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HomeMy WebLinkAboutA Litigation - Delaney GALLn .. OF DISTRICT COURT JENNIFER 'R:;i)IDON 106 SEP 8 Phi 9 16 1L .sY DEPUTY MONTANA EIGHTEENTH JUDICIAL DISTRICT COURT, GALLATIN COUNTY DELANEY & COMPANY, INC. , ) Cause No. DV-03-354 Plaintiff, ) DECISION AND ORDER VS . ) CITY OF BOZEMAN and CLARK JOHNSON ) as manager of the City of Bozeman, ) Defendants . ) On November 21, 2005, Plaintiff Delaney and Company, Inc. ( "Plaintiff" ) filed Renewed Motion to Sanction Defendant for Discovery Abuse. On December 20, 2005, Defendants City of Bozeman and Clark Johnson ( "Defendants" ) filed Brief in Opposition to Plaintiff ' s Renewed Motion to Sanction Defendants for Discovery Abuse. On January 13, 2006, Plaintiff filed Reply Brief in Support of Plaintiff ' s Renewed Motion to Sanction Defendants for Discovery Abuse. On June 7, 2006 , this Court held a hearing on the Motion. From its review of the record, briefs, and argument of counsel the Court is fully advised. The issue before the Court is whether the Defendants ' prior discovery abuse was willful and in bad faith justifying imposition of default . FACTUAL AND PROCEDURAL HISTORY On July 7, 2003 , Plaintiff filed its Complaint against the Defendants . Plaintiff alleged three counts, Constructive Fraud, Negligent Misrepresentation, and Intentional Interference with Prospective Economic Advantage. At the time the Plaintiff filed the Complaint, Clark Johnson ("Johnson" ) was Bozeman City manager. The Complaint arises out of an attempted real estate transaction between the Plaintiff and Lloyd Mandeville. Lloyd Mandeville ("Mandeville" ) was the real estate agent to the owners of the subject property. The Plaintiff intended to offer a portion of the property to the City of Bozeman for use as a waste transfer facility. Plaintiff intended to develop the rest of the property as an industrial park. According to the Complaint, in May of 2003 Plaintiff informed Mandeville that it would accept the per acre price of the property. Plaintiff then took steps to assess the feasibility of the transfer station. According to the Complaint, Plaintiff learned that the subject property was appropriate for a transfer station and on or about June 1, 2003 , Mike Delaney ("Delaney") of Delaney and Company contacted Johnson to meet with City personnel about locating the transfer station on the subject property. 2 Delaney and Johnson met again on June 4, 2003 . At this time the two discussed several issues and according to the Complaint, Johnson represented that the City would review the information Delaney provided and prepare the necessary design layout . Johnson told Delaney he would get back to Delaney as soon as possible. On June 19, 2003, Johnson learned that Delaney and his wife would be out of town until June 24, 2003 . According to the Complaint, on June 23 , 2003 , Mandeville informed Plaintiff that Johnson had approached the owners to purchase the subject property and that the transaction would close in two months . Plaintiff alleges that, although Johnson represented to it that he was working on the design layout so that Plaintiff could move forward on developing the property, Johnson surreptitiously approached the owners to purchase the property with the benefit of detailed information gathered and assembled by Plaintiff . Plaintiff further alleges that Johnson had express knowledge and understanding that any deal struck with the property owners would undermine and interfere with Plaintiff ' s efforts to develop the property. Plaintiff states that it provided the proprietary information to Johnson as City Manager only because the City plays a unique role in authorizing and approving developments of the nature that Plaintiff proposed and because of the public benefit that the City would derive from this development . HISTORY OF DISCOVERY ABUSE 3 On June 3 , 2004 , this Court filed Decision and Order granting Plaintiff ' s Motion to Compel . The substance of the Decision and Order involved objections raised during Johnson' s deposition. Johnson, at the instruction of counsel , did not answer certain questions during deposition on the basis that the questions were not relevant or would not lead to relevant evidence . "The questions counsel for Defendants instructed Johnson not to answer involve communications between Johnson and other City of Bozeman employees regarding this action after filing of the complaint . " Decision and Order at 1 . Contrary to Defendants ' claims, the Court found that the questions would either elicit relevant information or lead to relevant information, the information was not privileged, and the Court granted the Motion to Compel . On July 19, 2005, this Court filed