Estakhrian v. Obenstine
Estakhrian v. Obenstine
2016 WL 6868178 (C.D. Cal. 2016)
February 29, 2016
Olguin, Fernando M., United States District Judge
Summary
Plaintiffs moved for sanctions against Defendant Obenstine for his failure to disclose documents he possessed on a laptop and in one or two bankers' boxes, in violation of Rule 26(a) and Rule 26(e). The court found that Defendant Obenstine willfully and in bad faith failed to disclose the ESI on the laptop and in the bankers' boxes, and imposed sanctions prohibiting him from using any documents from his laptop or paper records, or from any other source, at trial.
James Estakhrian and Abdi Naziri, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
Mark Obenstine, Benjamin F. Easterlin IV, Terry A. Coffing, King & Spalding, LLP and Marquis & Aurbach, P.C., Defendants
v.
Mark Obenstine, Benjamin F. Easterlin IV, Terry A. Coffing, King & Spalding, LLP and Marquis & Aurbach, P.C., Defendants
Case No. CV11-3480-FMO (CWx)
Signed February 29, 2016
Counsel
Dan L. Gildor, Mark A. Chavez, Nance F. Becker, Chavez and Gertler LLP, Mill Valley, CA, Raymond C. Fay, Fay Law Group PLLC, Steven M. Skalet, Merhi and Skalet PLLC, Washington, DC, S. Ron Alikani, Irvine Law Group LLP, Irvine, CA, for Plaintiffs.Harry A. Safarian, Alexis Ara Baroian, Safarian and Baroian LLP, Glendale, CA, Kenneth Charles Feldman, Larissa G. Nefulda, Lewis Brisbois Bisgaard and Smith LLP, Los Angeles, CA, for Defendants.
Olguin, Fernando M., United States District Judge
SPECIAL MASTER'S ORDER GRANTING PLAINTIFFS' MOTION FOR SANCTIONS
*1 On February 5, 2016, Plaintiffs filed with JAMS and Special Master Hon. Rosalyn Chapman (Ret.) (“Special Master”) a Notice of Motion and Motion for Sanctions (Motion), Supporting Memorandum of Points and Authorities (Memo.), and Proposed Order [Dkt. 390]; Defendant Obenstine's Opposition to Plaintiffs' Motion (Oppo.) [Dkt. 391]; Plaintiffs' Reply [Dkt. 393]; and the District Court's Order dated January 19, 2016 re: Plaintiffs Motion for Sanctions [Dkt. 397]. The Special Master also has reviewed the supporting Declaration of S. Ron Alikani (Alikani Declaration (Deck)), with Exhs. A through F [Dkt. 390-1-2]; the opposing Declarations of Harry A. Safarian (Safarian Declaration (Deck)), with Exhs. A and B, and Mark Obenstine (Obenstine Declaration (Deck)) [Dkt. 391-1-4]; and the reply declaration of Mr. Alikani (Alikani Reply Declaration (Deck)), with Exhs. A through G [Dkt. 393-1-2].
On February 18, 2016, a preliminary telephonic conference was held before the Special Master. Plaintiffs were represented by Steven M. Skalet, a partner with the firm Merhi & Skalet, Raymond C. Fay, attorney-at-law, and S. Ron Alikani, attorney-at-law, and Defendant Obenstine was represented by Harry A. Safarian, a partner with the firm Safarian & Baroian. The Special Master denied Plaintiffs' request for an evidentiary hearing to examine Defendant Obenstine and “his computer technical specialist(s),” finding Plaintiffs had not shown good cause for an evidentiary hearing, and also denied Plaintiffs' request to augment the record. Further, the Special Master set the date for an oral hearing on Plaintiffs' Motion for Sanctions.
The oral hearing on Plaintiffs' Motion for Sanctions was held telephonically before the Special Master on February 26, 2016. Plaintiffs were again represented by Steven M. Skalet, Raymond C. Fay, and S. Ron Alikani and Defendant Obenstine was represented by Harry A. Safarian.
I
Procedural History
On May 23, 2011, Plaintiff James Estakhrian filed a First Amended Class Action Complaint against Defendants Terry A. Coffing, Benjamin F. Easterlin IV, King & Spalding LLP, Marquis & Aurbach PC, and Mark Obenstine. [Dkt. 6] On October 27, 2015, Plaintiff filed a Second Amended Class Action Complaint (SAC) adding an additional plaintiff, Abdi Naziri. [Dkt. 373] The District Court has described the action, as follows:
The instant matter arises out of a settlement of a class action litigated in Nevada state court, Daniel Watt et al. v. Nevada Property 1, LLC, et al., Case No. A582541 (“Nevada litigation”). In the Nevada litigation, plaintiffs filed a class action for breach of contract regarding the purchase of condominium units in what became the Cosmopolitan Hotel, located in Las Vegas, Nevada. The class members sought to “rescind their purchase contracts and to obtain a refund of their escrow deposits” after learning that the originally contemplated condominiums were going to be converted to a hotel.
The Nevada litigation was eventually settled. Thereafter, James Estakhrian ... commenced this action, alleging the following causes of action against the attorneys in the Nevada litigation: (1) professional malpractice; (2) breach of fiduciary duty; (3) breach of contract; (4) violation of California Business & Professions Code §§ 17200, et seq.; (5) violation of the California Consumers Legal Remedies Act, California Civil Code §§ 1750, et seq.; and (6) fraud. The SAC alleges all six causes of action against Mark Obenstine ..., Benjamin F. Easterlin ... and his law firm King & Spalding, LLP ..., Terry A. Coffing ... and his law firm Marquis & Aurbach P.C. ...
