*1 For the reasons discussed more fully below, the Court recommends Plaintiffs’ Motion for Sanctions [dkt. 372] be granted. The Court further recommends the following sanctions against Defendant Total Quality Logistics, LLC (“TQL” or “Defendant”): 1) TQL pays Plaintiffs’ reasonable attorneys’ fees as outlined more fully below;[1] 2) TQL is prohibited from using any evidence relating to the United States Department of Labor (“DOL”) investigations at trial; 3) the jury should be instructed that TQL concealed the DOL investigation into its Tampa facility, failed to produce the information and documents related to that investigation in discovery, and that the jury may consider those facts in determining TQL's credibility; 4) TQL is prohibited from arguing that its employees are covered by the administrative exemption to the Fair Labor Standards Act (“FLSA”). Within 14 days after being served with a copy of the recommended disposition, a party may serve and file specific written objections to the proposed findings and recommendations. A party may respond to another party's objections within 14 days after being served with a copy. Unless the district judge orders otherwise, the objecting party must promptly arrange for transcribing the record, or whatever portions of it the parties agree to or the magistrate judge considers sufficient.

Plaintiffs allege TQL violated the FLSA by improperly classifying TQL's Logistics Account Executives (“LAEs”) and Logistics Account Executive Trainees (“LAETs”) as exempt from the FLSA's overtime requirements. [Dkt. 1.] During discovery, the following requests and responses were propounded by the Plaintiffs and TQL, respectively:

[TQL's Response to Plaintiffs’ Am. First Request for Production (“RFP”) 47, Dkt. 372-3.]

[TQL's Response to Plaintiffs’ Amended First Set of Interrogatories, Number 9, Dkt. 372-5.] The relevant discovery responses were served on July 31, 2017.

Plaintiffs then issued a Freedom of Information Act (“FOIA”) request for records from the DOL relating to TQL. [Dkt. 358 at 3.] Approximately six weeks before trial, Plaintiffs received a response from the DOL, which indicated the DOL had investigated TQL's Columbus, Ohio branch in 2017 (the “Columbus Investigation”) to determine whether LAEs were properly classified as exempt employees, and TQL's Tampa, Florida branch in 2018 (the “Tampa Investigation”) to determine whether LAEs and LAETs were properly classified as exempt employees.

The Columbus Investigation began on May 23, 2017, when DOL Wage and Hour Investigator Stephen B. Alloway sent a letter to TQL informing TQL he would be coming to TQL's address “to determine compliance with one or more of” the FLSA and “a number of Federal Wage Hour statutes.” [Dkt. 372-7.] On June 14, 2017, a Wage and Hour Investigator met with TQL's corporate counsel, Vice President of Human Resources, and outside counsel. [Dkt. 372-6. at 16.] TQL “claim[ed] administrative exemption for all [LAEs],” and the investigator made no determinations on the issue and recommended that the case be dropped due to an “ongoing class action suit regarding exemption status.” [Id. at 16-17.] On July 17, 2017, the DOL notified TQL's corporate counsel on “that no further action would be taken regarding this investigation due to the pending class action law suit [TQL] is currently involved in.” [Id. at 17.]

