United States District Court, D. Maryland
Timothy J. Sullivan United States Magistrate Judge.
On September 18, 2015, the Court issued an Order that granted in part and denied in part Plaintiff-Judgment Creditor Victor Stanley, Inc.’s (“VSI”) “Motion for Sanctions and Finding of Contempt for Failure to Comply with the Court’s Orders of February 8, 2012 and November 20, 2014” (“Motion”) (ECF No. 687). (ECF No. 714.) This Order directed VSI “to file with the Court a memorandum outlining (a) the monetary damages it has sustained as a result of the contempt of [the Defendant-Judgment Debtors Creative Pipe, Inc. (“CPI”) and Mark Pappas (“Pappas”) (collectively, “Defendants”)] and (b) the attorney’s fees and costs it has incurred in connection with its Motion.” (Id. ¶ 5.) Now pending before the Court is VSI’s memorandum concerning its damages (ECF No. 715), Defendants’ response (ECF No. 718), and VSI’s reply (ECF No. 719). Although the Court held a hearing on VSI’s Motion on the issue of sanctions and civil contempt, having reviewed the submissions of the parties in connection with VSI’s damages, I find that a hearing on the issue of damages is unnecessary. See Loc. R. 105.6. For the reasons set forth below, and as laid out in a separate Order, VSI’s request for monetary damages and attorney’s fees will be granted in part and denied in part.
A. The Relevant Judgments
The labyrinthine procedural history of this case need not be set forth in this opinion. It is sufficient to state that on November 4, 2011, the Court entered an Amended and Final Judgment Order that, in pertinent part, entered judgment against Defendants and in favor of VSI in the amount of $2, 454, 931.10. (ECF No. 488; see also ECF No. 715 at 9 n.3.) A Supplemental Judgment Order was entered on December 30, 2013 that awarded VSI “legal fees and expenses in the amount of $748, 334.72, to be paid by Defendants.” (ECF No. 666; see also ECF No. 715 at 9 n.3.) The Court will refer to the Amended and Final Judgment Order (ECF No. 488) and the Supplemental Judgment Order (ECF No. 666) collectively as the “judgment.” VSI states that only $16, 507.60 has been paid toward the judgment, leaving a balance owed on the judgment in excess of three million dollars. (ECF No. 715 at 9.)
B. History of Discovery in Aid of Enforcement
VSI has attempted to collect the judgment by propounding discovery on Defendants pursuant to Rule 69(b) of the Federal Rules of Civil Procedure. On two occasions relevant to this opinion, the Court ordered Defendants to produce discovery responses to VSI’s requests. (ECF Nos. 538 & 686.)
First, on February 8, 2012 the Court ordered Defendants to “produce all responsive documents in their possession, custody, or control” in connection with VSI’s First Request for Production of Documents to CPI (ECF No. 515-4). (ECF No. 538.) The Court stated that Defendants would not be required to produce those responsive documents that had been previously produced, but would be required to identify the previously produced document, the time of its production, and the discovery request to which it was responsive. (Id. at 2.) Defendants’ discovery responses were due by February 22, 2012. (Id.) In its Motion and in its memorandum regarding damages, VSI contends that CPI’s response to document production request 27 (see ECF No. 515-4 at 10) did not comply with the Court’s Order.
Second, on November 20, 2014 the Court ordered Defendants to produce “full and complete answers to all of the interrogatories propounded in [VSI’s] Third Set of Interrogatories” to Defendants and “all of the documents sought in [VSI’s] Third Request for Production of Documents” to Defendants. (ECF No. 686 ¶¶ 2-3.) This Order specifically cautioned Defendants that “any violation” of the Order might “subject the Defendants to the sanctions set forth in Fed.R.Civ.P. 37(b)(2)(A)(i)-(vii), including the issuance of an order for the Defendants to appear before this Court to show cause as to why they should not be held in contempt of Court.” (Id. ¶ 5.) VSI contends that Defendants’ responses to a number of discovery requests violated this Order.
On August 14, 2015, the Court issued an Order directing Defendants to appear before the Court to show cause why they “should not be held in civil contempt and subject to possible fine and/or incarceration for failure to fully comply with the Court’s Orders of February 8, 2012 (ECF No. 538) and November 20, 2014 (ECF No. 686).” (ECF No. 701.) A hearing was held on September 18, 2015. (ECF No. 717.) At the conclusion of the hearing, the Court entered an Order granting in part and denying in part VSI’s Motion. (ECF No. 714.) The Order stated, in pertinent part:
2. CPI is held in contempt of the Court’s Order dated November 20, 2014 for its failure to fully and completely respond to Interrogatory No. 7 and Document Production Request Nos. 4 and 6.