*2 In this action, plaintiffs seek the balance of the lost escrow deposits not paid in the settlement of the Nevada litigation as well as disgorgement of defendants' attorney's fees in the Nevada litigation. Plaintiffs allege that Easterlin, who is a partner at King & Spalding, “had a massive and direct conflict of interest because of [the firm's] representation of Deutsche Bank, whose wholly-owned subsidiary had become the owner of Cosmopolitan.” Also, plaintiffs allege that King & Spalding and Obenstine began soliciting, primarily through cappers and runners, purchasers of condominiums in the East and West Cosmopolitan towers to participate in the Nevada litigation. (See also [SAC] at ¶ 30) (the actions of the purported runners and cappers were “under the direction of, with the approval of, and with the participation of defendants, particularly defendants Obenstine and Easterlin”). Plaintiff alleges that not only was the conflict of interest not disclosed to the class, but that the conflict caused defendants in this action—again, allegedly through cappers and runners—“to urge plaintiff and class members to settle for far less than the fair settlement value” of the Nevada litigation.
[Dkt. 418 (some citations omitted) ]
On April 16, 2015, Plaintiff Estakhrian filed a Notice of Settlement as to Defendants Easterlin and King & Spalding. [Dkt. 298]
On July 9, 2015, the District Court dismissed Defendants Coffing and Marquis & Aurbach for lack of personal jurisdiction. [Dkt. 329]
On July 14, 2015, the District Court issued a discovery and protective order, which, inter alia, set the deposition of Defendant Obenstine on September 17, 2015. [Dkt. 334]
On September 14, 2015, the District Court appointed Hon. Rosalyn Chapman (Ret.) as Special Master, pursuant to Fed. R. Civ. P. 53. [Dkt. 358]
On November 9, 2015, Defendants Easterlin and King & Spalding filed their Answer to the SAC. [Dkt. 382]
On November 9, 2015, Defendant Obenstine also filed his Answer to the SAC and raised the following affirmative defenses: (1) statute of limitations; (2) laches; (3) collateral estoppel and res judicata; (4) comparative fault and contributory negligence; (5) failure to mitigate; (6) punitive damages are improper; (7) litigation privilege; (8) unclean hands; (9) in pari delecto; (10) waiver; (13)[1] estoppel; (11) adequate remedy at law; (12) consent; (13) abandonment and mutual rescission; (14) fraud and bad faith; (15) offset; (16) consent and ratification; and (17) anti-SLAPP statute and California Constitution. [Dkt. 383]
On January 5, 2016, Defendant Obenstine filed a notice of withdrawal of affirmative defenses (8), (9), (13) estoppel, (14) “and any other affirmative defenses based upon the allegations” of improper access review and misuse of Defendant Obenstine's emails by Reza Jafary, Crestridge Partners, Inc., Plaintiff Estakhrian and/or his counsel. [Dkt. 392]
On January 19, 2016, the District Court denied Plaintiffs' Motion for Sanctions without prejudice to Plaintiffs refiling their motion with the Special Master. [Dkt. 397]
On January 28, 2016, the District Court set the final pretrial conference on May 20, 2016, and the trial on June 7, 2016. [Dkt. 402]
On February 16, 2016, the District Court certified a class action, preliminarily approved the class action settlement between Plaintiffs and Defendants Easterlin and King & Spalding, approved the notice to the class, and set a final fairness hearing on June 14, 2016. [Dkt. 418]
II
Written Discovery
On or about December 7, 2012, Defendant Obenstine provided his Initial Disclosures under Fed. R. Civ. P. 26(a)(1), which were signed by his attorney, Mr. Safarian, stating as to documents:
Obenstine continues to search for information relevant to the claims and defenses in this action. At this early date, Obenstine identifies the following documents:
(1) Pleadings in the Cosmopolitan case, including settlement documents and documents pertaining to approval of the settlement.
(2) Documents reflecting the outcome of litigation/arbitration pursued on behalf of Cosmopolitan investors by attorneys other than Mark Obenstine and the [Marquis & Aurbach and Coffing (MAC) ] defendants, including the firm Girardi & Keese.
*3 (3) Documents evidencing escrow actually closed on condominium units of Cosmopolitan investors, which have yet to be discovered.
Alikani Decl. ¶ 5, Exh. C. Defendant Obenstine never supplemented his Initial Disclosures. Alikani Decl. ¶ 5.
On or about December 12, 2011, Defendant Obenstine provided his verified Responses to Plaintiffs' Requests for Production of Documents (RPD), Set One. Alikani Decl. ¶ 4, Exh. B. RPD No. 1, Set One, asked for: “All Documents authored or generated by you, any of the other Defendants, Donna Billiter, or Kay Jackson, and sent to or received by you, any of the other Defendants, Donna Billiter, or Kay Jackson concerning, referring to, or relating to the Cosmopolitan Litigation, or any of the plaintiffs, defendants, class members, or putative class members in the Cosmopolitan Litigation.” Id.
In addition to making General Objections to all requests in Set One, Defendant Obenstine also made Special Objections, including objections to RPD No. 1, which stated, in part: “Responding Party states he has conducted a diligent search, and has no documents in his possession, custody or control responsive to this request that are not protected from disclosure based on the foregoing privileges/doctrines. Discovery continues and Responding Party reserves the right to supplement this response should additional responsive information be located.” Id. (emphasis added).
Defendant Obenstine did not produce any documents and did not provide a privilege log in response to RPD, Set One. Alikani Decl. ¶ 4. Additionally, Defendant Obenstine did not supplement his responses to RPD, Set One. Id.
On or about December 30, 2013, Defendant Obenstine provided his verified Responses to Plaintiffs' RPD, Set Two. Alikani Decl. ¶ 6, Exh. D. RPD No. 20 in Set Two asked for: “All documents constituting, evidencing, concerning, referring to, or relating to the disbursement of settlement proceeds to class members in Daniel Watt, et al. v. Nevada Property 1, LLC, et al., Case No. A582541 (Clark Cy. Nev.), including Documents identifying the entity that administered the settlement and Documents identifying the entity that issued the settlement checks.” Id.