The Tampa Investigation began on August 3, 2018, when Wage and Hour Investigator Sharon Thomas-Knighton wrote that she was going to visit TQL to determine its compliance with the FLSA and other labor standards laws and would be investigating a period covering the previous two years. [Dkt. 372-9.] An email exchange between Ms. Thomas-Knighton and TQL's corporate counsel discusses the potential that the class being investigated might overlap with the class in the instant suit. [Dkt. 372-10]. In the Tampa Investigation, TQL maintained that LAEs and LAETs fell within the FLSA's administrative exemption, executive exemption, or highly compensated employee exemption. [Dkt. 372-6 at 8.] The DOL Investigator opined that the employees were not covered by the administrative exemption, did not make any findings on the executive exemption, and found that no more than 10 employees were likely to qualify for the highly compensated employee exemption. [Id. at 8-10.] The DOL report has a long and comprehensive discussion of the reasons why the DOL Investigator did not believe the administrative exemption applied to the LAEs or LAETs. At the initial September 28, 2018 meeting with TQL's corporate counsel, Shawn Emerson, TQL “[stood] firm on the assertion that the [administrative] exemption is properly applied.” [Id. at 12.] Nonetheless, the DOL Investigator found that “[t]he violations found are a clear systemic practice that will be found in all locations, if investigated by TQL.” [Dkt. 372-6.] The DOL Wage and Hour Investigator recommended the investigation be considered “for review for vetting processes” with the Regional Office or Regional Office of the Solicitor. [Dkt. 328-5 at 15.] At a second level conference, TQL reportedly was “willing to concede on the time the LAEs spent on training, but after the training period, their position will be that the LAEs will be exempt under the administrative exemption.” [Dkt. 372-6 at 13.] TQL disputes it made any such concession. [Dkt. 380 at 9.] In a memo written by the Assistant District Director for the DOL's Tampa District Office to Southeast Regional Enforcement Coordinator on July 31, 2019, he recommended that the DOL “not spend additional resources on this case and let the class action suits run their course.” [Dkt. 372-6 at 3.] TQL states it never heard from the DOL again following the second level conference in July 2019, and never saw any of the internal DOL documents until Plaintiffs’ FOIA request revealed them. [Dkt. 380 at 9-10.] It is undisputed that TQL was aware of both investigations and had communications in its possession relating to the investigations.

*3 Plaintiffs issued their FOIA request to the DOL on January 20, 2020. [Dkt. 380-4.] Ten days later, on January 30, 2020, the DOL informed Plaintiffs’ counsel that her FOIA request was being denied, and 300 pages of documents were being withheld in order “to protect information which could reasonably be expected to interfere with enforcement proceedings.” [Dkt. 380-5.] As trial in the instant matter approached, Plaintiffs’ counsel followed up with the DOL in April 2021 to see if the DOL had closed the file and whether it could release the documents she sought in her FOIA request. [Dkt. 380-6 at 3.] On May 20, 2021, the DOL responded to Plaintiffs’ counsel, and wrote that the DOL case was being closed and the FOIA request could proceed. [Id. at 2-3.]

Upon reviewing the DOL FOIA materials, Plaintiff filed a motion for sanctions against TQL for failing to disclose the DOL investigations or produce documents and communications related to them. [Dkt. 328.] That motion was referred to this Court by the District Judge. Following a hearing, this Court ordered Plaintiffs to subpoena the DOL “for records relating to the relevant investigation as soon as possible” and also ruled that “Plaintiffs are also permitted to serve written discovery on Defendant related to the relevant DOL investigation and Defendant's knowledge thereof.” [Dkt. 342.] Pursuant to the Court's order, Plaintiff's served discovery requests on TQL related to the DOL investigations. In response, TQL filed a motion for protective order, which this Court denied; it its opinion, the Court ordered the parties to discuss whether attorneys’ fees should be awarded in the upcoming briefing on the motion for sanctions due to Defendant's filing an “extremely thin” motion seeking to avoid producing discovery that was “specifically permitted by this Court in its minute order of July 14, 2021.” [Dkt. 361.] The original motion for sanctions was stricken for procedural reasons unimportant to the resolution of this matter, and the instant amended motion for sanctions was filed on February 21, 2022; that motion is now fully briefed and ripe for disposition.

I. Failure to Disclose Columbus Investigation Violates FRCP 26(g)

Plaintiffs contend that Defendant violated Federal Rule of Civil Procedure 26(g) by failing to produce documents and communications related to the Columbus Investigation or disclose it in its response to Plaintiffs’ interrogatories. Rule 26(g) provides that every discovery response must be signed by at least one attorney of record, and by signing, “an attorney or party certifies that to the best of the person's knowledge, information, and belief formed after a reasonable inquiry” the responses are complete, correct, and consistent with the Federal Rules of Civil Procedure.[2] Fed. R. Civ. P. 26(g)(1). “If a certification violates this rule without substantial justification, the court, on motion or on its own, must impose an appropriate sanction on the signer, the party on whose behalf the signer was acting, or both.” Fed. R. Civ. P. 26(g)(3). The Advisory Committee Notes explain that Rule 26(g) “provides a deterrent to...evasion by imposing a certification requirement that obliges each attorney to stop and think about the legitimacy of a discovery request, a response thereto, or an objection,” and “[t]he duty to make a ‘reasonable inquiry’ is satisfied if the investigation undertaken by the attorney and the conclusions drawn therefrom are reasonable under the circumstances.” Fed. R. Civ. P. 26(g) Advisory Committee Notes.

