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INVISION MEDIA COMMUNICATIONS v. FEDERAL INSURANCE CO.

March 1, 2004.

INVISION MEDIA COMMUNICATIONS, INC., ET AL., Plaintiffs, -against- FEDERAL INSURANCE COMPANY., Defendant


The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge

MEMORANDUM AND ORDER

I. INTRODUCTION

In this action for breach of an insurance contract, brought under the court's diversity jurisdiction, cross motions for discovery sanctions have been filed by defendant Federal Insurance Company ("Federal") and by plaintiff Invision Media Communications, Inc., and INTV, Inc. (collectively "INTV"*fn1). INTV has also moved to compel Federal to: (a) disclose documents that Federal has identified as protected by the attorney-client privilege and/or the work product doctrine; (b) produce individuals for depositions; and (c) respond to specified interrogatories and document requests.

  Federal contends that the plaintiff has: (i) made false statements regarding the location and existence of its documents; (ii) failed to disclose or to disclose timely requested documents; (iii) destroyed evidence relevant to this action; and (iv) committed other violations of the Federal Rules of Civil Procedure and the Individual Rules of Practice of the assigned district judge and of Page 2 this Court for which sanctions are required. As a sanction for these alleged violations, Federal has requested that the action be dismissed, that the plaintiff be precluded from offering evidence on damages it is alleged to have suffered as a consequence of the breach of contract, and/or that a monetary sanction be imposed on the plaintiff.

  For its part, INTV maintains that Federal has improperly asserted the attorney-client privilege and/or the work product doctrine in refusing to disclose 85 documents sought by the plaintiff. Accordingly, the plaintiff has moved to compel disclosure of those documents, and has requested that, if necessary, the Court conduct an in camera review of the documents that have been withheld from disclosure. The plaintiff contends that Federal and its counsel have obstructed discovery intentionally by: withholding documents from disclosure improperly; failing to respond to interrogatories adequately; and making false statements regarding the existence of documents. As a sanction for this alleged misconduct, the plaintiff seeks monetary sanctions and an order striking the defendant's Answer.

  For the reasons discussed below, Federal's request for monetary sanctions is granted. INTV's request for an order compelling Federal to disclose documents is granted, in part, and denied in part. INTV's request for an order compelling Federal to supplement its responses to the plaintiff's discovery demands, pursuant to Rule 26(e) of the Federal Rules of Civil Procedure, is granted. INTV's request for an order compelling Federal to produce individuals for depositions is granted in part, and denied in part. Its request for sanctions is denied.

  II. BACKGROUND

  INTV is a Delaware corporation engaged in the business of providing television and internet-related production and recording facilities. Prior to the autumn of 2001, INTV Page 3 maintained offices or other facilities in at least four buildings in Manhattan: 5 West 37th Street, 8 West 38th Street, 600 Broadway and 632 Broadway. INTV alleges that, during the two-week period following the September 11, 2001 attack on the World Trade Center, civil authorities either closed or restricted access to the sections of Manhattan in which INTV's facilities were located. Due to the lack of access to its facilities, INTV contends that it experienced a substantial decrease in revenue, because it lost business, and experienced a substantial increase in its expenses, stemming from efforts it made to safeguard its facilities and to resume normal business operations.

  On or around October 2, 2002, INTV filed an insurance claim with Federal, an Indiana corporation that had previously issued to INTV a policy insuring INTV against certain risks of loss associated with the facilities it maintained at the above-referenced locations. INTV also reported to Federal that it needed an advance payment on its claim urgently, in the amount of $200,000, because of cash flow problems it was experiencing. On or about October 8, 2002, Federal approved advance payments to INTV on its claim, totaling $65,000. On October 30, 2002, Craig Notte, an attorney representing INTV, sent a letter ("Notte Letter") via facsimile to Scott Pringle ("Pringle"), an agent at Federal who was working on INTV's claim. In part, the letter contained the following information:
As you are well aware, INTV suffered enormous losses because of September 11th, and as a result, is on the brink of going out of business. Specifically, because of impossible cash flow problems, INTV is about to lose possession of its television production studio at 632 Broadway to its owner unless INTV immediately pays rent and utility arrears, plus other costs associated with its possession. INTV's studio at 632 Broadway generates a substantial portion of INTV's monthly revenue, and if it is lost, INTV's fate will be sealed.
  The irreparable harm facing INTV must propel you to act immediately. Unless a substantial sum is paid to INTV tomorrow, INTV's damages will be Page 4 magnified to the point where it will be forced out of business. INTV would then have no choice but to pursue all available legal remedies against Chubb [an insurance company affiliated with the defendant]. The sum to be paid immediately must not be less than $200,000, which is a fraction of its total claim.

  Over the next several months, Federal continued to adjust INTV's claim. During that time, INTV reduced the size of its staff. Furthermore, between November 2001 and April 2002, INTV moved out of its West 37th Street, West 38th Street and 632 Broadway facilities. Attempts to settle the insurance claim were unsuccessful, and INTV filed an action in the New York State Supreme Court, New York County, in June 2002. The defendant removed that action to this court on July 17, 2002.