In addition to making General Objections to all requests in Set Two, Defendant Obenstine made Special Objections, including objections to RPD No. 20, which stated, in part:
Without waiving objections, responding party has produced certain documents responsive to this request as part of the various Crestridge Productions that have taken place. Responding party has conducted a search for responsive materials, and has yet to locate documents responsive to this request other than those already produced. Responding party's search is ongoing, and Responding party will supplement the prior productions in this case upon the discovery of additional documents. Additionally [sic], Responding party awaits a ruling by Magistrate [Judge] Woehrle in order to determine whether any further production can be made from the Crestridge materials on file. Responding party is informed and believes the MAC defendants may have documents responsive to this request.
*4 Id. (emphasis added).
III
Defendant Obenstine's Deposition Testimony
Plaintiffs took Defendant Obenstine's deposition on September 17, 2015. Alikani Decl. ¶ 3, Exh. A. When Defendant Obenstine was examined regarding the only discovery he had produced—a chain of 2009 emails with Mr. Jafary—he disclosed that he had documents on a laptop and in one or two bankers' boxes, stating:
A ... I'm trying to remember because I had an issue with my computer with all of my saved Crestpar emails, and I can't remember if I pulled them [the Jafary emails] off of that computer or if I was able to just find copies of these as hard copies that were in a case file related to the Cosmopolitan.
* * *
Q So you had hard copies of emails from the Crestridge server relating to individual clients in the Cosmopolitan case; is that what you said?
A On occasion if I received emails from prospective clients that required follow-up, I'd often print them out and put them in a separate file, [to] kind of remind myself, okay, these are the emails that are most important, and then I would subsequently put them with the case file themselves. ...
* * *
Q ... What did you print out besides these emails dealing with individual client issues that you put in the folders?
A Typically I would print out documents related to the case that—you know—actual filings or motions, as well as maps that were sent to me, things like that were more easy to view in a hard copy format.
Q What was the volume of all of the things that you printed out?
A Maybe a box or two.
Q When you say “box,” you're talking about—
A Like a standard bankers box.
* * *
Q ... [W]here did you house these documents?
A I had them for a period of time in California at my Gates Avenue address, and then I eventually took them—right now they're in Portland. Or in West Lynn, I should say. So I've been sort of just taking them with me as I move.
* * *
Q So the documents that you printed out from the email server, did you do that contemporaneously? ...
A I would typically do it when an email would come in and required follow-up. As I said, I'm not entirely certain that these emails were hard copies because I remember going into my computer that had a hard drive issue and trying to access emails on that hard drive, and I had sporadic success here and there to actually get the computer to work, and I don't remember if this is—these documents from that computer or if these are documents that I had put into a separate file.
Q What was the volume of material, email material, from the Crestridge site that was on the hard drive of your computer?
A It would have been, I think, the sum total of all the emails that—‘cause I had set up Microsoft Outlook, and all the emails that would go, I guess, to the Crestpar web site would go into the Microsoft Outlook.
* * *
Q I'll tell you what. Tomorrow morning we'll try to bring in a screen shot of what it looks like when you load all the, you know, 30,000 emails into Outlook because that's what you had sitting in front of you at the screen; right?
*5 A Yes. I typically—occasionally I would access Crestpar and send emails and receive emails from the web site. But if I had my computer with the Outlook set up, I would use the Outlook.
* * *
Q So you searched for those [Jafray emails] somehow, either on your broken-down computer or in the box, and then you sent them to Mr. Safarian; is that what you're saying?
A ... I looked for emails that I didn't think were produced based on what was described to me and what was given to me by Mr. Jafary. I mean—I'm sorry—my attorney.
Q Yes.
A So if I say any emails that I did not see produced, I was looking for those.
* * *
Q ... [W]hy didn't you produce in this litigation the copies of the Crestridge documents that you had even if they were duplicative of what the parties received from—as a result of the court's orders or Mr. Jafary's production?
A Well, I didn't—1 wasn't able to access the documents with any level of efficiency. My computer would—I'd have to retain IT experts to help me get my computer to work, so my efforts were continuing. I was continuously trying to get into my computer to find documents, as well as find hard copies of documents. ...
Q Okay. you're not certain where these emails ... came from, but they might have come from your computer as a result of a search that you made; right?
A Right.
* * *
Q Where is the computer right now?
A I believe it's in a box and has been shipped up to West Lynn.
Id. (emphasis added).
IV.
DISCUSSION
Rule 26(b) permits “discovery regarding any nonprivileged matter that is relevant to any party's claim or defense. ...” Fed. R. Civ. P. 26(b)(1). “Generally, the purpose of discovery is to remove surprise from trial preparation so the parties can obtain evidence necessary to evaluate and resolve their dispute.” Nat'l Acad, of Recording Arts & Sciences, Inc. v. On Point Events, L.P., 256 F.R.D. 678, 680 (C.D. Cal. 2009) (internal quotation marks omitted); A. Farber and Partners, Inc. v. Garber, 234 F.R.D. 186, 188 (C.D. Cal. 2006). “Toward this end, Rule 26(b) is liberally interpreted to permit wide-ranging discovery of information. ...” A. Farber and Partners, Inc., 234 F.R.D. at 188. All discovery, and civil litigation generally, is subject to Rule 1, which directs that the rules “should be construed, administered, and employed by the court and the parties to secure the just, speedy and inexpensive determination of every action and proceeding.” Fed. R. Civ. P. 1.
Rule 26(a) requires that a party make Initial Disclosures which “provide to the other parties ... a copy—or a description by category and location—of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses. ...” Fed. R. Civ. P. 26(a)(l)(A)(ii) (emphasis added). Rule 26(e) requires that Initial Disclosures under Rule 26(a), as well as discovery responses, must be supplemented or corrected by a party “in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing. ...” Fed. R. Civ. P. 26(e)(1)(A).
