United States District Court, E.D. Michigan, Southern Division
David
M. Lawson United States District Judge
ORDER DENYING MOTION FOR SANCTIONS
On July
16, 2019, the Sixth Circuit Court of Appeals issued its
opinion and judgment remanding the case to this Court for the
limited purpose of conducting further proceedings on the
plaintiff's motion for sanctions (ECF No. 93). The
appellate panel remanded the case for consideration of that
motion after it concluded that “[t]he sanctions motion
. . . was not moot, ” because “[a]lthough the
merits of KCP's claims were decided at that point, the
sanctions motion was directed at a collateral issue, ”
and “[d]istrict courts retain jurisdiction to consider
collateral issues, such as motions for attorney's fees,
even after entry of judgment on the merits.” Knight
Capital Partners Corp. v. Henkel AG & Co., KGaA, 930
F.3d 775, 787 (6th Cir. 2019).
The
motion for sanctions fully was briefed before the Court
issued its ruling on the merits, and the historical
circumstances of the litigation pertinent to the motion have
not been altered by the ensuing process of the appeal.
Nevertheless, the Court permitted the parties to file limited
supplemental briefing on the motion. The plaintiff's
supplement merely reiterates the arguments advanced in its
previously filed briefing. The defendant argues in its
supplement that the relief sought in the motion now is moot.
That position is a non-starter since the court of appeals
held otherwise and remanded the case with the express
direction for this Court to address the sanctions request on
the merits. This Court is bound by the law of the case to
proceed with adjudication of the motion within the bounds of
the mandate. Medical Center at Elizabeth Place, LLC v.
Atrium Health System, 922 F.3d 713, 733-34 (6th Cir.
2019) (Sutton, J., concurring).
Proceeding
to the merits of the request for sanctions, the Court now
concludes that the motion must be denied because the
plaintiff has failed to support its position that the
“Attorney Eyes Only” (AEO) designation was
grossly abused. The plaintiff's principal demand in its
motion was for excess attorney's fees that it says it
incurred when it was required to devote additional lawyer
hours to reviewing designated materials that could not be
viewed by the plaintiff's client representatives to
determine how they might bear on the issues in the case. The
plaintiff also demanded that the AEO designation be stricken
from the defendant's entire document production, but it
appears that there is no longer any live dispute over the
need for that relief since the designation was withdrawn from
the documents that the plaintiff specifically challenged as
mis-designated. The Court also finds that any prejudice to
the plaintiff due to the constrained document review during
the period of heightened designation was cured by a
substantial extension of the discovery and expert and
dispositive motion deadlines to June 14, 2018, which afforded
both sides more than four months to review the record,
deliver documents to their experts, and prepare motions
challenging their testimony, after the disputed designation
had been removed from all of the documents at issue.
“[T]he
Federal Rules of Civil Procedure provide that a district
court may order a party to pay attorney's fees
‘caused by' discovery misconduct, Rule 37(b)(2)(C),
or ‘directly resulting from' misrepresentations in
pleadings, motions, and other papers, Rule 11(c)(4). And
under 28 U.S.C. § 1927, a court may require an attorney
who unreasonably multiplies proceedings to pay attorney's
fees incurred ‘because of' that misconduct.”
Goodyear Tire & Rubber Co. v. Haeger, 137 S.Ct.
1178, 1186 n.5 2017)). “Federal Rule of Civil Procedure
26(g) requires an attorney or the party personally to certify
that discovery responses and objections are supported by
nonfrivolous argument and are not aimed to harass, cause
delay, or drive up litigation costs. The rule requires a
court to impose sanctions for any violation without
‘substantial justification.'” Jones v.
Illinois Cent. R. Co., 617 F.3d 843, 854 (6th Cir. 2010)
(quoting Fed.R.Civ.P. 26(g)). “Reasonable
attorney's fees and expenses are available under Rule
16(f), Rule 26(g), Rule 37(b), and Rule 37(d)” for
various species of discovery misconduct. Laukus v. Rio
Brands, Inc., 292 F.R.D. 485, 514 (N.D. Ohio 2013). Rule
37(b)(2)(C) authorizes the Court to award reasonable
expenses, including attorney's fees, “caused by the
failure” properly to respond to discovery requests,
“‘unless the failure was substantially justified
or other circumstances make an award of expenses
unjust.'”