3. Pappas is held in contempt of the Court’s Order dated November 20, 2014 for his failure to fully and completely respond to Interrogatory Nos. 11 and 12, and Document Production Request Nos. 10 and 12.
4. CPI is held in contempt of the Court’s Order dated February 8, 2012 for its failure to produce a full and complete response to Document Request No. 27.
Among other things, the Court must now determine the appropriate sanction for Defendants’ violation of the Court’s orders compelling the production of discovery.
II. LEGAL STANDARD
Rule 69(b) permits a judgment creditor to obtain discovery in aid of the judgment or execution “as provided in [the Federal Rules] or by the procedure of the state where the court is located.” The two discovery devices employed by VSI, interrogatories and document production requests, are permitted by Rules 33 and 34 and were appropriately used in this case. When a party propounds discovery requests that go unanswered, or when incomplete, evasive, or untruthful responses are produced, Rule 37 allows a court to compel a party to properly respond to discovery requests. Rule 37 also permits a court to issue sanctions against a party for its failure to comply with an order compelling a discovery response. See Victor Stanley v. Creative Pipe, Inc., 269 F.R.D. 497, 537 (D. Md. 2010).
In general, Rule 37 states that a court may “issue further just orders” when a party “fails to provide or permit discovery” as directed by a court’s order. Fed.R.Civ.P. 37(b)(2)(A). The rule specifically lists seven types of sanctions that a court may impose against a party that disobeys a discovery 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;
(vi) rendering a default judgment against the disobedient party; or
(vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination.
Because judgment has already been entered in this case, the sanctions set forth in Rule 37(b)(2)(A)(i)-(vi) are not relevant and would not be effective here. These sanctions are all geared toward the ultimate determination of liability in a case, and not the issue of how any judgment might be collected. The sanction of treating a party’s disobedience as contempt, however, remains an effective sanction even after judgment has been entered. This is because a court’s contempt power can coerce a party into compliance through imprisonment and the imposition of financial sanctions.
“Civil contempt is an appropriate sanction if we can point to an order of this Court which ‘set[s] forth in specific detail an unequivocal command’ which a party has violated.” In re Gen. Motors Corp., 61 F.3d 256, 258 (4th Cir. 1995) (quoting Ferrell v. Pierce, 785 F.2d 1372, 1378 (7th Cir. 1986)). Notably, “[w]illfulness is not an element of civil contempt.” Id.; see also S.E.C. v. SBM Inv. Certificates, Inc., No. DKC-06-0866, 2012 WL 706999, at *10 (D. Md. Mar. 2, 2012) (summarizing the Fourth Circuit’s rejection of “the absence of willfulness” and “good faith alone” as defenses to civil contempt). Where civil contempt has been established, courts “may impose sanctions . . . ‘to coerce obedience to a court order or to compensate the complainant for losses sustained as a result of the contumacy.’” In re Gen. Motors Corp., 61 F.3d at 258 (quoting Connolly v. J.T. Ventures, 851 F.2d 930, 932 (7th Cir. 1988)).
In August 2015, the undersigned was of the opinion that treating the Defendants’ disobedience to the Court’s orders as civil contempt, as had been done in this case in 2010, would be the most efficient and effective mechanism to address Defendants’ misconduct. For this reason, the Court issued the Order dated September 14, 2015 that found Defendants to be in civil contempt. Upon further review of relevant legal authority, however, the undersigned has determined that paragraphs 2-4 of the Order dated September 14, 2015 (ECF No. 714) must be vacated nunc pro tunc. The undersigned believes that he lacks the authority under 28 U.S.C. § 636(e) to hold Defendants in civil contempt given the procedural posture of this case.
Section 636(e) of Title 28 of the United States Code sets forth the civil contempt authority that a United States magistrate judge may exercise. In civil cases in which a magistrate judge presides with the consent of the parties pursuant to 28 U.S.C. § 636(c), the magistrate judge “may exercise the civil contempt authority of the district court.” Id. § 636(e)(4). In civil cases in which a magistrate judge presides other than by the consent of the parties, pursuant to 28 U.S.C. § 636(a), (b), or “any other statute, ” magistrate judges are not authorized to exercise the civil contempt authority of the district court. Id. § 636(e)(6)(B). Instead, magistrate judges must certify the facts believed to constitute civil contempt to a district judge, so that the district judge may make a determination as to whether civil contempt occurred and how it ought to be “punish[ed].” Id.
