Colutions, LLC v. Ventura Seed Co.
Colutions, LLC v. Ventura Seed Co.
2024 WL 4738214 (C.D. Cal. 2024)
July 23, 2024
Standish, Gail J., United States Magistrate Judge
Summary
The court granted sanctions against Defendant Trowe for failing to properly respond to discovery requests and deposition notices. The court ordered Trowe to pay monetary sanctions and provide any remaining documents, and sit for a further deposition session. The court also granted Colutions' request for further discovery and denied the remainder of the sanctions motion without prejudice. The court determined that monetary sanctions were warranted, but not terminating sanctions, and ordered the Trowe Defendants to produce any further responsive documents and provide a declaration of compliance.
Colutions, LLC
v.
Ventura Seed Company, LLC et al
v.
Ventura Seed Company, LLC et al
Case No. 2:22-cv-00818-WLH-GJSx
United States District Court, C.D. California
Filed July 23, 2024
Counsel
Jeffrey W. Shields, Rick Arthur Varner, Shields Law Offices, Irvine, CA, for Colutions, LLC.Robert A. Young, CYLG PC, Denver, CO, Matthew Devin Barzman, Stephanie Jones Nojima, Sanders Roberts LLP, Los Angeles, CA, Omero Banuelos, Omero Banuelos Law Offices, Claremont, CA, for Ventura Seed Company, LLC, Ventura Seed Company, Inc.
Omero Banuelos, Omero Banuelos Law Offices, Claremont, CA, Matthew Devin Barzman, Sanders Roberts LLP, Los Angeles, CA, for Four2Nada, Inc., Richard Trowe, Susan Marron.
Robert A. Young, CYLG PC, Denver, CO, Matthew Devin Barzman, Stephanie Jones Nojima, Sanders Roberts LLP, Los Angeles, CA, for Ishapur Source, Inc., Ishapur, LLC, Shane Ellis, Pamela Ellis, Albert J. Ellis Jr.
Standish, Gail J., United States Magistrate Judge
Proceedings: (IN CHAMBERS) ORDER RE: Granting Motion [Dkt. 75], In Part, Awarding Sanctions, And Directing Further Action
*1 At its core, this case is very simple. It was filed in this District by Plaintiff Colutions, LLC (“Colutions”) against multiple defendants in an attempt to collect on a debt that began as an out-of-state arbitration award. The award was originally confirmed in Federal Court in the District of Colorado. Colutions contends in the case here that the various defendants have concocted a fraudulent scheme to interfere with Colutions' ability to collect on the Colorado judgment.[1] The motion before the undersigned, Colutions' “Motion to Enforce Court Order Re Discovery Matters and to Impose Issue, Evidentiary and/or Monetary Sanctions Against Defendants” [Dkt. 75 (“the Sanctions Motion”)], alleges that certain defendants (the Trowe Defendants, defined above), have failed to properly respond to various discovery requests and deposition notices, resulting in violations of this Court's order [Dkt. 73] memorializing an agreement of the parties regarding supplemental discovery and a schedule for the deposition of Defendant Trowe.
Having reviewed the parties' voluminous filings – including supplemental briefing ordered by the Court to address specific issues – and as set forth in some detail herein, the Court finds that monetary sanctions in the amount of $17,192.00[2] are appropriate against Defendant Trowe, who is also required to sit for a further deposition session within ten days of this Order at a date and time convenient for Colutions. Any remaining documents that have not been produced by the Trowe Defendants must be produced prior to the deposition. With the production of documents – or if the Trowe Defendants state that no further responsive documents exists – Defendant Trowe and Defendant Susan Marron will provide declarations signed under penalty of perjury that state that they have conducted the necessary searches and that each of their document productions is complete and that they have no further documents to provide.
*2 The monetary sanctions must be paid in full by 60 calendar days from issuance of this Order, with an initial payment of at least $5,000 within 21 calendar days. The deposition may be completed by Zoom. Defendant Trowe is warned that failure to comply in full with this Order will result in a recommendation by the undersigned that the United States District Judge grant a further motion by Colutions for terminating sanctions.[3] Any modifications to the schedule for payment or the taking of the further deposition may only be made by agreement of the parties (with notice to and confirmation by the undersigned or the District Judge) or by the Court.