*4 Here, TQL should have included the Columbus Investigation it is interrogatory responses, and any document or communications in its possession, custody, or control relating to the inquiry should have been produced. By failing to do so, TQL's discovery responses were not complete, correct, or consistent with Federal Rules of Civil Procedure 33 or 34. The Court does not believe counsel's certification to the contrary was made on belief after a reasonable inquiry. Had TQL's counsel stopped and thought about the legitimacy of the discovery responses, it would not be objectively reasonable to draw the conclusion under the circumstances that the Columbus Investigation was not responsive to Plaintiffs’ discovery requests.

TQL's justification that it “did not believe that the Columbus investigation needed to be included in its discovery responses, because the investigation did not appear to have anything to do with any claim or defense in this case” and “was unaware that the investigation included LAEs and LAETs” ring hollow and is belied by the record before the Court. First, the letter launching the investigation expressly stated that the DOL was looking into whether TQL had violated the FLSA, which would suggest to an objectively reasonable person that it may have been related to the FLSA violation claims in the instant suit. [Dkt. 372-7.] Second, the narrative report from the Wage and Hour Investigator said that TQL had argued that the LAEs fit within the administrative exemption to the FLSA. [Dkt. 372-6 at 16-17.] Thus, the contemporaneous notes from the DOL demonstrate TQL was aware that LAEs were being investigated and was actively attempting to persuade the DOL that its classification of LAEs did not violate the FLSA. Any reasonable inquiry or any reasonable conclusion drawn therefrom would have revealed that discovery responses that omitted the Columbus Investigation were incomplete. Failing to include information and documents related to the Columbus Investigation is precisely the type of evasive discovery tactic that Rule 26(g) was designed to deter and punish, and TQL's post hoc rationalizations do not persuade the Court otherwise. Once a violation is found, Rule 26(g) requires the Court to sanction the offending party.[3] As such, the Court recommends TQL be ordered to pay Plaintiffs’ counsel's attorneys’ fees as discussed more fully below.

II. Failure to Disclose Tampa Investigation Violates Rule 26(e)

Federal Rule of Civil Procedure 26(e)(1)(A) mandates that a party must supplement its responses to interrogatories “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.” If a party violates Rule 26(e), “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,” and the Court may impose additional sanctions, including: 1) ordering payment of attorneys’ fees caused by the failure; 2) informing the jury of the party's failure; 3) giving an adverse inference jury instruction; 4) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence; 5) striking pleadings in whole or in part; and 6) entering a default judgment against the disobedient party. Fed. R. Civ. P. 37(c)(1).

*5 The Tampa Investigation began after TQL responded to Plaintiffs’ discovery requests on July 31, 2017. Upon that investigation being launched, and especially when it became clear the DOL was investigating the same types of violation (FLSA overtime) on the same types of employees (LAEs and LAETs), Defendant became aware its prior responses were incomplete and would need to be supplemented. TQL did not do so and violated Rule 26(e).

TQL's violation was not harmless. Plaintiffs were unnecessarily forced to expend resources seeking documents and information that TQL had a duty to produce under the Federal Rules of Civil Procedure. The Tampa Investigation documents contain a significant amount of valuable information regarding the DOL's views on TQL's labor practices, including opinions on some of the same theories TQL is relying on to defend the instant suit. For example, in its Answer to Plaintiff's Complaint, TQL asserts as an affirmative defense that Plaintiffs are “exempt from and/or not covered by the statutory provisions at issue.” [Dkt. 30 at 14, Aff. Def. 3.] Information related to the Tampa Investigation would have been useful fodder for cross-examination during depositions and Plaintiffs were robbed of the opportunity to establish a rebuttal to TQL's affirmative defense due to TQL's failure to supplement its discovery responses. Even if Plaintiffs would have been unable obtain the internal DOL documents that were eventually released through the FOIA request, they should have had the opportunity to question TQL witnesses on the scope and nature of the investigation. Plaintiffs also were unable to rely on these materials and information in their Motion for Summary Judgment. Plaintiffs were harmed by TQL's failure to supplement its responses.

