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BFC Gas Co. L.C. v. Gypsum Supply Co.

United States District Court, N.D. Iowa, Cedar Rapids Division

January 5, 2015

BFC GAS COMPANY L.C. AND BFC ELECTRIC COMPANY L.C., Plaintiffs,
v.
GYPSUM SUPPLY CO. d/b/a GYPSUM SUPPLY CO. OF CEDAR RAPIDS, Defendant

For BFC Gas Company, LC, BFC Electric Company, LC, Plaintiffs: Kathryn S Barnhill, LEAD ATTORNEY, Barnhill & Associates, PC, West Des Moines, IA.

For Gypsum Supply Co, doing business as Gypsum Supply Co of Cedar Rapids, Defendant: Jeffrey K Rosencrants, LEAD ATTORNEY, Simmons Perrine Moyer Bergman PLC, Cedar Rapids, IA; Philip A Burian, LEAD ATTORNEY, Simmons Perrine Moyer Bergman, Cedar Rapids, IA.

ORDER FOR SANCTIONS

JON STUART SCOLES, CHIEF UNITED STATES MAGISTRATE JUDGE.

TABLE OF CONTENTS

I. INTRODUCTION

II. PROCEDURAL HISTORY

III. PRIOR ORDERS REGARDING DISCOVERY

IV. BFC'S DISCOVERY FAILURES

A. Gypsum's First Motion to Compel

B. Gypsum's Second Motion to Compel

C. Gypsum's First Motion for Sanctions

D. Gypsum's Second Motion for Sanctions

V. MISREPRESENTATIONS AT MAY 27, 2014 HEARING

A. Seizure of Documents by Federal Authorities

B. Efforts to Retrieve and Produce Seized Documents

C. Litigation Hold

D. Property Insurance

E. Collins Community Credit Union

F. Other Misrepresentations

VI. DISCUSSION

A. Attorney Fees and Expenses Previously Ordered

B. Discovery Expenses Following May 27, 2014 Hearing

C. Rule 11 Sanctions

D. Summary

VII. ORDER

I. INTRODUCTION

On the 4th day of November 2014, this matter came on for hearing on the Second Motion for Sanctions (docket number 39) filed by the Defendant on August 28, 2014. The Defendant was represented by its attorney, Philip A. Burian. Plaintiffs did not appear, nor anyone for them.[1]

II. PROCEDURAL HISTORY

On July 31, 2013, Plaintiffs BFC Gas Co., L.C. and BFC Electric Co., L.C. (collectively " BFC") filed a petition in the Iowa District Court for Linn County, seeking damages sustained to its facility during a storm on May 19, 2013. BFC claimed the damages were caused by the negligence of Defendant Gypsum Supply Co. (" Gypsum") or, alternatively, that liability was established by res ipsa loquitur . The action was removed to this Court on August 15, 2013 and Gypsum filed a reply on August 22.

On November 14, 2013, the Court adopted a proposed Scheduling Order and Discovery Plan submitted by the parties. The case was then set for trial before Chief Judge Linda R. Reade on December 15, 2014. Gypsum subsequently filed a motion for summary judgment, however, which was granted by Chief Judge Reade on October 15, 2014. Judgment was entered in favor of Gypsum and against BFC. BFC has now appealed.

Meanwhile, on August 28, 2014, Gypsum filed the instant Second Motion for Sanctions (docket number 39). BFC filed a Resistance (docket number 40) on September 4, and Gypsum filed a Reply (docket number 41) on September 5.

III. PRIOR ORDERS REGARDING DISCOVERY

On January 3, 2014, Gypsum filed its first Motion to Compel (docket number 10). BFC did not file any response. The motion was granted on January 22, and BFC was given until January 30 to produce the requested documents. See docket number 14.

On February 27, 2014, Gypsum filed a Second Motion to Compel (docket number 15). Again, BFC did not file any response. On March 18, the Court granted the second motion to compel and ordered BFC to produce the requested documents not later than March 28. See docket number 18.