*6 Rule 34, which allows any party to request the inspection or production of documents from another party, is one of the primary discovery tools available to litigants in the federal courts. Keith H. v. Long Beach Unified Sch. Dist., 228 F.R.D. 652, 655 (C.D. Cal. 2005). In responding to requests under Rule 34, “[a] party has an obligation to conduct a reasonable inquiry into the factual basis of its discovery responses.” Nat'l Acad, of Recording Arts & Sciences, Inc., 256 F.R.D. at 680; A. Farher and Partners, Inc., 234 F.R.D. at 189; see also Anderson v. Cryovac, Inc., 862 F.2d 910, 929 (1st Cir. 1988) (“Once a proper discovery request has been seasonably propounded, we will not allow a party sentiently to avoid its obligations by filing misleading or evasive responses, or by failing to examine records within its control”).
Plaintiffs move for sanctions against Defendant Obenstine and his attorney, Mr. Safarian. As to Defendant Obenstine, Plaintiffs assert that he willfully and in bad faith violated his obligations under Rules 26(a), 26(e) and 34 by failing to disclose in his Initial Disclosures and RPD responses, and by failing to supplement those deficient disclosures and responses, that he was in possession of documents pertaining to the Cosmopolitan matter on his laptop and in one or two bankers' boxes. To support this claim, Plaintiffs rely primarily on Defendant Obenstine's deposition testimony. Memo, at 1:20-2:6. Plaintiffs also assert that Defendant Obenstine should be sanctioned for his counsel's serious misrepresentation to the District Court on July 10, 2015, when Mr. Safarian stated that he had not had time to review documents obtained from Crestridge Partners, Inc., as “he had received the Crestridge documents only ‘about six months prior’ to the hearing[.]” Memo, at 6:1-5. Plaintiffs assert that this statement was “untrue both because Obenstine's laptop contained Crestridge emails, but [sic] also because Crestridge's counsel produced the Crestridge documents in electronic format to Obenstine in February 2014, 17 months before the July 2015 hearing.” Memo, at 6:6-9.
Defendant Obenstine opposes Plaintiffs' motion on both procedural and substantive grounds. As to the procedural grounds, Defendant Obenstine argues, inter alia, that Plaintiffs failed to comply with Local Rule 37-1, violated the Order appointing the Special Master, and filed the motion after the discovery cut-off date. As to the substantive grounds, Defendant Obenstine contends, inter alia: Plaintiffs have had all relevant documents for years; Plaintiffs received all documents from MAC Defendants and King & Spalding Defendants; electronic materials were not reasonably accessible at a non-burdensome cost; and a default judgment would not be proper in a class action.
Counsel for the parties to this motion have a long history of not working cooperatively with each other, and their failure to meet and confer and submit a joint stipulation is merely one more instance. Nevertheless, in light of the serious nature of the Motion for Sanctions, and the rapidly approaching trial date, it would serve no purpose to delay ruling on the motion while counsel meet and confer. Accordingly, the Special Master will forego the parties' non-compliance with Local Rule 37-1.[2] Further, in light of the fact that Defendant Obenstine's deposition was not taken until September 17, 2015—shortly before the discovery cut-off date—the Special Master does not find the Motion for Sanctions to be untimely.
*7 Initially, the Special Master notes that Plaintiffs' Motion for Sanctions is not based on a claim of spoliation of evidence, due to Defendant Obenstine's failure to preserve the laptop he had at the time of the Watts litigation. See Obenstine Decl. ¶ 2 (“During the disposition of the Cosmopolitan action that forms the basis of the instant action, I sent and received all email correspondence regarding the Cosmopolitan action via one email account, mark@crestpar.com. I saved all email correspondence regarding the Cosmopolitan action in Microsoft Outlook on one laptop. I disposed of that laptop in September 2010, more than six months before Plaintiff filed the instant action.”). Instead, it is based on Plaintiffs' claims that Defendant Obenstine willfully and in bad faith refused to disclose the existence of a second laptop and bankers' boxes containing relevant documents. Memo, at 3:8-10; see also Obenstine Decl. ¶ 2 (“Shortly [after September 2010], I purchased a new laptop. Although I did not think I would continue to need access to any email correspondence regarding the Cosmopolitan action, I decided to download the email correspondence regarding the Cosmopolitan action that was stored on Crestpar email server onto this new laptop, aware that Reza Jafary, the person who had exclusive control over the email correspondence, had sent me an email message informing me he would shut down my Crestpar email account in November 2010 and delete all the email correspondence stored on the Crestpar email server. Every single email message regarding the Cosmopolitan action downloaded onto this new laptop was downloaded from the Crestpar email server controlled by Jafary.” (emphasis added)).
As set forth in Part II above, Defendant Obenstine's Initial Disclosures under Rule 26(a) neither provided documents nor provided “a description by category and location” of the documents on the laptop and in the bankers' boxes. Also as set forth in Part II above, Defendant Obenstine's responses under Rule 34 to RPD, Sets One and Two, neither provided documents nor disclosed the documents on the laptop and in the bankers' boxes. Further, there is no dispute that Defendant Obenstine never supplemented his Initial Disclosures and his responses to RPD, Sets One and Two. Defendant Obenstine acknowledged in his deposition testimony that at all times he had possession, custody and control of the laptop and the bankers' boxes; thus, he had an obligation under Rules 26(a) and 34 to disclose the documents contained therein.