Nor was TQL's violation substantially justified. TQL argues that “[b]ecause discovery had already concluded, and because the Tampa investigation did not involve any Plaintiffs or relate to TQL's classification decision, it did not occur to TQL that it needed to supplement its discovery responses that had been made over a year earlier.” [Dkt. 380 at 17.] The Court rejects this argument. The fact that discovery had ended is irrelevant; the duty to supplement does not end with the discovery cutoff date. The statement that the Tampa Investigation did not relate to TQL's classification decision is verifiably false; the vast majority of the DOL's narrative and substance of the communications between TQL and the DOL concerned the exemption of LAEs and LAETs from the FLSA, which is one of the primary issues in in the instant suit. Nor does the fact the Tampa Investigation did not involve any class members persuade the Court, as the Tampa Investigation clearly was within the scope of Plaintiffs’ discovery requests and this Court has already ruled that the information was relevant. [See Dkt. 361.] Because the Court has determined TQL's violation of Rule 26(e) was neither harmless nor substantially justified, the Court will recommend appropriate sanctions below.

III. Sanctions

On January 21, 2022, this Court denied TQL's Motion for Protective Order, which sought an order preventing Plaintiffs from issuing discovery related to the DOL investigations. Federal Rule of Civil Procedure 26(c)(3) states that Rule 37(a)(5) applies to awarding expenses for a motion for protective order. Rule 37(a)(5)(B) states: “[i]f the motion is denied, the court...must, after giving an opportunity to be heard, require the movant, the attorney filing the motion, or both to pay the party or deponent who opposed the motion its reasonable expenses incurred in opposing the motion, including attorney's fees,” unless “the motion was substantially justified or other circumstances make an award of expenses unjust.” As such, the Court ordered the parties ordered to address the issue of attorneys’ fees in the briefs to the instant motion. The Court then noted:

[Dkt. 361.]

Nothing in TQL's briefs convinces the Court that the protective order was substantially justified. TQL's primary argument is that it did not believe the discovery sought was relevant. That argument might persuade the Court if it had not already ruled, months prior to the motion for protective order being filed, that the discovery was relevant and Plaintiffs could pursue it from TQL. As such, TQL is ordered to pay Plaintiffs’ reasonable attorneys’ fees related to drafting, preparing, and filing Plaintiffs’ Response to Defendants’ Motion for Protective Order.[4]

As noted above, the Court believes TQL violated Rule 26(g) and a sanction is mandatory. However, sanctions must be no greater than necessary to cure the prejudice caused by the discovery violation. Foltin v. Ugarte, 2011 WL 13135984, at *7 (N.D. Ill. Oct. 12, 2011) (“sanctions for discovery misconduct should be narrowly tailored to ameliorate any potential prejudice.”) The prejudice Plaintiffs suffered from TQL's failure to disclose the Columbus Investigation is insignificant. Ultimately, the investigation was closed approximately one month after it began and there was no suggestion in the documents that the DOL believed TQL had violated the FLSA. Although Plaintiffs may have been entitled to this discovery in 2017, the Court finds its utility was extremely limited. Nonetheless, Plaintiffs should not have been forced to expend the time, effort, and resources to procure what should have been routine discovery. Therefore, the Court recommends that TQL be ordered to pay Plaintiffs’ attorneys’ fees and costs for Plaintiffs’ original Motion for Sanctions, the instant Amended Motion for Sanctions, Plaintiffs’ Motion to Reopen Discovery and the hearing and status conference on same, and Plaintiffs’ fees incurred in conducting the additional discovery related to the DOL investigations, all of which flowed from TQL's failure to provide complete and correct responses to Plaintiffs’ discovery requests.