  On October 1, 2002, Federal's counsel, H. Christopher Boehning ("Boehning"), served a request for production of documents on INTV's counsel, Barbara A. Matarazzo ("Matarazzo"), requesting, inter alia:
*** 4. All documents concerning the payment of insurance premiums by Plaintiffs to Federal.
5. All documents, including time sheets, pay stubs, overtime requests or records, concerning work performed by employees of Plaintiffs during the year 2001.
6. All documents, including bank statements and cancelled checks, concerning or reflecting payments by Plaintiffs to their employees during the year 2001.
***
  17. All documents concerning payment of any bills or invoices by the Plaintiffs to the landlord or landlords of 600 Broadway, including cancelled checks or bank statements. *** 24. All electronic mail communications sent or received by Plaintiffs during August 2001, September 2001 and October 2001. Page 5
  In its response to the corresponding document requests noted above ("Plaintiffs Document Request Response"), INTV stated the following:
4. Documents concerning the payment of insurance premium are attached hereto as Exhibit C. All checks from 2001 have been put in storage.
5. The overtime hours that employees worked were accounted for in the spreadsheet previously provided as part of proof of loss. The 2001 time sheets are in storage. Upon retrieval, if any are responsive to this inquiry, they will be provided.
6. Checks for employee payments not in storage are attached hereto as Exhibit D. The remaining responsive documents are in storage and will be provided when obtained.
***
17. The documents (checks, statements and bank statements) in Plaintiff's possession are attached hereto as Exhibit K. When other documents in storage become available, they will be provided.
***
24. None in plaintiff's possession as all electronic mail is archived on servers for two weeks only.
  Attached to the Plaintiffs Document Request Response were copies of bank statements for the period February 24, 2001, through September 25, 2001, as well as copies of a number of checks, for an account at Chase Manhattan Bank ("Chase").
  The plaintiff maintains that during November 2002, agents of the plaintiff twice visited the storage facility used by the plaintiff and searched for the documents referenced above. In a letter to Boehning dated December 12, 2002, Matarazzo wrote:
I want to update you on the completion of our document production. I am informed by my client that their bank is in the process of reprinting the requested statements and checks from their microfiche. The e-mails have proven impossible to obtain, as the information no longer exists on the computers.
  I am now advised by the bank that the documents should be available by mid-January. Page 6

  In a subsequent letter to Boehning, Matarazzo stated again that her client could not find the relevant checks and bank statements in storage, and that copies of the same had been requested from the plaintiff's bank. In a December 18, 2002 letter, Matarazzo also reminded Boehning that she had previously advised him that "the 2001 time sheets were in storage and my client has not yet been able to locate it [sic]."

  In response to the Matarazzo letters, Federal demanded that all responsive documents be produced by December 27, 2002, and that INTV identify, inter alia, the bank that was reproducing the checks and statements and the name and address of the storage facility referred to in the Plaintiffs Document Request Response. Additional correspondence followed. However, Federal became dissatisfied and wrote to the assigned district judge, who directed that INTV produce a witness to testify about the chain of custody of the documents which INTV had been unable to locate.

  On January 15, 2003, the plaintiff disclosed additional bank statements and copies of checks. The plaintiff acknowledged that its disclosure, insofar as it related to checks, was still incomplete due to difficulties the bank was experiencing in reproducing legible copies of its microfiche records. Matarazzo stated that the bank estimated that it would require an additional two or three months to reproduce the 262 checks requested, and that the cost of doing so would be $18 per check. The plaintiff objected to having to pay the cost of reproducing the checks.

  Matarazzo's letter also stated that the requested bank statements that Federal had requested were enclosed with that letter, "in total." However, the documents attached to that letter did not include bank statements for the periods September 26, 2001, through October 23, 2001, and May 23, 2002, through June 24, 2002. According to the defendant, it alerted the Page 7 plaintiff to the omission of the September 26, 2001 bank statement in a letter dated January 22, 2003. The defendant brought the omission to the attention of the court in a February 11, 2003 letter.

  On January 21, 2003, the plaintiff's general counsel, Carlin Ross ("Ross"), was deposed by Federal about the chain of custody regarding the documents that the plaintiff had been unable to locate. Ross testified that when INTV closed its West 37th Street facility in November or December of 2001, she placed all physical documents maintained there into boxes and they were transported to INTV's West 38th Street facility. Ross testified further that subsequently, when INTV closed its West 38th Street facility, she placed the documents located there into boxes, which were then transported to INTV's 600 Broadway facility. She noted that the documents in these boxes — which included "[a]ll of our contracts, all of our banking records, tax returns, employee — any kind of employee files or payroll taxes or bank account files" — were placed into filing cabinets at 600 Broadway, where they remained, as of the date of the deposition, with the exception of some "old marketing materials," which were discarded. Ross stated that none of INTV's documents were in storage as of the date of the deposition, and none had ever been in storage prior to that date. Ross explained that previously, until November 2002, she had believed that two boxes of documents from INTV's West 37th Street and West 38th Street facilities, that contained checks, bank statements and equipment leases, were transported to a storage facility in New Jersey rather than to 600 Broadway. Ross also identified the name and the location of the New Jersey storage facility that INTV used. She explained further ...


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