Decision and Order again granting a Motion to Compel filed by Plaintiff but reserving judgment on the issue of sanctions . The basis of the Motion was, in part, that Johnson did not confer with city employees regarding discovery requests, the City did not respond to or responded in an evasive manner to 14 discovery requests, and that the City objected to 13 of the requests on the basis of irrelevance. Delaney further contended that : [T] he Commissioners testified that they have not searched for or produced any notes, email, or correspondence related to this case. Delaney also argues that the City has taken no steps to obtain or preserve electronic files. According to Delaney, some Commissioners have testified that 4 their computers have recently crashed and emails and other files have been erased. Delaney contends evidence should have been preserved, as the City was on notice of this lawsuit a mere two weeks after the City signed the buy-sell agreement with the Mandevilles . Decision and Order at 2 . Concerning the Defendants ' responses to the discovery requests, the Court continued: The Court finds the City' s Response wholly inadequate. Delaney' s 19-page brief is supported by 25 exhibits and is a virtual indictment of the City' s discovery abuses . The City' s Response is a one-and-a-half page response brief, all but three sentences of which argue why the City is entitled to summary judgment . If the City' s Response to Delaney' s Motion is in anyway indicative of how the City has responded to Delaney' s discovery requests, Delaney' s frustration with the City' s cavalier attitude and lack of cooperation with the discovery process is entirely understandable . Decision and Order at 6 . On the issue of the requested sanctions the Court held: In this case, the Court concludes that entry of default, at this point, would not be a proper sanction for the City' s discovery abuses. Although the City' s failure to properly respond to various discovery requests -- for example, failing to have its employees and the City Commissioners search for and produce relevant information -- is inexcusable, the Court is not convinced the City acted willfully and in bad faith. Additionally, unlike most of the cases wherein the Montana Supreme Court affirmed entry of default, the Court does not find willful concealment of "smoking gun" evidence, i .e . evidence that goes to the heart of Delaney' s case. See- Schuff and Smart v. Malinario, 2004 MT 21 , 319 Mont . 335, 83 P. 3d 1284 . At this juncture, the Court determines that the consequences imposed by a default would not appropriately relate to the extent and nature of the actual discovery abuse. Because the Court is ordering production of the withheld information and allowing Delaney to conduct further discovery at the City' s expense, the Court makes an initial determination that the extent of the prejudice to 5 Delaney caused by the discovery abuse does not warrant, at this time, entry of the City' s default . However, the Court is particularly concerned that the City will not be able to adequately respond to Delaney' s discovery requests even after the Court orders the City to do so. Specifically, the Court is troubled by the testimony of several of the City Commissioners that information which should have been produced long ago has recently been destroyed or lost due to supposed computer failures . Although the Court concludes default is not warranted at this point, the Court will leave open the possibility of issuing that sanction should it appear that the City' s failure to produce requested information earlier in this litigation has prejudiced Delaney to the extent that Delaney has been deprived of a fair opportunity to present its claims. Decision and Order at 14-16 . Thus the Court granted the Motion to Compel but gave the City a reprieve on the issue of default in the hopes that further discovery could remedy the past abuses . The Court gave the Defendants specific instructions on which discovery requests to answer, which requested documents to produce, the manner of production, the time of production, and reopened discovery for 90 days for the purpose of further discovery including depositions. This brings the Court to the present Renewed Motion to Sanction Defendant for Discovery Abuse. THE PARTIES' ARGUMENTS Plaintiff ' s arguments primarily concern lost or purged e-mails and attempts to recover those e-mails . Plaintiff details how Defendants responded to the Court ' s July 19, 2005 Order. Plaintiff argues the Defendants responses 6 illustrate their bad faith because they did not comply with the Court Isvery specific instructions on how and when to respond to the discovery. Plaintiff alleges that as soon as Defendants