On April 28, 2014, Gypsum filed a Motion for Sanctions (docket number 20). Once again, BFC did not file any response. Nonetheless, the Court set the motion for hearing. Following the hearing on May 27, the Court denied Gypsum's request to dismiss the action as a discovery sanction. However, the Court found Gypsum was entitled to " reasonable expenses, including attorney's fees, caused by BFC's failure to comply with its discovery obligations and the Court's Orders." See Order Regarding Motion for Sanctions (docket number 24) at 10. The Court directed the parties to meet and confer in an effort to agree on the appropriate expenses and attorney fees. If the parties were unable to reach an agreement, then the Court authorized Gypsum to file a supplemental application.

In the instant second motion for sanctions, Gypsum asks the Court to establish the amount of attorney fees ordered by the Court following Gypsum's first motion for sanctions. Gypsum also asks that additional monetary sanctions be imposed against BFC's counsel as a consequence of multiple misrepresentations made at the May 27 hearing. Finally, Gypsum asks that it be awarded all of its attorney fees in this case, pursuant to Federal Rule Of Civil Procedure 11.

IV. BFC'S DISCOVERY FAILURES

A. Gypsum's First Motion to Compel

This case was brought in state court on July 31, 2013 and removed to this Court on August 15. On November 14, 2013, the Court adopted the proposed Scheduling Order and Discovery Plan submitted by the parties. Among other things, the Court established deadlines for discovery. Specifically, the parties were required to provide their Rule 26(a) initial disclosures not later than November 26, 2013.

BFC's failure to provide required discovery, and failure to comply with the Court's orders, began immediately. When BFC failed to provide its initial disclosures by the November 26 deadline, Gypsum's attorney (Philip Burian) sent an email on December 4 to BFC's attorney (Kathryn Barnhill), asking about the initial disclosures and suggesting that a motion to compel would be filed if the disclosures were not received by December 10.[2] Barnhill responded the next day, stating that " I was thinking I had filed them some time ago." Burian replied, noting the difference between the Rule 7.1 Disclosure Statement and the initial disclosures required under Rule 26(a)(1).

In the early afternoon on December 10, another Gypsum attorney (Jeffrey Rosencrants) called Barnhill " as a final courtesy" prior to filing a motion to compel. Barnhill told Rosencrants that " she had just started working on [BFC's initial disclosures] and asked for a duplicate copy of [Gypsum's] Initial Disclosures, " which had been timely served on November 26. Rosencrants followed up with an email confirming the conversation and noted " it is rather clear that we will not receive a satisfactory response today." [3] Ms. Barnhill responded within the hour as follows:

My initial Disclosures are very simple. Yes, I just started them. You will have all there is to have. If that is not sufficient, you will need to file whatever you think appropriate.

Email from Kathryn Barnhill to Jeffery Rosencrants, dated December 10, 2013, Exhibit E-3 to Defendant's Motion to Compel (docket number 10-5).

Later on December 10, Barnhill sent an initial disclosure claiming $2, 750, 000 in damages and identifying just two witnesses. Also attached were 166 pages of documentation regarding insurance coverage effective as of August 13, 2013 -- two months after the May 19, 2013 storm. In fact, Burian notes in his declaration filed in support of the first motion to compel that Barnhill " now has sent those same 166 documents on three separate occasions." [4]

Still later in the afternoon on December 10, Burian responded to Barnhill acknowledging receipt of BFC's initial disclosures, but noting various defects. Burian also expressed concern that ESI (electronically stored information) " may either have been lost or will otherwise not be produced." Counsel had previously exchanged emails regarding the production of ESI. On November 7, 2013, Burian sent Barnhill an email regarding the proposed scheduling order and discovery plan, and specifically addressed initial disclosures and ESI. In an email on November 13, Burian referred to a discussion which Barnhill had with Rosencrants, in which Barnhill stated that she " did not think the BFC entities would have any ESI at all." Burian observed " that is not what I would have expected in this email age but I do not have a good handle on how and the extent to which BFC actually operates." [5] Barnhill responded the next day, stating " [w]ell if email are electronic discovery then I better rethink and ask -- I'll get back to you." [6] Barnhill responded further to Burian's email on December 10, stating that " [u]pon checking yet again, there is no ESI. There simply is none. All communications were by phone." [7]