“Federal
courts [also] possess certain ‘inherent powers,'
not conferred by rule or statute, ‘to manage their own
affairs so as to achieve the orderly and expeditious
disposition of cases.'” Goodyear, 137
S.Ct. at 1186 (quoting Link v. Wabash R. Co., 370
U.S. 626, 630-631 (1962)). “That authority includes
‘the ability to fashion an appropriate sanction for
conduct which abuses the judicial process.'”
Ibid. “[O]ne permissible sanction is an
‘assessment of attorney's fees' . . .
instructing a party that has acted in bad faith to reimburse
legal fees and costs incurred by the other side.”
Ibid. (quoting Chambers v. NASCO, Inc., 501
U.S. 32, 44-45 (1991)). However, the Supreme Court “has
made clear that such a sanction, when imposed pursuant to
civil procedures, must be compensatory rather than punitive
in nature.” Ibid. “That means, pretty
much by definition, that the court can shift only those
attorney's fees incurred because of the misconduct at
issue. . . . Hence the need for a court, when using its
inherent sanctioning authority (and civil procedures), to
establish a causal link - between the litigant's
misbehavior and legal fees paid by the opposing party.”
Ibid. Thus, “[t]he complaining party . . . may
recover ‘only the portion of his fees that he would not
have paid but for' the misconduct.” Id. at
1187 (quoting Fox v. Vice, 563 U.S. 826, 836
(2011)).
In this
case, the plaintiff has failed to establish that any gross
abuse of the AEO designation by the defendant was the root
cause of the substantial amount of excess fees that it seeks
to recover, because it has not put forth sufficient evidence
of obstinate, egregious conduct by the defendant or its
counsel, and it has not established that any excess fees
solely were incurred due to the defendant's abuse of the
AEO label.
First,
in its motion papers the plaintiff repeatedly but vaguely
alludes to a gigantic production of nearly 25, 000 pages of
material under the AEO designation. But its calculations of
the scope of the abuse are questionable because it made no
effort to distinguish the materials produced by the
defendant, against whom it asks the Court to impose
sanctions, and those items produced by non-party Henkel US,
against whom it sought no relief. Moreover, in the appendix
submitted in support of the motion, the plaintiff identified
only approximately 480 total pages, out of a production of
more than 85, 000 pages, which it specifically identified as
misdesignated. That substantially reduced sample of the
disputed production does not sustain the claim of gross abuse
of the AEO designation. And some of the exhibits submitted
bear no indication that they even were subjected to the AEO
classification. The record certainly suggests that the
defendant applied the AEO designation broadly in its initial
production, but, even by the plaintiff's inflated and
questionable estimate that 25, 000 out of 85, 000 pages
initially were misdesignated, 30% of the total production is
nowhere near the comprehensive whitewash evidenced in cases
where sanctions were awarded based on “wholesale”
abuse of confidentiality classifications. E.g.,
Brown v. Tellermate Holdings Ltd., No. 11-1122, 2014
WL 2987051, at *14 (S.D. Ohio July 1, 2014), adopted as
modified, No. 2:11-CV-1122, 2015 WL 4742686 (S.D. Ohio
Aug. 11, 2015) (“Tellermate marked almost all of the
documents - by the Browns' estimate, see
Defendant's Exhibit 19, over 99% of them - as
‘Confidential-Attorneys' Eyes Only.'”);
In re ULLICO Inc. Litig., 237 F.R.D. 314, 317
(D.D.C. 2006) (“ULLICO designated ‘over 99% of
the roughly 60, 000 documents (200, 000 pages)' as
‘confidential.'”); THK Am., Inc. v. NSK
Co., 157 F.R.D. 637, 645 (N.D. Ill. 1993) (“[E]ven
under the defendants' calculations at least 79% of the
documents produced were designated as ‘Attorney's
Eyes Only.' This is absurdly high.”). The plaintiff
has failed to advance any sufficient record to support its
allegations of a wholesale discovery whitewash by the
defendant; merely pointing out that a large number of
documents were designated for attorney eyes only, under the
terms of a protective order which specifically permitted the
AEO designation, does not suffice to establish bad faith
conduct. Samsung Elecs. Am., Inc. v. Yang Kun Chung,
321 F.R.D. 250, 286-87 (N.D. Tex. 2017) (“All Pro
complains of the collateral effects of Samsung's AEO
designations, but Samsung's making those designations -
even as to all of these produced materials - does not itself
establish that any particular confidentiality designation was
improper. . . . [T]he Sanctions Motion does not actually show
or - despite providing a few examples from a sampling of the
produced materials - even really attempt to show or give the
Court a basis to determine that - each particular document or
recording or portion of the recordings is not properly
designated as AEO.”).