Defendant Obenstine makes two arguments as to why Plaintiffs were not harmed by his deficient Initial Disclosures. First, he claims that when he produced the 2009 Jafary emails to Plaintiffs' counsel in December 2012, his attorney “revealed” that he “was able to salvage the chain of emails after many hours of searching on a computer, or from limited written materials he had concerning the Cosmopolitan litigation. ...” Safarian Deck ¶ 2:12-15; see also id. at Exh. A. His attorney further states that he “revealed that the written materials concerned clients other than Mr. Estakhrian and, pursuant to orders by Judge Woehrle, were not discoverable, or were entirely duplicative of materials already produced.” Id. ¶ 2:15-17. Second, he claims that he was not required to disclose the documents on the laptop and in the bankers' boxes because Rule 26(a) only requires the disclosure of documents a party intends to use to support his claims or defenses, and he did not intend to use those documents. Neither claim has merit.
A careful reading of Mr. Safarian's declaration shows that he does not state that he disclosed to Plaintiffs the existence of the Crestpar emails on Defendant Obenstine's laptop and the other Cosmopolitan-related documents in the bankers' boxes. The declaration is much more limited. Moreover, even as to what is stated in the declaration, the Special Master is unwilling, without supporting documentary evidence, to give credence to a counsel's recollection of conversations about discovery in complex civil litigation, such as this, which occurred several years ago. One of the purposes of requiring written disclosures, written responses to discovery requests, and written supplementation of prior disclosures and responses is to prevent discovery motions from being based on “he said; she said.” Further, it appears to the Special Master that the practice of counsel during the course of this litigation has been to routinely memorialize in writing all conversations and occurrences.[3] Without documentary evidence to support the claim that his attorney verbally disclosed the laptop and bankers' boxes documents, the Special Master finds no merit to this defense by Defendant Obenstine.
*8 Defendant Obenstine misapprehends Rule 26(a). There is nothing in Rule 26(a) which limits disclosure to documents a party intends to use during the course of the litigation. Rather, Rule 26(a) requires a party to disclose all documents he may use to support his claims and defenses. In other words, under Rule 26(a), a party must disclose all documents which are relevant to his claims and defenses. Defendant Obenstine cannot deny that the undisclosed documents are relevant as they include documents related to the Cosmopolitan matter and all of his Crestpar emails—including the 2009 emails with Mr. Jafary. In fact, Defendant Obenstine did use the 2009 emails with Mr. Jafary when he found them to be helpful to his defense, thereby belying his claim that he did not disclose the documents because he did not intend to use them.
The other defenses raised by Defendant Obenstine are also without merit as they confuse a party's obligations to disclose documents with a party's obligations to produce documents. Under the discovery rules, it is not a party's prerogative to decline to disclose documents in his possession. And there is nothing in the rules which relieves a party of his obligations to make Initial Disclosures and to respond completely and correctly to RPD—even if the party claims the same information may be available from other parties or nonparties. (Of course, among the parties themselves, agreements may be reached to assure the document productions are not duplicative; however, that is not our situation.)
Defendant Obenstine mistakenly relies on Rule 26(b)(2)(B) as a defense to the Motion for Sanctions. Rule 26(b)(2)(B), however, provides a limited defense to a motion to compel a party to produce documents, stating: “[a] party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden and cost.” Fed. R. Civ. P. 26(b)(2)(B) (emphasis added).[4] Nothing in Rule 26(b)(2)(B) provides a defense to a party's failure to disclose documents—or to a motion for sanctions based on such failure.
Accordingly, the Special Master determines Defendant Obenstine willfully and in bad faith violated Rule 26(a) by not providing “a description by category and location” of the documents he possessed on the laptop and in one or two bankers' boxes. Further, he willfully and in bad faith violated Rule 26(e) by not supplementing his deficient Initial Disclosures. It is clear to the Special Master that Defendant Obenstine acted intentionally when he chose not to disclose he possessed Cosmopolitan-related documents, including the emails from his Crestpar email account, in his Rule 26(a) Initial Disclosures.
Assuming arguendo Defendant Obenstine was of the opinion that all documents on the laptop and in the bankers' boxes were privileged, privilege does not obviate a party's disclosure obligations under the discovery rules. Rather, Defendant Obenstine should have provided a privilege log, in addition to disclosing the documents, and his failure to provide a privilege log when he responded under Rule 34 to RPD, Sets One and Two, further demonstrates a willful intention to conceal his possession of relevant documents. Moreover, as of July 14, 2015, when the District Court ruled that the documents obtained from Crestridge Partners, Inc., were not subject to the attorney-client privilege, work product doctrine or otherwise protected, Defendant Obenstine could no longer have reasonably believed the documents he possessed were protected and he should have immediately supplemented his responses to RPD, Sets One and Two, under Rule 26(e).
*9 “[C]ourts have inherent power to dismiss an action [or render a default judgment] when a party has deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice.” Wyle v. R.J. Reynolds Industries, Inc., 709 F.2d 585, 589 (9th Cir. 1983) (citing Phoceene Sous-Marine, S.A. v. U.S. Phosmarine, Inc., 682 802, 806 (9th Cir. 1982).). To support their claim for sanctions based on Mr. Safarian's alleged misrepresentation to the District Court, Plaintiffs submit a letter from their counsel to Mr. Safarian. Alikani Deck, ¶¶ 8-9, Exhs. E-F. However, the Special Master declines to give any weight to this correspondence, which is clearly hearsay as to the truth of the statement attributed therein to Mr. Johnny Kim. Fed. R. Evid. 801(c).
Plaintiffs argue that they “and the Court spent years litigating over the production of Obenstine's email by Crestridge Partners, Inc. While Plaintiffs will not belabor the details of these extensive efforts here, suffice it to say that motion practice on these issues added approximately two years of time to the length of the present matter, requiring the Court's continued attention and wasting the Court's and counsel's resources.” Memo, at 6:10-16 (citations omitted). The Special Master agrees. Defendant Obenstine's willful nondisclosures of the documents on the laptop and in the bankers' boxes prolonged the discovery process and undoubtedly made it considerably more expensive, contrary to the mandate of Fed. R. Civ. P. 1.