Meanwhile, Gypsum served BFC with its first set of requests for production of documents and first set of interrogatories.[8] BFC did not timely respond to the written discovery requests. In his email to Barnhill on December 4, 2013, Burian advised Barnhill to consider December 17 " as a firm deadline for responding to the previously served interrogatories and requests for production of documents." [9] Barnhill responded to the written discovery on December 17, and transmitted 17 emails with various attachments. Gypsum subsequently received a CD containing operating and maintenance logs.

On December 23, Gypsum served additional requests for production, and Burian sent Barnhill an email identifying defects in BFC's earlier responses.[10] In response, Barnhill for the third time sent the same 166 pages of insurance documents which became effective after the loss, but did not provide insurance documents in force at the time of the loss. Following a site inspection on January 2, 2014, and Barnhill's comments that " she would provide the documents when her schedule allowed, " Gypsum filed its first motion to compel.

Gypsum filed its first motion to compel on January 3, 2014. BFC did not file any response to the motion. On January 22, 2014, the Court granted Gypsum's motion to compel and directed BFC to produce the requested discovery not later than January 30. BFC was advised that if it failed to fully comply with the Court's Order, " then they may be subject to appropriate sanctions upon further application by Defendant." [11]

B. Gypsum's Second Motion to Compel

On February 27, 2014, Gypsum filed a second motion to compel. Gypsum claimed (1) BFC had not complied with the Court's first Order Compelling Discovery, (2) Gypsum had learned of additional discovery rule violations by BFC that were not known at the time of the first motion to compel, and (3) BFC had not complied with additional discovery obligations since Gypsum's first motion to compel. The " primary issues" raised in Gypsum's second motion to compel involved the identification, preservation, and production of discoverable documents, including ESI, the failure to provide a qualified and prepared witness under Federal Rule Of Civil Procedure 30(b)(6), and BFC's ongoing failure to comply with the Court's first Order Compelling Discovery. The motion specifically enumerated those documents being sought by Gypsum.

In its brief in support of the second motion to compel and supporting documents, Gypsum challenged Barnhill's earlier representation that " [u]pon checking yet again, there is no ESI. There simply is none." Gypsum noted that BFC's plant manager testified that BFC managers and others regularly conducted business by email. Another BFC agent testified that she had " looked through emails" to determine if she was included on requested communications regarding the storm damage. In addition, BFC management communicated through text messages. In short, it is clear that BFC did not investigate, preserve, or produce relevant ESI.

Gypsum also asserted that BFC did not preserve and produce " hard copy documents, " such as log books. Some log book information was provided. According to Gypsum, " [attentive examination of the log, however, revealed that the page that would have covered May 19 [the day of the storm] was torn out of the book." Photographs attached as exhibits support the allegation.[12]

Gypsum also complained of BFC's production of Brian Wink, BFC's plant manager, as a Rule 30(b)(6) witness. Wink's deposition was taken on February 13, 2014. In its brief filed in support of its second motion to compel, Gypsum asserts:

Mr. Wink had not prepared to any extent whatsoever for the deposition. He was never shown the list of subjects for examination prior to his deposition starting. He was not even aware that BFC previously produced interrogatory answers. At one point, Mr. Wink stated " I think you got the wrong person in here for a lot of these questions because I'm not going to know a lot of these" subjects on the deposition notice.

Gypsum's Brief in Support of Second Motion to Compel (docket number 15-1) at 8 (internal citations to the deposition omitted).

