United States District Court, D. South Dakota, Western Division
ORDER ON MOTION FOR SANCTIONS
KAREN E. SCHREIER, District Judge.
Plaintiff, Atmosphere Hospitality Management, LLC, and third-party defendant, James Henderson (collectively "Atmosphere"), moves for sanctions against defendants/third-party plaintiffs Shiba Investments, Inc., and Karim Merali. The court grants in part and denies in part the sanctions requested by Atmosphere.
Atmosphere brought this action against Shiba and Merali to resolve issues related to a licensing contract and management contract between the parties that allowed Shiba to operate a hotel it owned under Atmosphere's brand, "Adoba." Following numerous discovery disputes, Atmosphere moved to compel certain items of discovery. Docket 98. The court held a hearing on that motion, and granted most, but not all, of the relief requested by Atmosphere. Docket 135. Subsequently, Atmosphere filed a motion for attorney's fees relating to its first motion to compel discovery. Docket 147. Atmosphere also moved for sanctions pursuant to Federal Rule of Civil Procedure 37(b)(2)(A) based on a failure to comply with the court's order on the motion to compel responses to the first set of discovery. Docket 150. On January 9, 2015, the court granted in part and denied in part Atmosphere's motion for attorney's fees and ordered further briefing on the motion for sanctions. Docket 173.
Federal Rule of Civil Procedure 37(b)(2) states:
If a party or a party's officer, director, or managing agent... fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a), the court where the action is pending may issue further just orders. They may include the following:
(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is obeyed;
(v) dismissing the action or proceeding in whole or in part;
(vi) rendering a default judgment against the disobedient party; or
(vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination.
"Instead of or in addition to the orders above, the court must order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the failure was substantially justified or other circumstances make an award of expenses unjust." Fed.R.Civ.P. 37(b)(2)(C). To impose sanctions under Rule 37, "there must be an order compelling discovery, a willful violation of that order, and prejudice to the other party." Chrysler Corp. v. Carey, 186 F.3d 1016, 1019 (8th Cir. 1999). Sanctions must be "just' and relate to the claim at issue in the order to provide discovery." Hairston v. Alert Safety Light Products, Inc., 307 F.3d 717, 719 (8th Cir. 2002) (citation omitted).
As part of the January 9, 2015, order, the court concluded that the initial requirements for the imposition of sanctions as laid out in Chrysler Corporation were satisfied. Docket 172 at 13-14. Because defendants had not briefed the issue regarding the specific sanctions Atmosphere sought,  the court directed the parties to submit further briefing. Additionally, the court instructed Atmosphere to describe the sanctions it requested and to submit an affidavit for a fee request. The court also cautioned:
Defendants should also explain what steps they have taken to correct the insufficient discovery responses. In determining sanctions, the court will consider, among other factors, whether defendants have remedied their failure to comply with the court's order on the motion to compel. If defendants have not complied in full with the court's order at that time, the court will consider imposing any and all sanctions authorized under Rule 37, up to and including dismissal of the third-party complaint or entry of a default judgment.
Id. at 14-15.
Defendants state that they have produced two tabulated binders containing approximately 1, 500 pages of information pertinent to Atmosphere's discovery requests. These binders were turned over to Atmosphere on January 16, 2015. Additionally, they have been separated into 11 tabbed sections (lettered A-K). Atmosphere has provided a copy of defendants' most recent supplemental response to its discovery request as of January 27, 2015. Docket 199-1. Defendants thus contend that they have "provided plaintiffs with the information requested in all outstanding discovery[.]" Docket 193 at 4.
I. Have Defendants Fully Remedied Their Inadequate Discovery Responses?
A. Request for Production Number 2
Atmosphere's RFP 2 stated:
Please produce a copy of all communications in hard copy and electronic format, including email, text messages and attachments, whether personal or business, by Defendants, its attorneys and/or its employees, including but not limited to emails between, to, or from Karim Merali, Sacha Merali, Mehdi Merali, Zeljka Curtilo, Batool Merali and/or their attorney(s) regarding the Adoba brand, Atmosphere, Jim Henderson, Adrienne Pumphrey, the agreements between the parties to this litigation, the operation and/or management of the Adoba hotel in Rapid City, the renovations of the hotel to the Adoba brand, the use of the Adoba brand, the intentions of the parties in their relations, any negotiations, and the finances of both Adoba and Atmosphere. This request is not asking for communications solely between a client and its/his/her attorney.
According to defendants' most recent supplemental response, the following sections of its tabulated binders address this RFP:
Tab A (emails with Henderson regarding Agreements); Tab B (additional emails with Henderson regarding agreements); Tab E (renovation expenses for the hotel after 2012); Tab E (additional renovation invoices and vendors); Tab F (miscellaneous emails mostly following the inception of the management contract but concerning the hotel); Tab I (emails, plans and related documentation concerning hotel renovations); and Tab J (additional renovation invoices)[.]