had knowledge of the lawsuit they began to dump e-mails. Further, the City provided the person in charge of finding the lost e-mails a strict time frame and only a few search parameters such as "transfer station" and "Mandeville. " Plaintiff alleges that the Defendants have intentionally prevented discovery of material that Defendants knew was pertinent to litigation; litigation the Defendants knew was filed and pending. Plaintiff alleges that the transgression has no remedy since the discovery is now gone forever. Plaintiff further alleges the Defendants ' "gamesmanship" continues to this day by their lying about when the City was considering or attempting to purchase the Mandeville Ranch for the transfer station. Plaintiff supports this allegation by providing answers from depositions showing two different dates when the City considered such purchase. Then Plaintiff argues that default is appropriate here and cites to Culbertson-Proid-Bainville Health Care Corp. v. JP Stevens & Co. Inc . , 2005 MT 254, 329 Mont . 38, 122 P. 3d 431, Jerome v. Pardis (1989) , 240 Mont . 187, 783 P.2d 919, Schuff v. A. T. Klemens & Son, 2000 MT 357, 303 Mont . 274, 16 7 P. 3d 1002 , and Eisenmenger by Eisenmenger v. Ethicon, Inc. (1994) , 264 Mont . 393, 871 P. 2d 1313 . Plaintiff details the three requirements to impose the sanction of default : 1) consequences imposed relate to the extent of the abuse; 2) consequences imposed relate to the extent of the prejudice; and 3) the consequences are consistent with an express warning from the Court if one is given. Plaintiff avers that all of the criteria are met and requests that Defendants ' defenses be stricken and the Defendants be defaulted on liability. Defendants respond by arguing that limiting the search parameters to "Mandeville, " "farm, " and "transfer station" was not unreasonable. Defendants argue that if the Plaintiff wanted the Defendants to include the term "Delaney" they should have asked. On the issue of when Johnson approached Mandeville about the purchase of the property, Defendants argue their answer to interrogatory number 8 concerning when the City planned to buy the property was responsive. Defendants state that merely because the e-mails produced by Defendants were of no consequence to Plaintiff does not warrant sanctions . As to the e-mails being forever deleted, Defendants argue that in fact the e-mails were all produced to the Plaintiff, sometimes twice. The Defendants go on to argue that the Plaintiff can only speculate as to whether it has been prejudiced on the claim of constructive fraud or negligent misrepresentation. 8 Defendants state: "Plaintiff has not identified any discovery shortcomings which have impaired its ability to prove the elements of the torts alleged in the Complaint . " Response at 6 . Plaintiff replies in part by quoting from Johnson when he announced to both Mandeville and Neil Ainsworth several days after executing the buy/sell agreement with Mandeville that "he (Johnson) sure pulled one over on Delaney. " Plaintiff avers this statement, made not to confidants or close friends, illustrates that Johnson likely made other statements to other city employees and that such evidence of arrogance, now lost, goes to the heart of Delaney' s case because it shows that the Defendants ' conduct was intentional and willful . Plaintiff avers that the limited word search of the e- mail system has no justification. The discovery request that this Court ordered the Defendants to fully comply with included searching for the term "Delaney" at the least but at the most would have been searching the files by hand rather than conducting a limited electronic search. Plaintiff concludes, therefore, that if an e-mail had stated, "they pulled one over on Delaney" that e-mail would never have been found. Plaintiff then contends that the May-July 2003 time restriction was not reasonable and inconsistent with the Court ' s Order. "What is most egregious about the Defendants ' decision to limit the timeframe of the e-mail 9 search is that the Defendants had access to e-mail that fell outside of this time frame. Mr. Kolar was able to, and did, compile a list of all existing e-mail that fell within, and outside of, this timeframe. He easily could have retrieved such e-mail, but was instructed not to do so. (Kolar Dep. At 21 :22 : 10) . Again, what are the Defendants hiding in this case and why are they hiding it . " Reply at 9 . Plaintiff argues that Defendants ' response to interrogatory 8 is evasive contrary to the Court ' s Decision and Order. Plaintiff states the dumping of completely irrelevant e-mail on Delaney reveals that Defendants have not responded to the discovery in good faith. Plaintiff states that the "Defendants withheld 43 pages of e-mail between Paul Luwe and Ron Erey, and Paul Luwe and Debbie Arkell, on the ground of attorney client privilege. " Yet the privilege log offers no description of the contents of the e-mail . Further, even though Paul Luwe is the city attorney his communications with city personnel do not constitute per se attorney-client communications . In all, Plaintiff argues that, pursuant to this Court ' s detailed Decision and Order of July 19, 2005, the City produced 12 responsive documents. Plaintiff concludes its Reply by arguing Defendants ' supplemental production of documents again reveals that it did not respond to discovery completely or in good faith. "Defendants did not search for attachments to e-mail or other electronic documents or notes. Defendants did not search individual computers . Defendants did not involve any 10 communication with any individual, such as a City Commissioner, to see if he/she had any documents, or could recall any documents, responsive to the discovery requests . " Reply at 14 (emphasis in original) . Plaintiff avers that Defendants have not denied the problems inherent in their responses and that Plaintiff has been irreparably prejudiced by Defendants ' behavior, cavalier attitude concerning the Rules of Procedure, failure to comply with Court Orders, and general indifference to the litigation process . DISCUSSION In determining if a trial court has abused its discretion in its order for sanctions, the Montana Supreme Court has identified three factors which the Montana Supreme Court may consider: (1) whether the consequences imposed by the sanctions relate to the extent and nature of the actual discovery abuse; (2) the extent of the prejudice to the opposing party which resulted from the discovery abuse; and (3) whether the court expressly warned the abusing party of the consequences . Schuff, ¶ 72 Default is available as a sanction "when the adversary process has been halted because of an essentially unresponsive party. " Audit Services v. Kraus Construction, Inc. (1980) , 189 Mont . 94 , 102, 615 P.2d 183 , 187 . However, "Due process requires that default may not be imposed absent willfulness, bad faith, or fault . " r;isenmenger, 264 Mont . at 407, 871 P.2d at 1321 (citing Societe Internationale v. 11 Rogers (1958) , 357 U.S. 197, 212 , 78 S.Ct . 1087, 1096 , 2 L.Ed.2d 1255, 1267) . Justice Gray, in her concurring opinion in Schuff v. A. T. Klemens & Son, 2000 MT 357, 303 Mont . 274, 6 P.3d 1002 , succinctly set forth the appropriate analysis for determining under what circumstances default can be entered as a sanction for discovery abuse : The Montana Rules of Civil Procedure provide the authority for a district court to impose sanctions for discovery abuses. Rule 37 (b) , M.R.Civ.P. , authorizes sanctions for failure to comply with a court order compelling discovery; the available sanctions are set forth in paragraphs (A) , (B) , and (C) of that rule and include "rendering a judgment of default against the disobedient party[ . ] " Jerome v. Pardi s (1989) , 240 Mont . 187, 191, 783 P. 2d 919, 921 (citation omitted) . Rule 37 (d) , on the other hand, provides for the imposition of the same range of sanctions for a failure : (1) to appear before the officer who is to take the deposition, after being served with a proper notice, or (2) to serve answers or objections to interrogatories submitted under Rule 33, after proper service of the interrogatories, or (3) to serve a written response to a request for inspection submitted under Rule 34, after proper service of the request [ . ] Read together, the important distinction between Rule 37 (b) and Rule 37 (d) is that sanctions are not available under subsection (b) without a previous court order, while sanctions are available under subsection (d) without a previous order but only for the three enumerated failures . Jerome, 240 Mont . at 191., 783 P.2d at 921 (citations omitted) . Schuff v. A. T. Klemens & Son, 2000 MT 357, ¶ 139, 303 Mont . 274, ¶ 139, 6 P. 3d 1002 , ¶ 139 (J. Gray, concurring in part) . 