The Sanctions Motion is therefore GRANTED IN PART as to Defendant Trowe and denied without prejudice as to the remaining Defendants named in the Motion. The request for further discovery is GRANTED to the extent set forth above. The Court denies the remainder of the Sanctions Motion without prejudice so that there is no question that the evidence proffered and arguments made by Colutions herein may be raised again, if appropriate in light of further case developments or in the context of motions in limine or other pretrial motions made before the District Judge.
Background and Complaint Allegations
The dispute that eventually gave rise to the Complaint filed in this District was a breach of contract claim decided by an arbitrator. The arbitrator found that Defendant Ventura Seed Company, LLC (not VSC, Inc., which is now a debtor in bankruptcy) failed to pay certain commissions to Colutions. The arbitration award, in the amount of $842,541.48, plus $177.63 in interest per day under until paid in full, was confirmed in Federal Court in the District of Colorado, Case No. 20-cv-03222-RM-GPG (the “Underlying Action”).
The parties involved in the Underlying Action and here are: Plaintiff Colutions and Defendants Ventura Seed Company, LLC (“VSC LLC”), VSC Inc., Four2Nada, Inc., an Oregon corporation (“F2N OR”), Four2Nada, a California corporation (“F2N CA”), IshaPur Source, Inc. (“IshaPur Inc.”), IshaPur, LLC (“IshaPur LLC”), Trowe (a/k/a Riki Trowe), Susan Marron (“Marron”), Shane Ellis, a/k/a Akasha Ellis (“S. Ellis”), Pamela Ellis (“P. Ellis”), and Albert Ellis (“A. Ellis”). As noted in Footnote 1, supra, only the alleged behavior of the Trowe Defendants is at issue in the Sanctions Motion.
The case here in the Central District alleges that Trowe and S. Ellis, the Chief Executive Officer and Farm Operations Lead of VSC LLC respectively, began transferring monies from VSC LLC to VSC LLC's insiders, F2N OR and IshaPur, as well as directing monies earned by VSC LLC to VSC Inc., leaving VSC LLC insolvent and therefore unable to pay the monies owed to Colutions. These transfers were alleged to have taken place before Colutions' claim was finalized. The Complaint further alleges that VSC LLC also transferred monies to the parents of S. Ellis, P. Ellis, and A. Ellis after Colutions' claim arose. [Dkt. 1, (Complaint).] Based on these allegations, Colutions brings causes of action for: (1) Avoidance and Recovery of Voidable Transactions; (2) Conspiracy to Commit Voidable Transfers; (3) Common Law Fraudulent Transfers; (4) Breach of Fiduciary Duty; (5) Unjust Enrichment; and (6) Injunction.
*3 Because Colutions' Sanctions Motion seeks, among other sanctions, that the Court hold that certain of the Complaint's allegations be deemed true (paragraphs 14, 15, 23, 25, 27, 29, 32, 33, and 36-39) as against the Trowe Defendants, the Court summarizes those numbered allegations as follows:
Paragraphs 14 and 15 describe Defendant Trowe; allege that VSC Inc is the alter ego of Trowe (including factual allegations as to why that legal conclusion obtains); and further allege that the transactions at issue in the Complaint were not arms-length transactions. Colutions alleges here that “Trowe and VSC Inc. share a unity of interest such that failure to disregard their separate entities would result in fraud and/or injustice.”Paragraphs 23, 25, 27, and 29 are the Complaint's venue allegations and also detail some of the specific transactions at issue.Paragraphs 36 through 39 contain Colutions' core allegations of fraud. These paragraphs allege that the defendants knew the transactions involved money that should have been paid to Colutions, rather than improperly transferred to insiders. Colutions also alleges in these paragraphs that the defendants “knowingly conspired” to prevent Colutions from collecting on the Colorado judgement and that the various defendants were “unjustly enriched.” These paragraphs also state the legal conclusion that the “fraudulent transactions” should be voided, and, finally, that the defendants knew and intended that the fraudulent transactions would render VSC LLC insolvent and unable to pay the judgement.
The Alleged Discovery Misconduct And Resulting Sanctions Motion
According to the Sanctions Motion, Colutions served separate written discovery requests on each of the Trowe Defendants, including a First Set of Requests for Production (“RFPs”), a First Set of Request for Admissions (“RFAs”), and a First Set of Special Interrogatories (“Interrogatories”). Colutions also served a Notice of Deposition for Trowe, initially setting a date of February 17, 2023. Colutions does not contend that the Trowe Defendants did not timely respond to the discovery that was served. Rather, Colutions complains that the response were not “proper,” in Colutions' view. Colutions began the process of meeting and conferring with counsel to obtain further responses and document production. [See, generally, Dkt. 75 at 6-8.] In addition, Colutions was told that Trowe was not available for the noticed deposition, which was therefore rescheduled as a Zoom deposition to take place on May 11, 2023. Trowe later unilaterally cancelled the May deposition date.