Next, the Court must consider the appropriate sanction for TQL's violating Rule 26(e). “The Seventh Circuit has established a four-factor test for evaluating whether Rule 37 sanctions are warranted: (1) prejudice or surprise to party against whom evidence is offered; (2) ability of the party to cure the prejudice; (3) likelihood of disruption to the trial; (4) the proffering party's bad faith or willfulness in not disclosing evidence at an earlier date.” Bone Care Int'l, LLC v. Pentech Pharm., Inc., 2010 WL 3894444, at *3 (Sept. 30, 2010) (citing David v. Caterpillar, Inc., 324 F.3d 851, 857 (Fed.Cir.2003)). The Court has already discussed the prejudice above when it found that TQL's violation was not harmless.[5] Furthermore, Plaintiffs cannot cure the prejudice; they were unable to develop evidence in discovery related to the DOL investigations and the case will move on to trial without that evidence. The trial was obviously disrupted; the trial was canceled after Plaintiffs received the DOL materials a few short weeks before trial was set to begin and only through a FOIA request. Finally, the Court finds that TQL has acted willfully and in bad faith in not disclosing the Tampa Investigation earlier. TQL should have been fully aware it was required to disclose the Tampa Investigation to Plaintiff, but instead chose to be evasive in discovery. Their excuses for failing to disclose the Tampa Investigation are flimsy and full of motivated reasoning that demonstrates bad faith. The Court need not check its common sense at the door, and it is abundantly clear to the Court that TQL failed to disclose the Tampa Investigation because it believed it would harm its case and hoped it could get through trial without Plaintiffs discovering its existence. Once caught, TQL's bad faith continued as it fought tooth and nail to avoid giving up basic discovery, including filing a frivolous motion for protective order that delayed the case even further. As long as this Court has been involved, TQL's litigation posture in this case has been consistently in bad faith, and the Court recommends that sanctions be imposed against TQL for its activity, as discussed below.

*7 Because TQL has violated 26(e) and the infraction was not harmless or substantially justified, “preclusion of the untimely or insufficiently disclosed evidence is ‘automatic and mandatory.’ ” Bone Care Int'l, 2010 WL 3894444, at *3 (quoting Finley v. Marathon Oil Co., 75 F.3d 1225, 1230 (7th Cir.1996)). As such, the Court recommends TQL be prohibited from using any evidence relating to the DOL investigations at trial. To be clear, Plaintiffs will be allowed to use such evidence, but TQL may not.

The Court also recommends that TQL pay attorneys’ fees. In this instance, the attorneys’ fees caused by TQL's failure to disclose the Tampa Investigation are coterminous with those fees caused by TQL's failure to disclose the Columbus Investigation discussed above. The Court does not recommend additional attorneys’ fees.

The Court further recommends that the jury be informed of TQL's failure to disclose the Tampa Investigation. The Court believes the instruction should state that TQL concealed the Tampa Investigation, failed to produce the information and documents in discovery, and that the jury may consider those facts in determining TQL's credibility.

Finally, the Court recommends TQL be prohibited from arguing that LAEs and LAETs fall within the administrative exemption to the FLSA. The main thrust of the DOL's investigations and notes are directed at that issue, and keeping the DOL information away from Plaintiffs prevented them from adequately conducing discovery around that issue. TQL should not be allowed to put forth an affirmative defense at trial on which it gained an undue evidentiary advantage during discovery by violating its duties under Rule 26(e). Prohibiting TQL from supporting its administrative exemption defense will cure the prejudice by placing both parties back on equal footing at the trial.

