T.W. Vending, Inc. et al v. COD Food Services, Inc. et al
ORDER granting 14 Motion to Require Defendants to Amend their AEO Designations; denying 38 Motion to Strike; granting in part and denying in part 42 Motion for Sanctions; accepting 61 Stipulation to Amend Scheduling Order. Dispositive Motions due 6/29/2018. The parties must report their preferences on a new trial date not later than 4/23/2018. Plaintiffs' motions for cost-shifting are granted in part and denied in part. Plaintiffs have until 4/23/2018 to submit an itemized list of costs and expenses. Defendants have until 4/30/2018 to respond. Signed by Magistrate Judge Stephen L. Crocker on 4/13/2018. (arw)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
T.W. VENDING, INC. and
THREE SQUARE MARKET, INC.,
COD FOOD SERVICES, et al.
Before the court are three different discovery disputes and the parties’ proposed stipulation
to extend the schedule, which the court will address in order:
I. Re-designating Confidential Documents (dkt. 14)
As part of their November 6, 2017 motion to compel (dkt. 14), plaintiffs asked the court to
order defendants to downgrade specified documents (dkt. 18-17) from “Attorney’s Eyes Only”
(AEO) to “Confidential.”
Plaintiffs argued that defendants had overused and misused the
designation, which hampered plaintiffs’ ability to develop their evidence. In their written response,
defendants conceded nothing, claiming that they had limited their use of the AEO designation to
their most sensitive business documents, and that the percentage of documents they marked AEO
was both relatively small and proportional to the percentage of AEO documents marked by plaintiffs.
Dkt. 23. At the November 15, 2017 telephonic motion hearing, the parties agreed that they could
honor the existing AEO designations while taking their upcoming depositions, but they still needed
the court to review the disputed documents to determine whether any of them should be dropped
to simple “confidential,” which would give the parties themselves access to the information. See
hearing transcript, dkt. 56 at 20.
In their protective order, the parties use the “confidential” level of protection to protect
information within the scope of F.R. Civ. Pro. 26[c]. The parties then provided that:
A party may designate especially sensitive Confidential documents or
portions of documents as “Confidential– Attorneys’ Eyes Only” where
disclosure of the document or portion of the document to the
opposing party is likely to cause undue harm to the producing party
or to the legitimate interests of a non-party.
Dkt. 13 at ¶ 5.
Although this court has a duty to the public to scrutinize first level protection, namely the
parties’s definition of “confidential” information, see Jepson, Inc. v. Makita Elec. Works, Ltd., 30 F.3d
854, 859 (7th Cir. 1994), once this is done, the parties are free to impose whatever additional levels
of protection they wish on any subset of information that objectively qualifies as confidential. In
other words, the parties’ definition of AEO level protection governs the court’s review of the disputed
documents in dkt. 18-17. The parties’ protective order further provides that a party asserting that
material qualifies for AEO protection “shall also have the burden of proving that there are not
feasible, less restrictive means of providing the necessary protection.” Dkt. 13 at ¶ 12.
Therefore, pursuant to ¶ 12, defendants have the burden of proving that AEO-level protection
of a document is necessary to prevent undue harm to them or to the legitimate interests of a nonparty. Absent a definition of the term “undue harm” in the protective order, I will default to a
dictionary definition: “undue” means “unwarranted or inappropriate because excessive or
disproportionate.” Http://en.oxforddictionaries .com/definition/undue. Defendants’ responded to plaintiffs’
AEO challenge in their Combined Memorandum:
The documents that Defendants have marked as AEO contain
sensitive and secret information regarding Defendants’ financial
information, marketing strategy, pricing information, technical
information, and customer information. . . . Plaintiffs do not suffer
any particular prejudice or hardship by being required to view such
documents only through counsel. . . .
Sterling Services had a strained and challenging business relationship
with Plaintiffs due to the multiplicity problems [sic] plaguing
Plaintiffs’ kiosk software. And Plaintiffs are competitors of Digital
Checkouts in the marketplace. Defendants should not be forced to
turn over wholesale their sensitive information to Plaintiffs. An AEO
designation, as stipulated by the parties’ joint protective order, is an
appropriate safeguard and should remain in place.
Dkt. 23 at 21.