In correspondence, the Trowe Defendants agreed to supplement their discovery responses. This statement was confirmed in a September 1, 2023 joint status filing before the District Judge. [Dkt. 55, at 7.] The agreement set forth in the filing before the District Judge states generally that the Trowe Defendants would provide written supplemental responses – although it is unclear from the court filings what would constitute sufficient supplementation – and that Trowe would finally be produced for deposition by Zoom on October 16, 2023. The Trowe Defendants also agreed to provide whatever responsive documents were in their custody or control. [Id.]
Despite defense counsel's multiple agreements to specific dates for the Trowe deposition, Trowe continued to refuse to appear as promised whether in person or by Zoom (no deposition took place on October 16, 2023). Trowe claimed that he was out of the country and not ready to return to look for documents or to be questioned by counsel. Despite Trowe's multiple failures, Colutions again attempted to get the discovery and deposition on course without the need for Court intervention, and – after further negotiations with Trowe's counsel – submitted a Stipulation and Proposed Order to the Court memorializing a discovery agreement. [Dkt. 68.] The Court approved and entered the stipulation as an Order. [Dkt. 73.] The stipulated Order required Trowe to appear for deposition via Zoom on January 17, 2024 (nearly a year after the date set in the initial notice of deposition). [Dkt. 73.] Trowe did not comply with the requirements of the stipulation and resulting court Order (again unilaterally deciding not to appear), which prompted Colutions to file the Sanctions Motion.
*4 After an initial review of the parties' sanctions-related filings, and in light of the other impending deadlines in this action, the Court issued a text order on March 20, 2024, vacating the hearing on the Sanctions Motion and requiring the following: (1) that Trowe be produced for deposition no later than March 28, 2024 (unless Colutions needed additional time for logistical reasons); (2) that the Trowe Defendants file a Discovery Status Report detailing what happened and what was produced by April 1, 2024; and (3) authorizing Colutions to file a Reply to the Status Report and in support of the Sanctions Motion – which would thereafter stand submitted – by April 8, 2024. [Dkt. 86.]
On April 1, 2024, the Trowe Defendants filed a Status Report stating that Trowe sat for deposition for half a day on April 1, 2024, but had a conflict for the rest of the day. The Status Report also confirmed that documents that should have been produced prior to the deposition were not provided to Colutions' counsel. The Status Report further stated that the parties continued the Trowe deposition to April 23, 2024, allegedly in order for Trowe to return to his Northern California home to collect documents. [Dkt. 88.]
Plaintiff Colutions' take on the April 1st deposition is somewhat different than that of the Trowe Defendants. Colutions states that no additional documents or responses were provided to it prior to the April 1st deposition. At the deposition, a mere 16 pages of original corporate organizational documents were produced. And as for Trowe's deposition, it began at 9:37 a.m., but at 12:15 p.m., Trowe abruptly – with no prior notice – announced that he had to leave to catch a flight. [Dkt. 89 at 3-4.] Although Trowe may have technically complied with the Court's March 20, 2024 text-only Order, he violated the spirit of that Order by unilaterally terminating the deposition without prior notice. Notably, despite the Trowe Defendants' status report confirming that the parties agreed to complete Trowe's deposition on April 23, 2024, Trowe again unilaterally chose not to appear for the continued deposition. [Dkt. 97 at 4.]
The parties' papers are not particularly helpful in aiding the Court in deciphering what, other than Trowe's deposition and documents within his control, is or was “missing” with the other Trowe Defendants' – particularly Marron's – original responses to discovery or with her failure to supplement.[4] Defense counsel simply states that Marron has nothing to produce and has no knowledge akin to, or beyond that of, Trowe. While Marron did fail to provide a “supplement” in accordance with the parties' stipulation, it is unclear what that supplement would have been and, therefore, how Colutions has been prejudiced by not receiving it. Furthermore, Colutions' counsel argues primarily that Marron must have more information or documents because she cohabitates with Trowe. [e.g., Dkt. 89 at 12-13.] There is no allegation that Marron missed a deposition date or was obstreperous in any way. And as with all the Trowe Defendants, her initial responses – albeit insufficient or improper by Colutions' standards – were timely.