Plaintiffs move for (1) “a default judgment including an order requiring disgorgement of all fees received by him from the Watts settlement and subject to proof of damages as to all other claims[;] or [2] in alternative ... an order prohibiting his use of any documents from his laptop or paper records, or from any other source, at trial and [3] striking all defenses raised by Defendant Obenstine.” Motion at 2:2-6. Additionally, Plaintiffs request “Obenstine and his counsel to pay Plaintiffs' expenses and attorneys' fees in connection with bringing the present motion, as well as attorneys' fees and expenses in connection with prior discovery efforts and motions regarding production of Obenstine's documents[.]” Id. at 2:6-9.
Rule 37 authorizes the court to sanction a party who fails to comply with the discovery rules. There are several separate paragraphs in Rule 37, each of which serves a different purpose: Rule 37(a) provides sanctions re a party's motion to compel disclosure or discovery; Rule 37(b) provides sanctions re a party's failure to comply with a court order; Rule 37(c) provides sanctions re a party's failure to disclose, supplement an earlier disclosure or response or to admit; Rule 37(d) provides sanctions re a party's failure to attend its own deposition or respond to written discovery; Rule 37(e) provides sanctions re a party's failure to preserve electronically stored information; and Rule 37(f) provides sanctions re a party's failure to participate in good faith in framing a discovery plan. Although Plaintiffs refer to various paragraphs in Rule 37 to support their Motion for Sanctions, the only applicable paragraph is Rule 37(c).[5]
Rule 37(c)(1) provides for sanctioning a party who has failed to disclose information in its Initial Disclosures under Rule 26(a) and who has failed to supplement an earlier incomplete or incorrect discovery response, pursuant to Rule 26(e). Rule 37(c)(1) provides:
*10 (1) If a party fails to provide information or identify a witness as required by Rule 26(a) ..., the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial unless the failure was substantially justified or is harmless. In addition to or instead of this sanction, the court, on motion and after giving an opportunity to be heard:
(A) may order payment of the reasonable expenses, including attorney's fees, caused by the failure;
(B) may inform the jury of the party's failure; and
(C) may impose other appropriate sanctions, including any of the orders listed in Rule 37 (b)(2)(A)(i)-(vi).
Fed. R. Civ. P. 37(c)(1) (emphasis added). In turn, Rule 37(b)(2)(A)(i)-(vi) provides that the court may issue an order:
(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; [and] (vi) rendering a default judgment against the disobedient party[.]
Fed. R. Civ. P. 37(b)(2)(A)(i)-(vi). Under the discovery rules, the sanction of “rendering a default judgment” under Rule 37(b)(2)(A)(vi) is incorporated into Rule 37(c)(1)(C) as a sanction against a party for violating Rule 26(a).
The Special Master must now determine the appropriate sanctions for Defendant Obenstine's violation of Rule 26(a). Plaintiffs strenuously advocate the rendering of a default judgment against Defendant Obenstine. In assessing the propriety of an order striking an answer and entering a default judgment against a defendant, the court must consider “whether the failure to comply [with the discovery rules] is due to willfulness, bad faith, or fault of the party.” Wyle, 709 F.2d at 589; In re Exxon Valdez, 102 F.3d 429, 432 (9th Cir. 1996). The Special Master has determined Defendant Obenstine's violation of Rule 26(a) was willful and due to bad faith, as discussed above.
When the ultimate sanctions of dismissal or rendering a default judgment are considered, the court must examine the following five factors: “(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the [party seeking sanctions]; (4) the public policy favoring disposition of cases on their merit; and (5) the availability of less drastic sanctions.” Thompson v. Housing Authority of the City of Los Angeles, 782 F.2d 829, 831 (9th Cir.), cert. denied, 479 U.S. 829 (1986); Toth v. Trans World Airlines, Inc., 862 F.2d 1381, 1385 (9th Cir. 1988) (citation omitted). “The first two of these factors favor the imposition of sanctions in most cases, while the fourth factor cuts against a default or dismissal sanction. Thus, the key factors are prejudice and availability of lesser sanctions.” Wanderer v. Johnstone, 910 F.2d 652, 656 (9th Cir. 1990).
In December 2015, Defendant Obenstine extended “an offer to produce the subject computer and hard documents.” Safarian Decl. ¶ 3:1-3. And Defendant Obenstine's offer was repeated at the hearing on the Motion for Sanctions. However, it is important to note that the offer was made only after Plaintiffs advised Defendant Obenstine of their intention to file the Motion for Sanctions. As Plaintiffs aptly point out, this was after the deposition of Defendant Obenstine and after the discovery and expert discovery cut-off dates had passed, so that obtaining the information would not assist Plaintiffs. See Memo, at 15:19-24 (“And even if Defendant were to produce his laptop now, after the close of discovery, such a production would not mitigate the fact that Plaintiffs have lost the ability to review its contents and pursue questions arising from this material with Obenstine and third parties. ... [T]he computer and documents could have led to relevant witnesses and admissible documents, but it is now too late to pursue those avenues.” (emphasis added)). Further, the contents of the laptop and bankers' boxes may very well have changed over the past few years. Clearly, Defendant Obenstine's violation of Rule 26(a), as well as his failure to supplement the deficient Initial Disclosures, prejudiced Plaintiffs' ability to compel the production of those documents, which could have led to valuable information.
*11 As Plaintiffs were unaware of the documents Defendant Obenstine possessed on the laptop and in the bankers' boxes, they could not take steps to compel the production of those documents from Defendant Obenstine, and they were required to look elsewhere for documentary evidence. Apart from the time and expense attendant to nonparty discovery on Crestridge Partners, Inc., and others, it is not possible for Plaintiffs, even now, to know whether the documents they received from Crestridge Partners, Inc., and others include all the documents Defendant Obenstine had in his possession in 2012. This is another way in which Defendant Obenstine's violation of Rule 26(a), as well as his failure to supplement the deficient Initial Disclosures, prejudiced Plaintiffs.
