For Discovery Violations, Court Sanctions Plaintiff and Counsel… Again

Bray & Gillespie Mgmt. LLC v. Lexington Ins. Co., 2009 WL 2407754 (M.D. Fla. Aug. 3, 2009)

In this case, plaintiff Bray & Gillespie Management, LLC (“B&G”) sought to recover payment for, among other things, business interruption losses allegedly suffered as the result of damage from Hurricane Jeanne in 2004.  Defendant, Lexington Insurance Company (“Lexington”), refused payment for several reasons, including its belief that the damages alleged were caused by two prior hurricanes and that the hotel at issue was not open at the relevant time.  In this opinion, one of several addressing discovery issues in this ongoing litigation, the court addressed Lexington’s motion for sanctions following numerous discovery violations on the part of B&G and its counsel.  The alleged violations revolved around the untimely production of “room folios” – evidence which would have shown who, if anyone, had stayed at the hotel following Hurricane Jeanne, and thus, the extent of the business interruption losses sustained.  Finding in favor of Lexington, the court prohibited B&G from presenting evidence in support of their claim for business interruption losses, struck the portions of their expert’s report addressing that claim, and ordered B&G and counsel jointly and severally liable for Lexington’s reasonable expenses.

While the details are numerous, the crux of Lexington’s motion for sanctions was B&G’s failure to adequately and timely respond to discovery, including its failure to timely and diligently search for and produce requested room folios.  Moreover, as established in the court’s opinion, plaintiff’s counsel acted in a “deplorable” manner by making misrepresentations regarding the completeness of plaintiff’s production and by purposefully delaying the production of the room folios in order to obtain strategic advantage during the deposition of Lexington’s expert witness, even in the face of numerous court orders directing production of the information withheld, among other things.

Specifically, the court’s opinion established that:

• B&G failed to search for the room folios until more than a year after the initial request, despite two court orders directing their production;
• B&G’s counsel failed to require B&G to search for room folios, even after learning at deposition that no search had been undertaken;
• B&G’s initial search for room folios was incomplete and counsel for B&G failed to verify the completeness of the search;
• B&G’s counsel made misrepresentations to the court regarding the diligence of B&G’s search efforts and the completeness or production;
• B&G’s counsel directed additional searching for room folios only after determining the folios may be helpful to B&G’s position; and
• B&G’s counsel deliberately withheld supplemental production of additional room folios until after the deadline for supplementation (set by the court) in order to gain strategic advantage at deposition, despite two outstanding court orders to produce, among other things.

After determining that B&G and its attorneys’ behavior was neither substantially justified nor harmless, the court turned to the issue of appropriate sanctions pursuant to Fed. R. Civ. P. 37, in conjunction with rules 16 and 26.  The court concluded that the appropriate sanction was to prohibit B&G from presenting evidence in support of its claim for business interruption losses and therefore, to also strike portions of its expert’s report regarding the same.  The court also prevented B&G’s introduction of or reliance upon the information in the room folios.  Regarding B&G’s argument that it should not be sanctioned for decisions made by its lawyers, the court stated:

The affidavits of Martin, Berringer, and Beaudine show that B & G’s in-house counsel, Bruce DelValle, and legal assistant Katherine Martin made decisions regarding, and personally participated in, the conduct which resulted in the late production of Treasure Island room folios to Lexington.  Moreover, I warned B & G and its in-house counsel repeatedly and unequivocally that B & G could not blame the conduct of its outside counsel to avoid discovery sanctions.  See, e.g., Doc. No. 460 at 43.  Yet, the pattern of refusal to comply with Court orders has continued.  Because B & G is responsible for the conduct of its counsel, sanctions against it are warranted. [Citations omitted.] …
Moreover, sanctions for discovery violations must also address "the institutional values that Rule 37 is designed to protect.  Rule 37 sanctions are imposed not only to prevent unfair prejudice to the litigants but also to insure the integrity of the discovery process."  Aztec Steel Co., 691 F.2d at 482.  If B & G is permitted to hide behind its chosen counsel to avoid discovery sanctions, " ‘other parties to other lawsuits would feel freer than we think Rule 37 contemplates they should feel to flout other discovery orders of other District Courts.’ "  Id. (quoting Nat’l Hockey League, 427 U.S. at 643).

The court also determined that Lexington was “entitled to be compensated for the reasonable expenses it had incurred, including expert’s and attorney’s fees and costs” and found B&G jointly and severally liable with its counsel to pay those expenses.  Specifically addressing the conduct of counsel, the court stated:

Both Attorney Berringer and Attorney Beaudine advised B & G regarding production of the Treasure Island room folios. Attorney Berringer informed the Court that B & G was conducting another "due diligence" search for documents, including ESI, that Lexington requested and I ordered to be produced. Yet, even after attending a deposition in which B & G’s corporate representative revealed that IQWare had not been searched for requested room folios, Attorney Berringer did not require a prompt search for and production of the room folios.

Similarly, at the close of the reopened sanctions hearing, Attorney Beaudine represented to the Court that Lexington already had all documents regarding Treasure Island, without determining that, in fact, B & G had made all reasonable efforts to produce all documents that Lexington requested in its RFPs and that the Court had ordered be produced. Attorney Beaudine did not take steps to ensure that B & G searched thoroughly for all room folios in its possession before the expiration of the period for supplementing responses to written discovery requests established by Court order. Finally, in flagrant disregard of the January 7 Order, Attorney Beaudine deliberately and deceptively withheld from Lexington 138 Treasure Island room folios he received from B & G on May 4, 2009, until May 18, 2009, after the close of all discovery. Only after Lexington filed the instant motion did Beaudine attempt in his May 29, 2009, letter to concoct a cover story to partially, but not fully, explain his deceptive actions.

ADDENDUM: On November 16, 2009 District Court Judge Mary Scriven found that “the evidence establishing bad faith on the part of counsel for the former Plaintiffs is insufficient to sustain the finding of bad faith or the imposition of the harsh sanctions against counsel that have been recommended by the Magistrate Judge in this case.” Accordingly, the Findings and related Reports and Recommendations that sanctions be issued against counsel for the former plaintiffs were rejected.