Given that it is defendants’ burden to establish, document-by-document, that each of these
documents is entitled to AEO protection, this is argument is so vague as to be useless. I have read
and reviewed each document filed at dkt. 18-17, and for most of them, I cannot discern any reason
to conclude that allowing plaintiffs to see them would cause any actual harm to defendants, let alone
harm that is “disproportionate” or “excessive.” Most of the documents do not contain any sensitive
financial or business information and they do not reveal any facts, circumstances or situations that
would qualify for anything exceeding garden variety confidentiality. The bottom line: defendants
have not established that any of the withheld documents qualify for AEO status. Accordingly, I
intend to strip all of these documents of AEO protection.
Before I do, I will give defendants one more opportunity actually to meet their burden on a
subset of documents that arguably could qualify for AEO protection. This will require defendants
to provide specific, objective information about each of these documents (from dkt. 18-17, listed by
Bates Number): 1441, 1475, 1611, 1653-58, 1661-70, 1672-78, 1690-1704, 1705-21 and 1728.
Defendant may have until April 23, 2018 to submit ex parte a specific explanation as to why each
of these documents actually qualifies for AEO protection.
II. Defendant Bishop’s Proposed Deposition Errata
On November 17, 2017, defendant Jim Bishop sat for a day-long deposition. See transcript,
dkt. 40-4. On January 3, 2018, Bishop, by counsel, submitted a three page errata sheet offering 17
changes to his testimony, most on the ground that the proposed change was a “more accurate
description of the events.” See dkt. 40-5. This led to plaintiffs’ motion to strike the errata (dkts. 38
-40), which defendants oppose (dkt. 47).
Plaintiffs characterize Bishop’s changes as blatant contradictions of his deposition testimony
that cannot plausibly be seen as correcting an error or clarifying confusing testimony. Rather, assert
plaintiffs, “The errata sheet changes contort every piece of testimony Bishop advanced regarding his
assumed, believed and perceived ownership interest in ART and Digital.” Dkt. 39 at 1.
Not so fast, counter the defendants: F.R. Civ. Pro. 30(e) allows Bishop to change the
substance of his testimony, which he has appropriately done in order to clarify his testimony on one
or two issues that were twisted by “opposing counsel’s repetitive and manipulative questioning.”
Dkt. 47 at 1.
In the context of summary judgment, the Court of Appeals for the Seventh Circuit has held
that the only circumstances in which a party may submit an affidavit that conflicts with his earlier
deposition testimony is if it is based on newly discovered evidence, or if clarifies ambiguous or
confusing deposition testimony. Adelman-Tremblay v. Jewel Companies, Inc., 859 F.2d 517, 520 (7 th
Cir. 1988). In Adelman-Tremblay, the court found that the deponent’s deposition testimony “was
a model of clarity” that his subsequent affidavit directly contradicted. Accordingly, the deponent’s
affidavit was a nullity. Id. The court in Thorn v. Sundstrand Aerospace Corp., 207 F.3d 383 (7 th Cir.
2000) reached the same conclusion regarding Rule 30(e) errata. The court, while noting that the rule
by its terms allows altering the substance of a deposition, held that “a change of substance which
actually contradicts the transcript is impermissible unless it can plausibly be represented as the
correction of an error in the transcription, such as dropping a ‘not.’” Id. at 389.
As subsequent courts have noted, however, this prohibition against substantive changes to
deposition testimony applies in the narrow context of opposing summary judgment with the
equivalent of a “sham affidavit.” See, e.g., Arce v. Chicago Transit Authority, 311 F.R.D. 504, 509-10
(N.D. Ill. 2015). When we get to that point in this lawsuit, then defendants will not be allowed to
support or oppose any summary judgment motion with any of Bishop’s errata that contradict his
deposition testimony. Id. See also United States ex rel. Robinson v. Indiana Univ. Health Inc., 204
F.Supp.3d 1040, 1042-43 (N.D. Ind. 2016)(“changing a deposition from what one said to what one
meant is permitted by Rule 30(e), questionable though such a change may be. What is impermissible
is for a party to attempt to rely upon such bald changes to defeat summary judgment.”), citing Thorn,
207 F.3d at 388. So, there is no basis for the court to “strike” Bishop’s proposed changes, now or
This is not an endorsement of the changes that Bishop offers as purported errata pursuant
to Rule 30(e). Notwithstanding defendants’ characterizations of Bishop’s changes as “clarifications,”
Bishop has engaged in a testimonial version of buyer’s remorse in which he is changing his testimony
to better fit the narrative that defendants are offering in this lawsuit. But plaintiffs are asking for
the wrong type of relief at the wrong time in this lawsuit. Bishop’s original sworn deposition
testimony remains in the record to be used as appropriate and necessary later in this case, most
probably at the summary judgment phase and perhaps again at trial.