Here, the parties are not proceeding before a magistrate judge by their consent. As a result, Section 636(e)(6)(B) prevents the undersigned from making any finding of civil contempt and imposing any “punishment” in connection with such contempt. In short, I possess no authority to hold Defendants in civil contempt. For this reason, paragraphs 2-4 of the Court’s Order dated September 14, 2015 (ECF No. 714) will be vacated nunc pro tunc.
Fortunately, “Rule 37 is flexible, ” and courts are permitted to “use as many and as varied sanctions as are necessary to hold the scales of justice even.” 8B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2284 (3d ed. 2015). Here, the interests of justice plainly require the imposition of a sanction that will (1) deter Defendants from continuing to evade their obligation to properly respond to discovery requests, (2) deter Defendants from violating future orders of the Court, and (3) compensate VSI for the lost judgment collection opportunities and expenses incurred as a result of the Defendants’ defiance of the Court’s orders. As it happens, these interests are the same interests that civil contempt sanctions are meant to advance. See In re Gen. Motors Corp., 61 F.3d at 258.
In determining the extent of sanctions to be imposed, the Court will be guided by the standard of civil contempt, even though this standard is more rigorous than the general standard for the imposition of sanctions under Rule 37. Considering Defendants’ misconduct under the civil contempt standard provides the parties and the district judge additional assurance that the sanctions imposed are sufficient to meet the interests of justice under the circumstances of this case, yet not greater than necessary to satisfy those interests. Moreover, the civil contempt standard provides useful guidance in determining the extent to which sanctions are appropriate, especially considering the unique circumstances at issue. In addition, in the event that Defendants fail to comply with the sanctions imposed, the analysis contained herein will assist the district judge in determining whether the Order implementing this opinion is a “valid decree, ” which will be a finding required in any future civil contempt analysis. See Ashcraft v. Conoco, Inc., 218 F.3d at 301.
The Fourth Circuit has stated that four elements “must be shown by clear and convincing evidence” to establish civil contempt:
(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) that the decree was in the movant’s “favor”; (3) that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) that [the] movant suffered harm as a result.
Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000) (internal ellipses omitted).
Like sanctions under Rule 37, courts have broad discretion to fashion remedies for civil contempt. In re Gen. Motors Corp., 61 F.3d at 259. While such remedies are necessarily coercive and compensatory, they must not be punitive. Id. (stating that a “compensatory sanction may not exceed the actual loss to the complainant caused by the actions of respondent, lest the contempt fine become punitive in nature”) (internal quotation marks omitted).
The Court must now determine the monetary damages and attorney’s fees and costs that are appropriate in light of Defendants’ noncompliance with the Court’s orders. As stated above, the sanctions that will be imposed for Defendants’ disobedience to the Court’s orders are imposed pursuant to Rule 37(b).
III. DEFENDANTS’ DISCOVERY RESPONSES
The Court’s reasoning for imposing sanctions for Defendants’ disobedience to the Court’s orders is set forth below in connection with each relevant discovery request, but two findings apply to all of the requests. First, the Court’s orders of February 8, 2012 (ECF No. 538) and November 20, 2014 (ECF No. 686) are “valid decrees” of which Defendants had actual knowledge. See generally Ashcraft v. Conoco, Inc., 218 F.3d 288, 302 (4th Cir. 2000). Second, the Court’s orders of February 8, 2012 and November 20, 2014 were both in VSI’s favor in that they required Defendants to provide the discovery responses that VSI was seeking. Having made these findings,  the only remaining elements in the Court’s sanctions inquiry are (1) whether Defendants were aware of their violation of the orders; and (2) whether VSI was harmed by Defendants’ violation of the orders. The Court will address these elements separately as to each category of discovery responses.
In its memorandum regarding damages, VSI organized Defendants’ inadequate discovery responses into four categories according to subject matter. The Court adopts this approach in its discussion below. The first category relates to the production of information about CPI’s accounts receivable, and concerns CPI Interrogatory No. 7 and Document Request No. 6. The second category relates to a “loan” that CPI made to “Salton Sea Builders” and its owner, Michael Brabo, and concerns Pappas Interrogatory No. 11 and CPI Document Request No. 27. The third category relates to information about transfers of money by CPI in excess of $1, 000, and concerns CPI Document Request No. 4 and Pappas ...