Second,
there is no indication in the record that the defendant
repeatedly defied orders of the Court or resisted reviewing
and re-designating documents on multiple occasions when its
designation was called seriously into question. Instead, the
defendant represents, and the plaintiff does not dispute,
that the defendant commenced a re-review and de-designation
immediately after the Court suggested during a status
conference that the defendant's understanding of the
application of the AEO label was at odds with the Court's
common sense reading of the protective order. Cf.
Broadspring, Inc. v. Congoo, LLC, No. 13-1866 JMF, 2014
WL 4100615, at *22 (S.D.N.Y. Aug. 20, 2014)
(“Defendants redesignated and re-produced documents on
nine separate occasions - including, most notably, 780
documents that were re-designated only after evidence of some
patently improper designations prompted the Court, on
Plaintiff's application, to order Defendants to engage in
a wholesale review of all documents it had designated
AEO.”); THK, 157 F.R.D. at 645 (“The
record demonstrates that the defendants' abuse of the
‘Attorney's Eyes Only' designation is not due
to inadvertence or mistake. Rather, it is a deliberate
attempt to avoid the consequences of the Magistrate
Judge's August 20th Order and the District Judge's
October 18th Order rejecting defendants' objections in
this regard and affirming the Magistrate Judge's
Order.”). In this case the record does not demonstrate
the level of repeated defiance of discovery rulings that has
been found to support the issuance of sanctions.
Third,
because the disputed designation already was withdrawn by the
defendant from the documents in question, there is no longer
any basis for the Court to order that the AEO designation be
stricken from the defendant's entire document production.
Moreover, the case has been dismissed on the merits and that
dismissal was affirmed on appeal, so no purpose would be
served by compelling any other or further production of any
discovery materials.
The
record here amply suggests that the defendant or its counsel
has engaged in some sharp practice on questionable grounds,
which accomplished little more than delaying the litigation
and increasing the expense for both sides. The defendant also
may have abused the AEO confidentiality designation, perhaps
in a rush to complete its production after the Court resolved
a lengthy initial discovery dispute and issued a protective
order on its own terms. That abuse could have been motivated
in part by an intent to frustrate and annoy the plaintiff.
However, even if some colorable basis for awarding sanctions
could be discerned, the Court does not find that the balance
of equities favors cost shifting under the circumstances,
where the injury suffered by the plaintiff equally well can
be attributed to a party heaping legal expenses on itself in
pursuit of claims that it either knew, or ought to have known
from nearly the outset of the litigation, were lacking in any
plausible factual substance. Even if the defendant may be
faulted to some degree for increasing the expense of the
litigation, the Court does not find that any substantial
justice would be done by shifting more of the cost to the
defendant than it already has incurred by defending the case,
where the plaintiff's entire legal bill was incurred in
the first instance as the product of its determination to
sustain and prolong the litigation of demonstrably groundless
claims. Thus, even if the defendant's mislabeling of its
production played some part in increasing the plaintiff's
legal expense, any such misconduct may not properly be
regarded as the “but for” cause of the fees.
Accordingly,
it is ORDERED that the plaintiff's
motion for ...