In the Special Master's opinion, Plaintiffs have shown sufficient prejudice to justify striking Defendant Obenstine's Answer and rendering a default judgment against him. Nevertheless, “[a]s a general rule, the district court must consider less severe alternatives [than dismissal or default judgment] and discuss them if it elects to dismiss [or render a default].” U.S.for Use and Benefit ofWiltec Guam, Inc. v. Kahaluu Construction Co., Inc., 857 F.2d 600, 604 (9th Cir. 1988). In the circumstances of our case, the fifth factor, which requires consideration of lesser alternative sanctions, is the key factor. There is no doubt the dearth of prior sanctions against Defendant Obenstine weighs heavily against imposing the most severe and ultimate sanction of striking his Answer and rendering a default judgment against him; he has not previously been sanctioned. Considering the five factors, as the Ninth Circuit requires, the Special Master determines a default judgment against Defendant Obenstine would not be the appropriate sanction.
Rule 37(c)(1) sanctions a party who fails to provide required information in the Initial Disclosures under Rule 26(a) by prohibiting that party from using the undisclosed information at a trial “unless the failure was substantially justified or is harmless.” As the Ninth Circuit has noted, “Rule 37(c)(1) gives teeth to the[ ] requirements [in Rule 26(a)] by forbidding the use at trial of any information required to be disclosed by Rule 26(a) that is not properly disclosed.” Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th Cir. 2001). “This particular subsection, implemented in the 1993 amendments to the Rules, is a recognized broadening of the sanctioning power. The Advisory Committee Notes describe it as a ‘self-executing,’ ‘automatic’ sanction to ‘provide[ ] a strong inducement for disclosure of material....’ Courts have upheld the use of the sanction even when a litigant's entire cause of action or defense has been precluded.” Id. (citations omitted).
The harshness of Rule 37(c)(1) is ameliorated if the party's failure to disclose the required information is substantially justified or harmless. Yeti by Molly, 259 F.3d at 1106. “Implicit in Rule 37(c)(1) is that the burden is on the party facing sanctions to prove harmlessness.” Torres v. City of Los Angeles, 548 F.3d 1197, 1213 (9th Cir. 2008). Defendant Obenstine argues that his failure to disclose the documents on the laptop and in the bankers' boxes was harmless in that Plaintiffs had the information prior to filing their class action lawsuit and, in any event, they obtained the information from other parties or nonparties; in other words, “[t]here is not a single discoverable document in existence that Plaintiffs do not have.” Oppo. at 4-5.
Unfortunately, it is impossible for Plaintiffs to know whether this is true. Without knowing Defendant Obenstine possessed relevant documents on the laptop and in the bankers' boxes, Plaintiffs could not take whatever steps were necessary to obtain those documents from Defendant Obenstine. And without obtaining the documents in Defendant Obenstine's possession in 2012, and comparing those documents to the documents Plaintiffs obtained from other parties and nonparties,[6] it is not possible for Plaintiffs to know whether Defendant Obenstine's violation of Rule 26(a) was harmless. Thus, Defendant Obenstine has not met his burden to show his failure to comply with Rule 26(a) was harmless. Accordingly, the Special Master adopts the sanction set forth in Rule 37(c)(1) and will order Defendant Obenstine shall not be allowed at trial to use or otherwise rely on any documentary evidence which he did not disclose to Plaintiffs. Tacori Enters v. Beverlly Jewellry Co., Ltd., 253 F.R.D. 577, 584-85 (C.D. Cal. 2008). As Defendant Obenstine disclosed only the 2009 emails with Mr. Jafary, those emails are the only documentary evidence he may use or rely upon at trial.
*12 As discussed above, Defendant Obenstine claimed at the hearing that his Initial Disclosures did not include the documents on the laptop and in the bankers' boxes because he did not intend to use those documents to support his claims and defenses. Although he offered this claim for purposes of showing lack of prejudice to Plaintiffs, let us assume arguendo—for purposes of considering the appropriate sanctions—this claim is true. This means the evidentiary prohibition under Rule 37(c)(1) will not be a real sanction against Defendant Obenstine since it will merely preclude him from doing something he did not intend to do. Defendant Obenstine acknowledged this at the hearing, stating that sanctions under Rule 37(c)(1) would not prejudice him. In light of these circumstances, additional sanctions should be imposed against Defendant Obenstine for breaching his discovery obligations under Rule 26(a) by willfully and in bad faith refusing to disclose the relevant documents in his possession.
For the foregoing reasons, the Special Master determines it is appropriate to impose additional sanctions against Defendant Obenstine pursuant to Rule 37(c)(1)(B). Accordingly, the Special Master will order the jury shall be informed by an adverse inference jury instruction, or in some other manner determined by the District Court, that Defendant Obenstine willfully and in bad faith refused to disclose to Plaintiffs relevant documents he had in his possession.
For the foregoing reasons, the Special Master also determines it is appropriate to impose sanctions on Defendant Obenstine pursuant to Rule 37(b)(2)(A)(iii), which is incorporated into Rule 37(c)(1)(C) as a sanction against a party who violates his disclosure obligations under Rule 26(a). Accordingly, the Special Master will order the affirmative defenses which remain in Defendant Obenstine's answer to the SAC shall be stricken.
Plaintiffs seek reasonable expenses and attorneys' fees against Defendant Obenstine and his attorney, Mr. Safarian, “in connection with bringing the present motion, as well as attorneys' fees and expenses in connection with prior discovery efforts and motions regarding production of Obenstine's documents[.]” Motion at 2:6-9. In turn, Defendant Obenstine seeks $12,000 in reasonable expenses and attorney's fees. Oppo. at 9-11.
