hereby ORDERED that:
(a) Defendant’s affirmative defenses related to (i) its efforts to prevent and correct
harassment in the workplace, (ii) plaintiffs’ failure to utilize protective and corrective
opportunities provided by defendant, (iii) its good faith and/or privilege to act as it did in this
case are STRICKEN. The striking does not preclude plaintiffs from putting on evidence
regarding the lack of protective and corrective policies or activities.
(b) Documents related to other complaints or reports of sexual harassment involving Mr.
Ibrahim or Mr. Squires – including Ms. Graves’ 2001 complaint and Mr. Ibrahim’s allegations
against Mr. Squires – as well as testimony from the accusers themselves are presumptively
admissible at trial.
(c) Monetary sanctions in the amount of $100,000 will be awarded to offset the excess
costs caused by defendant’s discovery violations, to punish unacceptable behavior, and as a
deterrent to future bad conduct. Defendant shall, within seven days of the date of this Order, pay
$25,000 to each of the plaintiffs (the EEOC, Mr. Lam, and Ms. Rios) through their attorneys and
$25,000 to the Clerk of Court.
ORDER IMPOSING SANCTIONS
AND STAYING CASE

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(d) The above-captioned matter is STAYED pending verification/certification of all
previous discovery requests and appointment of a Special Master to review defendant’s
document retention, search, and disclosure activities throughout the course of this litigation. The
parties shall, within twenty-eight days of the date of this Order, confer and submit the resumes of
three qualified individuals who are able and willing to serve as a Special Master in this matter.
The Court will appoint one of the nominated individuals as a Special Master who will be tasked
with (i) meeting with the undersigned, (ii) reviewing any and all of defendant’s records as they
are kept in the normal course of business at the Home Office and the Renton store, plaintiffs’
various discovery requests, and the timing and scope of defendant’s responses and subsequent
disclosures, and (iii) preparing a report for the Court. The Special Master shall be subject to the
Protective Order entered in this matter. Dkt. # 82. Defendant shall give the Special Master
access to any and all employees, agents, managers, and officers, as well as former employees,
agents, managers, and officers to the greatest extent possible. Defendant shall cooperate in all
respects with the Special Master’s investigation. The Special Master shall have two months in
which to conduct the above-described review and report to the Court regarding any as-of-yet
undiscovered discovery violations. All costs and expenses incurred by the Special Master as
well as a reasonable hourly rate shall be paid by defendant.

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Dated this 3rd day of July, 2012.

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A
Robert S. Lasnik
United States District Judge

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ORDER IMPOSING SANCTIONS
AND STAYING CASE

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