*5 As a complicating capstone to this discovery dispute, on March 30, 2024, defendant VSC Inc. filed for bankruptcy (recall that VSC LLC is the entity that owes money to Colutions pursuant to the arbitration award).[5] The automatic stay of proceedings clearly applies to defendant VSC Inc., but the Court ordered the parties to provide supplemental briefing as to whether any of the discovery matters pending as to the remaining Trowe Defendants should also be stayed because of possible impact on VSC Inc.
LEGAL ANALYSIS
1. VSC Inc's Bankruptcy Does Not Stay This Court's Ability to Decide The Sanctions Motion
The Court ordered the parties to provide further briefing on the issue of whether VSC Inc.'s bankruptcy stay affected the Court's ability to order discovery from, or to sanction, any of the remaining Trowe Defendants. The short answer is that it does not.
The filing of a Chapter 7 petition automatically creates an estate containing all legal and equitable interests of the debtor in property as of the commencement of the case. Mwangi v. Wells Fargo Bank, N.A. (In re Mwangi), 764 F.3d 1168, 1173 (9th Cir. 2014). The filing of a petition also gives rise to the automatic stay that “ ‘effect[s] an immediate freeze of the status quo by precluding and nullifying post-petition actions, judicial or nonjudicial, in nonbankruptcy for or against the debtor or affecting the property of the estate.’ ” Id. (quoting Hillis Motors, Inc. v. Haw. Auto. Dealers' Ass'n, 997 F.2d 581, 585 (9th Cir. 1993)). The automatic stay does not affect non-debtor parties to an action. In re Miller, 262 B.R. 499, 503-04 (B.A.P. 9th Cir. 2001). Thus, discovery may proceed as to non-debtor parties. Id. at 505 (“[T]his panel believes that section 362(a) does not preclude generation of information regarding claims by or against a non-debtor party, even where that information could eventually adversely affect the Debtor.”). See also Seiko Epson Corp. v. Nu-Kote International, Inc., 190 F.3d 1360, 1364 (Fed. Cir. 1999) (“It is clearly established that the automatic stay does not apply to non-bankrupt co-defendants of a debtor ‘even if they are in a similar legal or factual nexus with the debtor’ ”) (citation omitted).
The Trowe Defendants cite Koeberer v. Cal. Bank, 632 B.R. 680 (BAP 9th Cir. 2021), for the proposition that cases involving claims of voidable transfers against co-defendants of a debtor must also be stayed pursuant to the bankruptcy code's automatic stay provisions. The factual situation in Koeberer was complicated, but at base it involved the debtor-individuals' personal guarantee of funds to a bank. Id. at 683. Pre-petition, but around the time the Koeberers defaulted on the loan, they transferred their main assets into a family trust, the trustee of which was another relative (referred to as “John” by the Koeberer court). Id. at 684. The bank had, pre-petition, filed a case in state court seeking to unwind the transfers, and post-petition filed a notice indicating the bank was continuing to pursue the fraudulent transfer claims, including as against John. Id. The Koeberers filed a motion for contempt against the Bank, asserting that the Bank had knowingly violated the automatic stay even though no further actions were taken involving the debtors in the state court case. The Bankruptcy Court denied the contempt motion and declined to award the debtors any damages, even though it found that the Bank's actions were a technical violation of the automatic stay. The Koeberers appealed. Id. at 685.
*6 The Koeberer court (the Ninth Circuit Bankruptcy Appellate Panel) addressed several issues, including, as relevant here, whether the Bank could proceed with its fraudulent transfer claims against non-debtor defendants. On that issue, it held that John, as trustee for the assets, was essentially the debtor in possession; it also held that any claim against John for fraudulent transfer from the debtor's estate belonged solely to the Bankruptcy Trustee. 632 B.R. at 687-88. It thus held that the automatic stay applied to fraudulent transfer claims against the non-debtors where the claims belonged to the Bankruptcy Trustee and could or would affect the assets of the estate.[6] As explained herein, Koeberer's holding does not impact the fraudulent transfer claims in this case, except to the extent that they may not proceed against the actual debtor, VSC Inc. Notably, VSC Inc. has no assets at this time and no claim to any of the monies sought by Colutions. Moreover, unlike in Koeberer, Colutions has not filed a notice that it was continuing to proceed against VSC Inc. Rather, it has stated the opposite.