Gypsum filed its second motion to compel on February 27, 2014. Among other things, Gypsum asked that it be awarded attorney fees and costs. Exhibit DD attached to the motion itemizes the costs associated with BFC's discovery failures at $9, 373.[13] Once again, BFC made no response to Gypsum's second motion to compel. On March 18, 2014, the Court granted the second motion to compel and ordered Plaintiffs to produce the requested documents, and a qualified Rule 30(b)(6) witness, not later than March 28, 2014. The Court did not award attorney fees at that time, but BFC was told that if it failed to fully comply with the Order, " then they may be subject to appropriate sanctions upon further application by Defendant." [14]

C. Gypsum's First Motion for Sanctions

On April 28, 2014, Gypsum filed its first motion for sanctions. Gypsum claimed that BFC had not complied with the Court's two separate Orders Compelling Discovery and had yet to identify, preserve, and produce discoverable documents, including ESI. In seeking sanctions, Gypsum also asserted that " BFC [was] continuing to prosecute allegations that it admits are demonstrably false." In its supporting brief, Gypsum details BFC's failure to identify, preserve, and produce ESI. Gypsum also complains that BFC had failed to produce missing parts of the logbook. The brief also describes in considerable detail what Gypsum describes as " known false and frivolous allegations." As a discovery sanction, Gypsum asked that the case be dismissed. Gypsum also asked for attorney fees as a discovery sanction and for BFC's violation of Rule 11.

Following a familiar pattern, BFC made no response to Gypsum's motion for sanctions, notwithstanding the fact that Gypsum was seeking dismissal of the action. Nonetheless, the Court set the matter for hearing on May 27, 2014. The responses made by Barnhill at the hearing will be discussed in more detail below.

On May 30, 2014, the Court filed its Order granting the motion for sanctions in part, and denying it in part. I found that " [t]he record establishes that BFC has been dilatory in complying with its discovery obligations." [15] Among other things, I noted that it was not until two days after I filed the first Order Compelling Discovery that " BFC notified [Gypsum] for the first time that most of its records were seized by federal authorities some time earlier." [16] In addition, I found that BFC's document production was incomplete and the witness identified for Rule 30(b)(6) purposes " was not knowledgeable regarding all of the subjects identified in the notice of deposition." Nonetheless, I rejected Gypsum's call to dismiss the action as a discovery sanction. Instead, I concluded that Gypsum " is entitled to reasonable expenses, including attorney's fees, caused by BFC's failure to comply with its discovery obligations and the Court's Orders." [17]

D. Gypsum's Second Motion for Sanctions

On July 29, 2014 -- after I denied Gypsum's request to dismiss the action as a discovery sanction -- Gypsum filed a motion for summary judgment. On August 28, 2014 -- while the motion for summary judgment was pending -- Gypsum filed the instant second motion for sanctions. This time, BFC filed a four-page resistance, together with a memo from BFC's attorney (Mark A. Critelli) to Burian, apparently prepared on July 22, 2014.[18] The resistance notes that " [o]n May 29, 2014, the Iowa Supreme Court entered an Order suspending the license of Kathryn Barnhill for 60 days." Interestingly, Critelli asserts in the resistance that " [d]uring part of the period of her suspension, Mrs. Barnhill worked for Mr. Critelli in the capacity of a lay assistant." [19] The resistance makes no effort to respond to the detailed allegations made by Gypsum regarding material misrepresentations allegedly made by Barnhill at the May 27, 2014 hearing.

V. MISREPRESENTATIONS AT MAY 27, 2014 HEARING

Gypsum complains that BFC's attorney, Kathryn Barnhill, made numerous false statements at the May 27, 2014 sanctions hearing, thereby causing additional effort and expense by Gypsum's attorneys.

A. Seizure of Documents by Federal Authorities

For example, Barnhill told the Court at the hearing that BFC's failure to produce certain documents was caused by the seizure of the documents by federal authorities. Specifically, Barnhill claimed at the hearing that relevant documents were seized by ...


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