Although Rule 37(c)(1)(A) may be interpreted broadly to allow for attorneys' fees “in connection with prior discovery efforts and motions,” as Plaintiffs request, it would be very difficult to apply such a broad rule in the circumstances of our case. Undoubtedly, Plaintiffs were required to seek documents from other parties and nonparties due to Defendant Obenstine's nondisclosures. However, to determine which discovery was the result of Defendant Obenstine's nondisclosures and which discovery would have been performed regardless of his failures would be extremely difficult—if not impossible. Often it is prudent for a party to perform discovery on nonparties as a means of confirming the discovery received from an opposing party, and it is almost impossible to draw a line between what might be considered “mandatory” nonparty discovery and what might be considered “discretionary” nonparty discovery. Accordingly, the Special Master will award reasonable expenses and attorneys' fees to Plaintiffs solely for their successful Motion for Sanctions, and not for prior discovery efforts and motions.
Reasonable attorneys' fees and expenses may be awarded under Rule 37(c)(1)(A) against a party; but not against counsel for a party. However, “[c]ounsel are subject to monetary sanctions for unjustified nondisclosures when they certify a discovery response as complete and correct at the time it is made. ...” Sun River Energy, Inc. v. Nelson, 800 F.3d 1219, 1227 (10th Cir. 2015). That is, pursuant to Rule 26(g)(1), an attorney who signs Initial Disclosures is certifying “to the best of the person's knowledge, information and belief formed after a reasonable inquiry ... with respect to a disclosure, it is complete and correct at the time it is made. ...” Fed. R. Civ. P. 26(g)(1)(A). And if the certification violates Rule 26(g)(1)—and is incomplete or incorrect—“the court ... must impose an appropriate sanction on the signer.” Fed. R. Civ. P. 26(g)(3) (emphasis added). “The sanction may include an order to pay the reasonable expenses, including attorney's fees, caused by the violation.” Id.
*13 In December 2012, Mr. Safarian signed the Initial Disclosures, which failed to disclose the documents Defendant Obenstine possessed on the laptop and in the bankers' boxes. Yet, it is clear from both Mr. Safarian's declaration and Defendant Obenstine's deposition testimony that Mr. Safarian knew of the 2009 Jafary emails, as well as other documents in Defendant Obenstine's possession, at the time he certified the Initial Disclosures. Mr. Safarian has not shown his violation of Rule 26(g)(1) was substantially justified; thus, reasonable expenses and attorneys' fees will be awarded against him under Rule 26(g)(3).
Pursuant to Rule 53(f), the District Court “may adopt or affirm, modify, wholly or partly reject or reverse [the Special Master's Order], or resubmit [the motion] to the master with instructions,” after affording the parties an opportunity to be heard. Fed. R. Civ. P. 53(f)(l)-(2). At the hearing on the Motion for Sanctions, Plaintiffs requested the Special Master postpone setting a schedule for the production of evidence and the briefing as to the amount of the award of reasonable expenses and attorneys' fees, arguing the amount of the award should include expenses and attorneys' time attendant to whatever briefing and hearing occurs before the District Court under Rule 53(f). The Special Master agrees and grants Plaintiffs' request. Accordingly, the Special Master will await the District Court's decision regarding the instant Order before setting a schedule for the parties to address the amount of reasonable expenses and attorneys' fees to be awarded to Plaintiffs against Defendant Obenstine and Mr. Safarian, jointly and severally.
IT IS HEREBY ORDERED that Plaintiffs' Motion for Sanctions is granted:
1. Defendant Obenstine shall not be allowed at trial to use or rely on any documentary evidence he did not disclose to Plaintiffs; thus, he may use or rely on only the 2009 emails with Mr. Jafary.
2. The jury shall be informed by an adverse inference jury instruction, or in some other manner determined by the District Court, Defendant Obenstine willfully and in bad faith refused to disclose to Plaintiffs relevant documents he had in his possession.
3. The affirmative defenses remaining in Defendant Obenstine's answer to the Second Amended Complaint shall be stricken.
4. Plaintiffs shall be awarded reasonable expenses and attorneys' fees against Defendant Obenstine and his attorney, Mr. Harry Safarian, jointly and severally, in an amount to be determined by the Special Master.
IT IS FURTHER ORDERED that the Case Manager shall promptly file this Order in the District Court and also serve this Order on the parties.
Footnotes
There are two affirmative defenses designated as number thirteen.
The Special Master has reviewed the correspondence between counsel for the parties regarding the meet and confer on the Motion for Sanctions. Alikani Reply Decl. ¶ 4, Exh. B. and notes that Plaintiffs' counsel sent two emails to Mr. Safarian requesting a meet and confer—on December 3 and December 7, 2015—and did not get a direct response to either request. Nevertheless. Plaintiffs' counsel did not file a declaration of non-cooperation, as required by Local Rule 37-2.4.
See, e.g., Alikani Reply Decl. ¶ 4, Exhibit B.
Rule 26(b)(2)(B), however, it is not a defense to a motion to compel the production of hard copies of documents, such as the documents in the bankers' boxes.
Rule 37(a) does not apply as Plaintiffs are not bringing a motion to compel, and the reference in Rule 37(a) to sanctions is attendant to a motion to compel. Rule 37(d) does not apply as Defendant Obenstine did respond to RPD, Sets One and Two, although his responses were incomplete and incorrect, and he failed to supplement or correct them.
In this regard. Plaintiffs note that they have evidence of at least one email from Defendant Obenstine regarding the Cosmopolitan matter which was not produced by Crestridge Partners, Inc.; thus, Plaintiffs suspect there are other emails regarding the Cosmopolitan matter from Defendant Obenstine, who used email addresses in addition to the Crestpar email address, which have not been produced to them by Crestridge Partners, Inc., and others. Reply at 9:1-18.