The undersigned's original concern with the bankruptcy filing in this case was Colutions' allegation in its Complaint that Trowe is the alter ego of VSC Inc., the debtor. This allegation raised flags that some action against the remaining Trowe Defendants could affect the bankruptcy estate. The Court therefore ordered additional briefing. The Court had hoped that Colutions' counsel would explain how the alter ego allegation did not create an issue of unity of interest – at least in some measure – that would affect the present litigation as a whole and the discovery issues in particular. That unfortunately did not happen. However, as noted previously, Colutions has stated that it is only proceeding in this litigation, including specifically in the motion practice, against the non-debtor defendants. [See, e.g., Dkt. 106 at 2 and fn3.] The Magistrate Judge anticipates that the procedural posture of the case will need to be “cleaned up” before trial to make this clear, but it is understandable here that there is some confusion because VSC Inc.'s bankruptcy petition was filed nearly a month after Colutions filed its Sanctions Motion.
Pouring through the Complaint yet again, and in light of the filings related to this motion and the bankruptcy filings attached to certain of those filings, the Court can and does hold that any discovery ordered or sanctions against the non-debtor defendants will have no impact on VSC Inc. or the bankruptcy estate or interests of the Bankruptcy Trustee. First, the entity that allegedly had the money that was fraudulently transferred is non-debtor VSC LLC, not debtor VSC Inc. Second, the money was allegedly transferred to several of the Trowe and Ellis Defendants, but not to VSC Inc., so that entity was not a target for recovery of fraudulently transferred funds despite the fact that it is named in claims brought against “all defendants.” [See, e.g., Complaint ¶¶ 28-33, detailing and defining all of the fraudulent transfers as having come from VSC LLC and gone to defendants other than VSC Inc.] Thus, any finding related to the non-debtor entities in the case generally and, as relevant here, with respect to discovery or sanctions against the non-debtor entities, cannot have any impact on the debtor, its estate, or claims held by the Trustee of the estate.
*7 Finally, the Trowe Defendants said that they would seek a stay in the bankruptcy court but apparently have not done so despite the passage of time. [Dkt. 103 at 5]. This, too, militates against any finding that the automatic stay affects the Court's ability to decide the Sanctions Motion.
2. Rule 37 Sanctions Are Appropriate Against Trowe
a. Rule 37 Standard
Rule 37(b)(2) of the Federal Rules of Civil Procedure authorizes the imposition of sanctions, including monetary, evidentiary, issue or terminating sanctions against parties who disobey a court's discovery orders. Fed. R. Civ. P. 37(b)(2). “ ‘Rule 37(b)(2) contains two standards – one general and one specific – that limit a district court's discretion. First, any sanction must be ‘just’; second the sanction must be specifically related to the particular ‘claim’ which was at issue in the order to provide discovery.’ ” Navellier v. Sletten, 262 F.3d 923, 947 (9th Cir. 2001) (quoting Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707 (1982)). “Sanctions may be warranted under Federal Rule of Civil Procedure 37(b)(2) for failure to obey a discovery order as long as the established issue bears a reasonable relationship to the subject of discovery that was frustrated by sanctionable conduct.” Id. (citing Insurance Corp. of Ireland, Ltd., 456 U.S. at 707-09). “In the Ninth Circuit, [terminating] sanctions are appropriate only in ‘extreme circumstances’ and where the violation is ‘due to willfulness, bad faith, or fault of the party.’ ” Fair Housing of Marin v. Combs, 285 F.3d 899, 905 (9th Cir. 2002) (quoting United States v. Kahaluu Constr. Co., 857 F.2d 600, 603 (9th Cir. 1988)). “Disobedient conduct not shown to be outside the litigant's control meets this standard.” Id. at 905 (citation omitted). In evaluating the propriety of sanctions, the Court considers “all incidents of a party's misconduct.” Adriana International Corp. v. Thoeren, 913 F.2d 1406, 1411 (9th Cir. 1990).
The Ninth Circuit has identified five factors that the Court must consider when asked to impose terminating sanctions pursuant to Rule 37: (1) the public's interest in the 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 merits; and (5) the availability of less drastic sanctions (the “five-factor test”). Connecticut General Life Insurance Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir. 2007). These factors are not a series of conditions precedent before the judge can do anything, but a way for a court to think about “what to do.” Id.
Where a court order is violated, the first two factors support terminating sanctions and the fourth factor cuts against such sanctions. Adriana International Corp., 913 F.2d at 1412. Therefore, in such circumstances, the third and fifth factors are decisive. Id.