Finally, if plaintiffs believe that they need to re-open their deposition of Bishop in light of
his changed answers, then they may file a motion for leave to do so.
The court in Arce explains why striking deposition errata would be of no practical consequence
at trial, 311 F.R.D. at 511.
III. Plaintiffs’ Motion for Sanctions
On November 6, 2017, plaintiffs filed a motion to compel discovery (dkt. 14) that defendants
opposed (dkt. 23) and on which we held an 80-minute telephonic hearing on November 15, 2017.
(See Tr., dkt. 56). The court granted the motion in part and denied it in part and, disavowing any
intent to micromanage the parties’ followup, left it to the parties to follow through, predicting that
the longer we talked, the clearer it was becoming to counsel how to make it work. Tr. at 31-33. That
turned out to be incorrect, as evidenced by plaintiffs’ February 14, 2018 motion for sanctions under
Rule 37(b). Dkt. 42. Plaintiffs contend that defendants have failed to provide the information
ordered by the court (or failed to confirm that there is none). In response, (dkt. 49) defendants
contend that they have substantially complied with their court-ordered discovery obligations but now
are being harassed by plaintiffs, who are unhappy that the information they have received does not
support their claims. Defendants’ point to the court’s laissez-faire approach to the followup to argue
that the plaintiffs’ follow-up demand letter is not a court order and therefore cannot be used as a
basis for plaintiffs to accuse defendants of not complying with the court’s rulings during the
November 15, 2018 hearing.
At that hearing, the court observed that the attorneys were working well together, so it would
let them sort out and resolve the nuances of the discovery that the court, in broad strokes, was
ordering defendants to produce. Regarding plaintiffs’ requests for more financial information, the
court stated although it rarely ordered disclosure of tax information, plaintiffs were entitled not only
to defendants’ K-1 Schedules, but any other tax documents upon which defendants were relying in
this lawsuit (dkt. 56 at 25-26), and that plaintiffs were entitled to revisit this issue with the court
if they thought they needed more, and that there could be exceptions to the court’s general policy
(id. at 27). This segued into the court granting the plaintiffs’ request for financial information
related to defendants’ R&D processes and expenses (id. at 30-34), again with the parties predicting
that they would work through the details on their own. The court ordered the production of all
executed corporate documents (id. at 34-35) and all communications between the defendants and
Three Square id. at 35-37), and all of the information responsive to the bullet points on pp. 21-22
of plaintiffs’ brief, or confirmation that no such documents existed. (id. at 37 and 39-40). The court
also ordered production of attachments to emails. (id. at 42). With input from the parties, the court
set December 8, 2017 as defendants’ deadline to complete their rolling production of the discovery
ordered by the court. Id. at 53.
Plaintiff’s February 14, 2018 motion for sanctions (dkt. 42) followed, accompanied by a 17
page brief (dkt. 43) and 25 exhibits (dkt. 44).
Plaintiffs claim that defendants have violated the
court’s November 17, 2017 order, and ask the court to designate certain facts to be established, to
restrict defendants’ actions in this lawsuit, and to impose monetary sanctions.
By way of
background, plaintiffs outline their claims in this lawsuit, then assert that “defendants deny these
allegations but refuse to produce documentation to support their denials or confirm no such
documentation exists.” Dkt. 43 at 3. Plaintiffs have submitted a copy of their lawyer’s November
27, 2018 letter (dkt. 45-11) to defendants’ attorney in which they specified the additional discovery
they were seeking following the motion hearing. The items listed in the letter mirror the items that
the court ordered produced during the hearing. Plaintiffs closed their letter by noting that, although
they believed that responsive documents existed for each request, if no responsive documents existed,
then defendants should say so. Id. at 6. Defendants responded on December 8, 2017 by providing
1055 pages of documents on a disk. Included were defendant Sterling and ART’s general ledgers,
but little else.