12 I In its July 19, 2005, Decision and Order the Court stated: "In this case, because there is no allegation that the City disobeyed the Court ' s June 3, 2004 Order concerning the depcsition of Johnson, the issue is whether the City' s discovery violations fall under one of the three enumerated failures listed in Rule 37 (d) , M.R.Civ. P. " Decision and Order at 12 . That is not the case now before the Court . Here, Defendants have not only violated Rule 37 (d) , M.R.Civ. P. - for failure "to serve answers or objections to interrogatories submitted under Rule 33 , after proper service of the interrogatories, [and] (3) to serve a written response to a request for inspection submitted under Rule 34, after proper service of the request" See Schuff supra - but also violated this Court ' s July 19, 2005 Decision and Order in derogation of Rule 37 (b) , M.R.Civ.P. THE SEARCH FOR E-MAIL AND DOCUMENTS Particularly disturbing to the Court are the following undisputed facts : 1) the Defendants did not search for the term "Delaney" ; 2) the Defendants did not search personal computers for messages downloaded to personal computers; 3) the search did not include messages as attachments; 4) the search was severely limited in its temporal scope on the unilateral decision of the Defendants and in violation of the Court ' s Decision and Order; 5) Debbie Arkell ' s sworn testimony that she had no understanding of Delaney' s involvement in, or ownership of, the subject property, is directly contradicted by her own diary entry showing that 13 Delaney told Arkell in May of 2003 that he was thinking of buying the subject property; 6) based on an e-mail from Ron Brey to Johnson and Debbie Arkell the City knew about the lawsuit even before it was filed yet the City failed to preserve, and probably even set out to destroy, what would have been discoverable material; and 7) 60 percent of the e- mails produced pursuant to the Court ' s Order has absolutely nothing to do with this case. This final fact conclusively illustrates that the parameters of the electronic search, and failure to physically search documents, produced non-responsive and irrelevant documents . It is not hard to conceive that merely adding the word "Delaney" to any search parameter would have focused the search. But that never happened and now it never can. INTERROGATORY NO. 8 Of further concern to the Court is the disagreement over Interrogatory No. 8 . This Interrogatory states, "Please identify the day that the City Commission, or any member of the City Commission, was informed, notified or received information that the City was considering or attempting to purchase the Mandeville Ranch, and from whom was such information received. " The Defendants responded, "The City Commission became aware of the availability of the Mandeville Farm on or about March 31, 2003 as reflected in the Commission Minutes . The information was provided by the 14 Director of Public Works, Debbie Arkell . " This answer is not responsive . The date that the City was considering or attempting to purchase the property is entirely different than the date that the City may have been aware of the property' s availability. And while it is true that the city became aware of the availability of the property on March 31 , 2003 , it is also true that Johnson contacted Mandeville about the property on June 5, 2003 . He contacted Mandeville the day after the June 4, 2003 meeting with Delaney after "we were not getting a straight story from Mr. Delaney. That ' s what prompted me to call Lloyd Mandeville and ask him. " Johnson Deposition at 98 lines 22-24 . Therefore, a responsive answer would have been June 5, 2003 . This answer is further supported by the deposition of Lloyd Mandeville. In Mandeville ' s deposition he states that he and Johnson spoke about the property on June 11, 2003 . However, under pressure, and faced with Johnson' s deposition testimony, Mandeville appears to relent on the June 11, 2003 date. Either way, the answer to Interrogaotry No. 8 is not responsive, evasive, and propounded in an effort to obscure the fact that at the very moment that Delaney was working a deal with Mandeville and the City for the property, Johnson was also in private discussions with Mandeville about purchasing the property. 15 THE THREE FACTORS TO ENTER DEFAULT The above set of facts demonstrates unequivocally to this Court that the City engaged in a willful campaign to destroy or "lose" relevant, and therefore damaging, discovery pertinent to the Plaintiff ' s case. Given Johnson' s own statement, as testified to by Mandeville, that "he sure pulled one over on Delaney, " this Court finds that the City violated Rules 37 (b) and 37 (d) , M.R. Civ.P. , in an effort to gain an unfair advantage over the Plaintiff and intentionally deprive the Plaintiff of due process. During the hearing in this matter the Defendants argued that they attempted to produce discovery tailored to this case and that Delaney has many projects with Defendants . Presumably, the Defendants arguments are intended to provide an explanation of why they did not search for the term "Delaney" when searching the e-mails . The Court hulds, however, that this was the very search term necessary to produce responsive documents. The Defendants ' failure to search for that term was calculated to limit the response, or even prohibit responses, necessary for Plaintiff ' s claim in this case regardless of the number of "projects" Plaintiff had with the City. Such a response is the antithesis of "tailored. " Such failure allows the Court to apply the adverse inference rule. The adverse inference rule first articulated in Hovey v. Elliot, 167 U.S . 