With respect to the third factor of prejudice, the issue is not whether the moving party eventually obtained the information that it needed, or whether the opposing party is belatedly willing to provide it, but whether the opposing party's repeated failure to provide documents and information in a timely fashion prejudiced the ability of the moving party to prepare its case for trial. Payne v. Exxon Corp, 121 F.3d 503, 508 (9th Cir. 1997). Discovery which is tendered only as the discovery period is drawing to a close, or after it has closed, may deprive the receiving party of the opportunity to follow up on that information, or to incorporate it into its litigation strategy. Id.
b. Monetary Sanctions Against Trowe Are Warranted
*8 The Court understands Colutions' obvious frustration with how this case has proceeded so far, especially given the allegations of fraud – the game of hide the assets – on which the case is premised. However, what has occurred during discovery here does not yet warrant the de facto terminating sanctions requested by Colutions.[7]
Colutions cites Munguia v. Wells Fargo, Bank, Case No. CV 15-582 SJO(JCx), 2016 WL 11758404 (C.D. Cal. Nov. 2. 2016), adopted by 2016 WL 11758294 (Nov. 18, 2016), for the proposition that harsh, non-monetary sanctions are appropriate in this case. As disrespectful as Trowe's behavior has been to date, it is not on par with that in Munguia.
In Munguia, the plaintiff was originally pro se, then had – and lost – counsel a couple of time. 2016 WL 11758404, at *2-5. She racked up a much more detailed history of discovery failures than is extant here. For example, the plaintiff originally failed to provide any discovery responses. Not even objections were served. In fact, there was a complete failure by the plaintiff to communicate with the opposing side for a very long period of time. Id. Defendants filed a first motion to compel that resulted in a reasoned court order – not an order confirming a stipulation of the parties, as we have here – setting the plaintiff's deposition (“the January Order”). Id., at *4-5. The January Order required plaintiff to provide discovery responses and pay sanctions to defendant Wells Fargo. It also cautioned both plaintiff and counsel that failure to comply with the January Order would subject them to further potential monetary and non-monetary sanctions. Id., at *5.
The defendants in Munguia filed a second motion to compel related to plaintiff's failure to cooperate with the scheduling and taking of her deposition and further failures to communicate with defense counsel. 2016 WL 11758404, at *7-8. This motion ultimately resulted in the “June Order.” The June Order, like the January Order, required plaintiff to provide discovery – in this case, to sit for her deposition – and again to pay attorneys' fees as a sanction. It also – again – cautioned plaintiff that she would be subject to further monetary and non-monetary sanctions if she failed to comply. Id. When the plaintiff failed to heed the Court's June Order regarding her deposition, the defendants presented her with their portion of a Joint Stipulation (yet another motion to compel), to which she never responded. The defendant then filed the subject sanctions motion, which the plaintiff failed timely to oppose. Id., at *6, *8. The court issued yet another order in an attempt to get plaintiff to comply and participate in discovery (“the September Order”). Id., at *9.
In recommending sanctions, the Munguia court detailed plaintiff's many violations of the several Orders and other discovery abuses. Plaintiff had been warned about the potential sanctions she could face from further failures to cooperate with discovery and had not been deterred by monetary sanctions (which went unpaid). The Court therefore issued both evidentiary and monetary sanctions, eschewing terminating sanctions despite the plaintiff's egregious conduct. 2016 WL 11758404, at *12-13. The evidentiary sanctions issued by the court were very specifically tied to plaintiff's failures in discovery. Id.
*9 Although Trowe violated the stipulated Order – and demonstrated his disrespect for the Court and counsel when he violated the spirit of the Court's later text order by announcing that he would not stay to complete the deposition he finally attended – his behavior does not compare to that of the plaintiff in Munguia. Defendants here did respond to the originally issued discovery, although Colutions was unhappy with what it received. The stipulated Order required the Trowe Defendants to supplement, but despite Plaintiff's further complaints, it is unclear that there was anything further for such Defendants to provide. The unfortunate vagueness of the parties' stipulation resulted in an Order the bounds of which are difficult to discern. Moreover, while the Court is sympathetic to Plaintiff here because the Trowe Defendants have clearly either not kept normal records or have not looked for them, Plaintiff has not adduced evidence that any particular documents that are in any of the Trowe Defendants' possession or control (or were at the time the case was filed) have been hidden or destroyed. Speculation is not evidence.