The Court recommends the district court reject the remainder of the sanctions Plaintiff seeks because they are unnecessarily harsh to cure the prejudice caused by TQL's actions. While the Tampa Investigation provides significant relevant discovery to Plaintiffs, it is not the smoking gun they make it out to be in their motion. Ultimately, it amounts to the recommendations and opinions of one Wage and Hour Investigator; the DOL did not make any findings and the investigation was dropped without any action being taken after a second level conference. The Court does not believe default judgment is warranted here, as the evidence primarily only touches on TQL's affirmative defenses of administrative exemption and good faith/lack of willfulness and not Plaintiffs’ case in chief. A default judgment against TQL would go far beyond the prejudice to Plaintiffs in combating two of TQL's affirmative defenses. Nor does the Court believe an adverse jury instruction is a fair sanction. The Tampa Investigation documents are not missing, and the jury does not have to make any presumptions about them; instead, the jury should be able to reach its own conclusions from the substance of the documents, and the aforementioned jury instruction goes far enough to cure any prejudice Plaintiffs suffered. Finally, the Court does not believe it is necessary to strike any of TQL's affirmative defenses. TQL's affirmative defense number 3 covers all exemptions to the FLSA, and the Tampa Investigation's adverse findings primarily relate only to the administrative exemption. It would be too punitive to strike the entirety of the affirmative defense, and the Court finds the prohibition against supporting the administrative exemption is more closely tailored to the prejudice Plaintiffs suffered. The same is true for TQL's good faith defense. While relevant to the good faith defense, the Tampa Investigation materials do not demonstrate that TQL necessarily acted in bad faith in categorizing the LAETs and LAEs as exempt; Plaintiffs have the evidence now and can use it to build their case and make their argument at trial.

*8 For the reasons discussed above, the Court recommends that Plaintiffs’ Motion for Sanctions [372] be granted.

ENTERED: June 1, 2022

Plaintiffs’ counsel is ordered to serve TQL's counsel with an itemized bill for attorneys’ fees within seven days of this report and recommendation being entered. The parties will then have seven days to meet and confer on an appropriate attorneys’ fees award. If the parties are unable to come to an agreement on a fee amount, Plaintiffs shall file their fee petition and TQL must file its objections on or before 6/22/22.

Responses to interrogatories and requests for production are covered by Rule 26(g). See Fed. R. Civ. P. Rule 26(g) Advisory Committee Notes (“Rule 26(g) imposes an affirmative duty to engage in pretrial discovery in a responsible manner that is consistent with the spirit and purposes of Rules 26 through 37”.)

Although Rule 26(g) permits the Court to “impose an appropriate sanction on the signer, the party on whose behalf the signer was acting, or both,” the Court believes TQL is primarily responsible for the discovery violations and should be the party sanctioned. This finding is based on TQL's corporate involvement in the two DOL investigations.

Because the Motion for Protective Order was a discovery motion and does not affect the conduct of the trial, the Court believes it had jurisdiction to award attorneys’ fees pursuant to Rule 37. Although there is a split in this circuit regarding the authority of magistrate judges to issue sanctions orders pursuant to Rule 37, the Court adopts the thorough reasoning expressed by Judge Harjani in Cage v. Harper, 2020 WL 1248685 (N.D. Ill. Mar. 16, 2020). Consequently, the Court issues the portion of the opinion covering sanctions as related to the Motion for Protective Order as an order and not a report and recommendation. The remainder of the recommended sanctions are issued as a report and recommendation.

TQL has vigorously argued that Plaintiffs were not prejudiced because Plaintiffs’ counsel was aware of the DOL investigations well before filing the original motion for sanctions. The Court does not believe this is true. Given the breadth of Plaintiffs’ counsel's FOIA request (which was not limited to LAEs or LAETs and covered every state in the country), and the opaqueness of the DOL's response (which did not disclose the nature or purpose of the investigation documents withheld), nothing in that correspondence would have indicated that the DOL was investigating the same types of employees regarding the same FLSA violations as this suit. TQL's assertion that Plaintiffs’ counsel was aware of the DOL investigations in 2018 is even weaker. That a single DOL employee mentioned counsel's firm in an email does not prove counsel knew of the Tampa Investigation. All it proves is that the DOL was aware counsel's firm was representing some TQL employees. That DOL employee may have gotten that information from the relevant TQL employee during an interview or by performing a simple PACER search without counsel ever being involved. The Court rejects this argument.