409 (1897) , supports the legal maxim 16 that absence of evidence is not evidence of absence. Marquis Theatre Corp. v. Condado Mini Cinema, 846 F. 2d 86, (1st Cir. P.R. 1988) followed the holding in Hovey and stated "When the contents of a document are relevant to an issue in a case, the trier of fact generally may receive the fact of the document ' s nonproduction or destruction as evidence that the party which has prevented production did so out of the well-founded fear that the contents would harm him. " This Court, therefore, holds that the non-production of pretrial discovery was calculated to derail Plaintiff ' s case against the Defendants . The Defendants did so in a willful and intentional manner. Entry of default is the only remedy. Entry of default at this time comports with Montana Supreme Court precedent and directly relates to the extent and nature of the actual discovery abuse. As detailed above, the City has advanced a trial strategy of depriving the Plaintiff of due process . It is conceivable that Plaintiff, without the relevant discovery, would not have been able to carry its burden of proof. Thus, defaulting Defendants is commensurate with Defendants ' discovery abuse . The discovery abuse has resulted in irreparable prejudice to Plaintiff . This Court can never know the true extent of the damage for the simple reason that the requested documents no longer exists . Under this circumstance this Court is free to apply the adverse inference rule and conclude that the discovery was both available and damaging. Finally, the 17 Court specifically put Defendants on notice that if it were shown their discovery tactics were willful , in bad faith, and calculated to deprive Plaintiff of his day in court, the Court would have no choice but to impose a default judgment . THE DEFENDANTS ' LEGAL COUNSEL The legal community lost a long time advocate and exemplary member of the bar with the loss of Barry O' Connell . Mr. O'Connell represented the Defendants up until his untimely death. The Court was concerned about, and Mr. Baris addressed, the issue of whether Mr. O' Connell ' s illness may have played an adverse roll in Defendants ' trial strategy. The Court was very concerned that Mr. O' Connell was sick as early as August of 2005 but no one came forward to ask the Court for some form of relief in the event that some was necessary. Defendants stated that, in part, they were asking for some relief due to Mr. O'Connell ' s illness and its possible effect on the Defendants ' trial strategy in producing e-mail and specifically e-mail search parameters that was limited in time and failed to include the term "Delaney" . The Plaintiff responded to the Court ' s concern by arguing that the people with the most knowledge about the search for e-mails were deposed and the City instructed them what to search for and what not to search for. The Plaintiff further argued that the ability of "Paul Luwe, the city attorney, to read the Court ' s Order and instruct their 18 people to look for [e-mails] has anything to do with Mr . O' Connell ' s unfortunate illness . It all is unrelated and the ability to comply . . . they complied the way they wanted to comply and there is nothing in the record saying that they actually asked [for those e-mails] . The record before me and the Court is otherwise . " The Court agrees with the Plaintiff . The City was responsible for instructing those looking for the e-mails as to the particular search parameters, not Mr. O'Connell . The Court will not apply speculation concerning Mr. O'Connell ' s health to the actions of the City in order to absolve the City of wrongdoing. ORDER IT IS HEREBY ORDERED: 1 . Plaintiff ' s Renewed Motion to Sanction Defendant for Discovery Abuse is GRANTED 2 . Default on liability on all claims of the complaint is entered as to Defendants . 3 . Defendants ' defenses are stricken. 4 . The Clerk of the District Court shall immediately notify counsel by telephone or e-mail that this Decision and Order has been issued. 5 . A Pretrial Conference to establish the procedure for litigating the issue of damages is set for TUESDAY, SEPTEMBER 26, 2006, at 3 :30 p.m. The parties shall meet sufficiently in advance of the Pretrial Conference to 19 prepare a Pretrial Order in accordance with Uniform District Court Rule 5 . Dated this day of September, 2006 . Hon. Mike Sal ni District Cou t Judge CC : Stephen Barrett David Wagner ;Allan Baris 20