With regard to prejudice, Colutions has not demonstrated that there is anything critical to their case that they have not obtained from third party sources. That does not mean that Plaintiff was not prejudiced – delay by itself qualifies, especially in a case where the discovery cutoff is (or was) looming. But it diminishes the amount of prejudice.
The Court intends to rectify the prejudice to Colutions as follows: First, the Trowe Defendants must produce any and all further responsive documents in their possession and provide a declaration under penalty of perjury that they have complied with the Court's Order and their discovery obligations. Second, Trowe deserves to be sanctioned. His cavalier attitude about this litigation and towards both opposing counsel and this Court will not be tolerated. The question becomes what sanctions are appropriate.
As noted earlier, Colutions primarily seeks what it described as non-monetary, evidentiary sanctions. Colutions says that because it is not asking for terminating sanctions the Court need not consider the availability of lesser sanctions, citing Teixeira v. BMW of North America LLC., No. 2:22-cv-02338-WLH-MAR, 2023 WL 6787457, *2 (C.D. Cal. Sept. 26, 2023) (five-factor test to determine whether terminating sanctions are appropriate need not be applied unless the requested sanction is “tantamount to dismissal.”). Moreover, the Court also need not making a finding of bad faith if the sanctions contemplated do not amount to terminating sanctions. Id. (“Unless a proposed sanction implicates dismissal of an action, the court need not identify ‘willfulness, fault, or bad faith”, even if the sanction is severe.’ ” (citation omitted)). Colutions therefore did not, in its Sanctions Motion or follow up filings, discuss application in this case of the complete five-factor test or argue that one or more of the individual Trowe Defendants acted willfully or in bad faith.
However, what is clear – and what Colutions fails to address in its Sanctions Motion or Reply – is that its request for evidentiary sanctions asks the Court to hold that essentially every material allegation in its Complaint be deemed unrebuttably true. Colutions also asks that the RFAs it served – which, again, ask each Defendant to admit all of the facts supporting the required elements of Plaintiff's claims – be deemed admitted (despite that they were timely denied). Consequently, Colutions has requested sanctions that are “tantamount to dismissal” and has not presented the Court with any alternatives that are both specifically related to the discovery misconduct and non-terminating (e.g., for failure to comply with the order regarding deposition time, perhaps a jury instruction similar to the “empty chair” instruction that the testimony that was sought would be unfavorable to the witness or defense; or maybe that Trowe's discovery abuse and conduct be allowed to be used on cross if he testified; or perhaps even that Trowe not be allowed to testify at all).[8]
*10 Frankly, the Court would not have much of an issue finding bad faith on the part of Trowe here – bad faith that can, in proper circumstances, permit the Court to issue terminating sanctions (or, here, recommend such sanctions to the District Judge) without starting with a lesser sanction. His blatant disregard for both his discovery obligations under the Federal Rules and his apparent disdain for authority in disregarding directives of the Court support such a finding. But given that this is a first sanction in this case[9], the Court feels obligated to award only monetary sanctions; only against Trowe; and to require Trowe to fulfill his deposition obligation immediately. In addition, all of the Trowe Defendants must fulfill their document production obligations as set forth above.
Plaintiff Colutions has provided declarations of counsel attesting to the amount of time and resulting attorneys' fees spent in preparing the Sanctions Motion and related filings. Given that this is the first – and hopefully last – sanction award in this case, the Court will be conservative and award only the fee amount requested by Colutions. Therefore, Mr. Trowe is ordered to pay Colutions $17,192 in attorneys fees. The full amount must be paid within 60 calendar days of the issuance of this Order. An initial payment of at least $5,000 must be paid within 21 calendar days of this Order.
IT IS SO ORDERED.
Footnotes
The defendants alleged by Colutions to be culpable of discovery abuses in the Sanctions Motion are Richard Trowe (“Trowe”), Ventura Seed Company, Inc. (“VSC Inc.”), Four2Nada Inc., and Susan Marron (together “the Trowe Defendants”). The remaining defendants and cross-complainants (referred to as “the Ellis Defendants”) are not accused of discovery abuse. On May 10, 2024, the Ellis Defendants filed a response to Colutions' motion to point out that the Sanctions Motion is not directed at them and to request that the Court ensure that any sanctions levied against the Trowe Defendants or any individual do not impact them or their ability to defend their case or prosecute their cross-claims. [Dkt. 102.] The Court is mindful of this issue and agrees with the Ellis Defendants that nothing in this order is intended to or will impact their position in this litigation.