According to plaintiffs, these documents lacked substantive compliance with the court’s
order, and defendants have not supplemented their response since.2 Plaintiffs list 11 categories of
evidence that they have yet to receive from defendants, including corporate records for Sterling,
Digital and ART, the financial statements for these companies, executed corporate formation
documents, correspondence between plaintiffs and the defendants, licensing agreements, Jim Bishop’s
employment relationships with Sterling, Digital or ART, documents referenced in emails but not
produced, and documents that would support defendants’ assertions in their answer, written
discovery responses, and deposition testimony. See dkt. 43 at 11. Plaintiffs also point to apparent
inconsistencies between defendants assertions in some of their discovery responses and other
information known to plaintiffs. For instance, Digital claims never to have had any employees, yet
Marni Hofer held herself out as VP of sales. Hofer also shows up on ART’s direct deposit list and
an email from Friedrich to Bishop states that “Selling anything to anyone before we are clear from
3square is very risky. Marin would be involved in the sale and that is even more risky.” Dkt. 45-25.
In their 14 page response (dkt. 49), defendants start by gaslighting plaintiffs, characterizing
their discovery demands as “rabid,” (id. at 1) accusing plaintiffs of prematurely demanding
evidentiary finality even though discovery continues until July 1, 2018 (id. at 2), belittling the quality
of plaintiffs’ products and services during the parties’ business relationship, and characterizing the
instant motion as “little more than an ongoing abusive campaign meant to harass and bully
Defendants, who have complied with the Court’s order in good faith.” Id. at 2-3.
Plaintiffs report that, rather than com e back to court immediately, they attempted to develop
further information by serving Rule 45 subpoenas on two software companies and three banks known to
be working with defendants. Defendants, by counsel, objected to the “witch hunt” but did not file any
motions to quash. Instead, the parties have compromised on a narrower scope of the subpoenas. See dkt.
43 at 7-8. I surmise that plaintiffs are providing this information simply as background narrative.
More substantively, defendants provide their own gloss of the substantive value of the 1000+
pages they produced on December 8, 2017 and proffer that they have located and provided, or are
about to provide additional responsive information. Dkt. 49 at 4-6. Defendants then explain how
and why some requested documents are no longer available or never existed. Id. at 6-8. As part of
this, defendants respond to plaintiffs’ request for all documents that support defendants’
interrogatory responses by reporting that they answered based on their extensive knowledge and
experience in the industry and their recollection of events, “without necessarily referring to or
referencing any particular documents.” Id. at 8. Defendants then state that
contrary to Plaintiffs’ demands, the discovery process is ongoing and
it does not serve Defendants’ interest nor would it be prudent to
attempt to state with any level of conviction that certain documents
do not exist at this or any other time, based upon what Defendants
state in an interrogatory.
Defendants then offer their view “that there truly is no Court Order to review and enforce
in this situation, as the discovery issues were resolved somewhat informally with fairly broad-based
oral rulings and without a specific written order being issued.” Id.
Defendants accuse plaintiffs of
attempting to contort their November 27, 2017 letter into a legally enforceable order which this
court can use as a springboard to impose sanctions. Id.
Defendants have got it wrong in several material respects. Starting with the last point, the
court’s oral rulings during the November 15, 2017 hearing are enforceable and the defendants are
bound by them. The court’s terse written text-only order (dkt. 28) should have put the lie to any
post-hearing notion that the 80-minute hearing had been nothing more than a discovery kaffeeklatsch.
To the extent that plaintiffs’ letter to defendants accurately restates what the court ordered, it does
not “contort” the court’s rulings, it reflects them. And plaintiffs’ letter does accurately reflect the
court’s rulings, which I have referred to in this order at 6-7.
As for the timing of plaintiffs’ letter, at the hearing, defendants’ attorney asked for December
8 as his production deadline, and the court gave it to him. Dkt. 56 at 41. At that time, counsel did
not express any confusion about what he needed to do in order to comply with the court’s order (id.
at 40), so it is unconvincing for him now to argue that he got jammed up by the timing of plaintiffs’
letter. Defendants should have started searching for and gathering the court-ordered materials on
November 16, 2018.
Which segues to the court’s order that defendants produce everything they possess that is
response to the plaintiffs’ discovery demands:
So, Mr. Sandstrom, it’s up to you to go back to your clients and say
“Look again–check the corners, check the back of the file cabinet–but
make sure that everything that we’ve got is disclosed.” And at that
point Ms. Knollmaier should be able to be confident that if she
doesn’t have it, it doesn’t exist.