Atmosphere maintains that there are several shortcomings with defendants' response. For example, Atmosphere notes that defendants have not produced an email sent from Karim Merali to Mike Schmitz, an employee at the hotel, discussing allegations defendants have made against James Henderson related to defendants' third-party complaint and counterclaims. This email was brought up at the September 29, 2014, hearing, and the court specifically directed defendants to include that email (and emails similar to it) in their response to this RFP. Docket 169 at 20-21. Defendants still have not done so.
Relatedly, Atmosphere contends that defendants have not disclosed all communications pertaining to or containing attachments of drafts of the contracts, which defendants agreed to produce after the parties met and conferred. In a letter summarizing that meeting, counsel for Atmosphere recalled that defendants agreed to produce those communications and asked defendants' counsel to respond with any disagreements to the summary. Docket 100-5. No response was given. Although defense counsel has since been disqualified (Docket 255), this court had twice admonished him to follow through on the agreements made at the meet and confer. Docket 169 at 15-16; Docket 173 at 9-10 n.1. Nonetheless, these communications have not been turned over.
Atmosphere also doubts the completeness of defendants' supplemental responses, as the RFP sought "all" of the specified communications. But, for example, Tab A consists of a single email from James Henderson to Karim and Sacha Merali dated December 26, 2011, referencing "the Agreements [Henderson] delivered to [the Meralis] 3 weeks ago[.]" Docket 199-10. This email was disclosed by and used as Atmosphere's Exhibit 57 at the preliminary injunction hearing. Tab B similarly consists of one email from James Henderson to Karim Merali dated December 15, 2011, explaining that "Attached are the Agreements you requested in Electronic format." Docket 199-11. But Atmosphere also sought each communication that related to subsequent drafts of those editable agreements. And while Tab I contains some emails that pertain to the renovation of the hotel, a number of the documents contain the actual plans and specifications to renovate the hotel rather than communications, or are simply communications unrelated to the information sought in this RFP. See Docket 199-12; Docket 199-13.
The court has before it only small portions of the approximately 1, 500 pages of material provided to Atmosphere. On one hand, it appears the defendants have, albeit belatedly, produced some of the documents sought by Atmosphere's RFP. On the other hand, defendants have not produced the Schmitz email as instructed by this court or all of the communications concerning drafts of the contracts as contemplated by the parties' meet and confer agreement. The court reiterated at the September 29, 2014, hearing that if the party responding to an RFP does not have the documents being sought, the party must sign a response to that effect. Docket 169 at 16; see also Fed.R.Civ.P. 34. Such a response has not been provided, and the court will not assume that defendants are not in possession of the documents Atmosphere seeks. Moreover, defendants' assertion that they have only recently been able to locate this mass of documents is unaccompanied by affidavit or a citation to other evidence within the record and borders on the incredible. See Docket 193 at 4 (explaining the difficulty in locating this information is attributable to Atmosphere's use of "systems unfamiliar to the Defendants, " the hotel renovations, and ultimately that defendants were able to find the documents "somewhat by accident"). Ultimately, defendants were required to show what steps they have taken to cure their inadequate discovery responses and to cure those inadequacies in full. Defendants have not done so. Consequently, defendants' response to this RFP remains inadequate.
B. Request for Production Number 5.
Atmosphere's RFP 5 stated:
For each such email produced in response to Request for Production Nos. 2, 3 and 4, please provide a copy of the corresponding.pst file, a print-out of the email listed amongst the other emails in the Sent box sent on the same day as the email produced, a print-out of the email listed amongst other emails in the Inbox or other folder received on the same day as the email produced, a print out of all metadata for each email produced, and all emails saved and produced in their native format on a CD. This request requires this information even for emails that may have been previously produced.
Defendants' most recent supplemental response to Atmosphere's discovery requests does not address this RFP. See Docket 199-1 (responding to RFP 6 after responding to RFP 3). Thus, Atmosphere contends that defendants have done nothing to remedy their inadequate response. Defendants' only argument on this point pertains to an email allegedly sent from Karim Merali to James Henderson on December 31, 2011. A screenshot of this email was introduced as defendants' Exhibit Y during the preliminary injunction hearing in October 2013. It purported to contain a finalized version of the Adoba licensing agreement and asked James Henderson to "Please review and let me know if [it is] ok per our discussions late last night."
Atmosphere claims it has neither received a copy of this email from defendants as asked for in its RFP 2, or the types of related data sought in its RFP 5. Defendants ignore Atmosphere's allegation that they have not produced the communication and instead argue that Daniel Meinke, an analyst for Computer Forensic Resources and one of Atmosphere's experts, has located and made a copy of the email after collecting forensic images of the hard drives from several of Karim Merali's computers. See Docket 193-2. Meinke's findings were forwarded to Atmosphere on January 6, 2015. Docket 193-1; Docket 193-4. Atmosphere acknowledges that it received this report, but points to a subsequent report by Meinke. See Docket 199-9. In this later report, Meinke explains that he was able to locate two identical images of the email, but provided several reasons why he did not believe the email itself was ever actually sent to James Henderson. Id. at 3-4. For example, the images of the email were located in the Merali's "Inbox" rather ...