The Shields Declaration in support of Plaintiff Colutions' Reply [Dkt. 106] sets forth the attorneys' fees incurred by Colutions in the prosecution of the Sanctions Motion. An award of sanctions of this amount is conservative, given Trowe's behavior as detailed herein.
The undersigned has conferred with the District Judge about the possibility of evidentiary or terminating sanctions for future violations of the Court's orders. Given the timing and procedural posture of the case, and because the Magistrate Judge is without authority to issue terminating sanctions, any motion for such sanctions is to be filed before the District Judge. The Magistrate Judge may provide input to the District Judge's decision or opinion at the discretion of the District Judge.
Here, the only way the Court might glean what Colutions thought it was going to get from any supplementation by the Trowe Defendants would be to pour over stacks of issued discovery, responses, and multiple rounds of meet-and-confer correspondence. None of this is discussed in any of the status filings or memoranda of points and authorities before this Court or the District Judge. If a litigant intends to rely on a specific fact in support of a legal argument, that fact – with a pin cite to the evidence that supports it – must be made plain to the Court. United States v. Dunkel, 927 F.2d 955, 956 (7th Cir. 1991) (per curiam) (“[j]udges are not like pigs, hunting for truffles buried in briefs”).
Typical of the lack of care exercised by the Trowe Defendants' counsel in this case, the Notice of Automatic Stay states that VSC Inc. filed for bankruptcy under Chapter 13 but the attached petition – filed by the same counsel – states the debtor is seeking relief under Chapter 7. [Dkt. 87.]
The Trowe Defendants cite a number of additional, out-of-circuit cases for the proposition that, in appropriate circumstances, the automatic stay must be applied to protect non-debtors. See, e.g., A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir. 1986) (stay extends to nondebtor when there is such identity between the debtor and third-party defendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor); Queenie, Ltd. v. Nygard Int'l, 321 F.3d 282, 287 (2d Cir. 2003) (automatic stay applies to third parties “when a claim against the non-debtor will have an immediate adverse economic consequence for the debtor's estate’ ”). These cases are inapplicable for the same reasons that the Koeberer decision does not apply here.
If the Court were to order that the paragraphs identified in the Sanctions Motion be deemed true as to the Trowe Defendants and/or or that the RFAs served on them be deemed admitted, all of the necessary elements of Colutions' fraudulent transfers case against those Defendants would be conclusively proven. That amounts to a terminating sanction. Such sanctions would complicate the case immensely as well, as the vast majority of those allegations and RFAs also contain references to the Ellis Defendants whose conduct is not at issue in the Sanctions Motion.
The Court admits to some frustration with Plaintiff's counsel on this front. The Court's Order requiring further briefing stated: “The Court notes that in most instances, monetary sanctions – if any sanctions are appropriate, which the Court has not yet determined – would be the first type of sanctions awarded, as Rule 37 sanctions are intended to encourage parties to properly cooperate in discovery, not to provide a mechanism by which a case is decided based on procedural machinations rather than on the merits of the case. If Plaintiff continues to seek the non-monetary sanctions set forth in the Sanctions Motion, Plaintiff must (1) cite case law supporting the position that monetary sanctions would be insufficient here and (2) brief the issue of how each specifically requested evidentiary sanction addresses and is related to the alleged failure of each individual defendant to abide by the parties' stipulation that was entered as a Court order, with citations to the case law that requires essentially that any remedy or punishment for discovery abuses be tied to the specific non-cooperation or gamesmanship alleged, including in what manner and how seriously Plaintiff was harmed.” [Dkt. 90.] Plaintiff did not follow the Court's direction. Colutions did not “take the hint” that it needed to look to Ninth Circuit law and explain why monetary sanctions would not be sufficient. Nor did Colutions provide the fulsome briefing that the Court ordered, with explanations and citations to proper authority. Essentially, all Plaintiff did was state repeatedly that the “improper” discovery responses that should have been supplemented were relevant to the issues presented in the Complaint and that Plaintiff was prejudiced in its trial preparation.
While the Court appreciates Plaintiff's counsel's many attempts to get the Trowe Defendants to cooperate before involving the Court, in this case it might have been more prudent to bring contested matters to the Magistrate Judge's attention earlier, rather than when the original discovery cutoff was almost passed. It is indeed a difficult line for a litigant to walk, but the long history of this litigation – from well before it got to the Central District of California – demonstrated that Colutions had a difficult road ahead to obtain satisfaction of the original arbitration award.