It’s hornbook law that you can’t produce what you don’t have. But
at least you have to check one more time to make sure that everything
you do have you have produced.
Dkt. 56 at 34 & 40.
So, defendants had two obligations: look again–harder–and then commit on December 8: this is the
rest of what we’ve got, and there isn’t anything else. Defendants now point out that discovery
continues for several more months, so it is premature to commit. That argument is a non sequitur
in light of the court’s order. Plaintiffs are entitled now to discover all of the information that
defendants possess that is responsive to plaintiffs’ discovery requests. If in the future defendants
uncover responsive information that they genuinely could not have known today, then they may
supplement as justice requires, but this is not an acceptable excuse for half-hearted discovery
Finally, it is unavailing for defendants to lobby against any of the requested discovery on the
ground that plaintiffs’ claims are unfounded and that defendants are the injured party here. Those
are arguments for motions practice and trial. They are irrelevant to defendants’ discovery obligations
under the Federal Rules of Civil Procedure. If defendants think plaintiffs discovery demands are
improper or disproportionate, then they may file their own motion for protection, but in the instant
dispute, that issue was resolved against defendants at the motion hearing.
In the absence of parties’ stipulation to extend deadlines, I would assess Rule 37(b) sanctions
against defendants today. But their stipulation to some two-month extensions allows the court to
give defendants a drop-dead date two weeks from now. April 27, 2018 is the deadline for defendants
to provide all of the discovery ordered at the November 15 hearing and to confirm that this is all
they have. To be clear, although I am not granting plaintiffs’ request for Rule 37(b) sanctions,
plaintiffs have prevailed on this motion in all practical respects because the motion flushed
defendants’ palpable misapprehension of the disclosure obligations this court previously had imposed
IV. Amending the Schedule
The court accepts the parties’ stipulation (dkt. 61) to extend the expert disclosure deadlines
to June 1, 2018 and June 29, 2018 and extend the deadline to file dispositive motions to June 29,
2018. This, however, requires us to move back the October 1, 2018 trial date commensurately to
December 3, 2018. If that date does not work for the parties for what they are predicting will be a
two week trial, then we can begin trial on January 7, 2019, January 14, 2019 or January 28, 2019.
Not later than April 23, 2018, the parties must report if they have an agreement on one of these
proposed new trial dates. If not, then they should report their respective preferences and the court
will pick the trial date and reset other dates commensurately.
V. Cost Shifting
Plaintiffs have asked for cost-shifting on all the aspects of their motions, pursuant to F. R.
Civ. Pro. 37(a)(5). “The great operative principle of Rule [37(a)(5)] is that the loser pays.” Rickels
v. City of South Bend, Ind., 33 F.3d 785, 786-87 (7th Cir. 1994). Here we have a mix: plaintiffs have
won the AEO re-designation motion and the sanctions motion but lost the errata motion on a
technicality as currently framed, which means that this motion was substantially justified. See Rule
37(a)(5)(B). Plaintiffs may have until April 23, 2018 to file an itemized list of costs incurred on its
winning motions. Defendants may have until April 30, 2018 to respond.
It is ORDERED that:
(1) Plaintiffs’ motion (dkt. 14, Part 4) to require defendants to amend their AEO
designations is GRANTED.
Defendants may have until April 23, 2018 to provide further
information on the subset of documents identified in the body of this order.
(2) Plaintiffs’ motion (dkt. 38) to strike Jim Bishop’s errata sheet is DENIED.
(3) Plaintiffs’ motion (dkt. 42) for sanctions under Rule 37(b) is GRANTED IN PART and
DENIED IN PART in the manner and for the reasons stated. Defendants’ deadline to finalize their
court-ordered discovery disclosures is April 27, 2018.
(4) The parties’ stipulation to amend the schedule (dkt. 61) is ACCEPTED.
deadline to disclose experts is moved to June 1, 2018, defendants’ deadline to disclose experts is
moved to June28, 2018, and the deadline to file summary judgment motions is moved to June 29,
2018. Not later than April 23, 2018, the parties must report their preferences on the new trial date.
(5) Plaintiffs’ motions for cost-shifting are GRANTED IN PART and DENIED IN PART.
Plaintiffs have until April 23, 2018 to submit their itemized list of costs and expenses. Defendants
have until April 30, 2018 to respond.
Entered this 13th day of April, 2018.
BY THE COURT:
STEPHEN L. CROCKER
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