The opinion of the court was delivered by: Roanne L. Mann, United States Magistrate Judge
Appellant American Friends of Yeshivat Ohr Yerushalayim, Inc. ("American Friends") commenced this action on May 6, 2004, seeking review of a determination by the Internal Revenue Service ("IRS") that American Friends was not entitled to an abatement of tax penalties assessed against it for the tax years ending on June 30, 2000, June 30, 2001, and June 30, 2002. On March 30, 2009, appellee United States of America ("the government") moved for judgment on the pleadings and, on May 1, 2009, American Friends filed its memorandum in opposition, accompanied by an affidavit from American Friends' counsel, with several exhibits attached. See Affidavit of Howard K. Fishman (May 1, 2009) ("5/1/09 Fishman Aff."), ECF Docket Entry ("D.E.") # 39.
According to the government, American Friends attached exhibits to its opposition papers that, despite a request from the government and a compulsion order from this Court, were not produced by American Friends during the discovery period, which closed on December 12, 2008. See Letter from Lisa L. Bellamy, Counsel for the Government, to the Court (May 1, 2009) ("5/1/09 Gov't Letter"), D.E. # 40, at 1-2. Specifically, the government contends that, in violation of American Friends' obligations under the Federal Rules of Civil Procedure and this Court's discovery orders, American Friends failed to produce during discovery a printout of its general ledger for the tax year ending on June 30, 2000 (which is attached as Exhibit P to American Friends' submission opposing judgment on the pleadings), or copies of tuition checks mailed from Yeshiva University to American Friends, ranging in date from September 12, 2001 to April 24, 2002 (which are attached to the same document as Exhibit Q). See 5/1/09 Fishman Aff. ¶¶ 17-18 & Exs. P-Q.
Accordingly, by letter dated May 1, 2009, the government requested, as a discovery sanction, an order striking American Friends' opposition papers in their entirety or, in the alternative, striking the offending exhibits, i.e., the general ledger and tuition checks. See 5/1/09 Gov't Letter, at 1. On May 5, 2009, American Friends sought leave to cross-move for an order striking an exhibit from the government's motion for judgment on the pleadings and/or precluding the government from offering certain evidence in connection with that motion; American Friends alleged that the government had also failed to timely disclose documents in its possession. See Letter from Howard K. Fishman, Counsel for American Friends, to the Court (May 5, 2009), D.E. # 42, at 1. After leave was granted, American Friends filed its cross-motion on May 14, 2009. See Appellant Mot. for Sanctions (May 14, 2009), D.E. # 48. The Honorable Charles P. Sifton referred both motions to the undersigned magistrate judge for decision or a Report and Recommendation on whether the relief sought should be granted.*fn1 See Order (May 12, 2009), D.E. # 46; Order (May 5, 2009), D.E. # 41.
For the reasons that follow, this Court concludes that precluding American Friends from relying on the general ledger and tuition checks is an appropriate sanction in this case, and denies the government's request to preclude American Friends from responding at all to the government's dispositive motion. American Friends' motion for sanctions is denied.
American Friends filed this action on May 6, 2004, seeking review of an IRS determination, following a collection due process proceeding, that American Friends was not entitled to an abatement of tax penalties assessed against it for failing to timely file its informational returns (Form 990s) for the tax years ending on June 30, 2000, June 30, 2001, and June 30, 2002. Among other arguments, American Friends contends that tuition checks it collected on behalf of Yeshivat Ohr Yerushalayim ("YOY"), a religious school located in Israel, were mistakenly included as income in its gross receipts for the tax years at issue, resulting in tax penalties five times greater than those that would have been applicable absent that error.
On August 9, 2004, this Court held an initial conference and set a discovery schedule to govern this case. See Minute Entry (Aug. 10, 2004), D.E. # 5. Shortly thereafter, the government served American Friends with its First Set of Interrogatories and Requests for Production.*fn2
American Friends took nearly four months to respond to the government's discovery demands; during that time, the government consented to no less than three extensions of American Friends' time to respond. See generally Letter from Bonni J. Perlin, Counsel for the Government, to the Court (Jan. 3, 2005) ("1/3/05 Gov't Letter"), D.E. # 8. When American Friends finally did respond, it indicated that it had produced all responsive documents that had not been lost or destroyed. See American Friends' Responses to the Government's First Set of Requests for Production (Dec. 29, 2004); American Friends' Responses to the Government's First Set of Interrogatories (Dec. 29, 2004), Response No. 2.
Apparently, the only effort undertaken by American Friends' counsel, Howard K. Fishman, to obtain documents during that four-month time period was to contact Saul Strauss, American Friends' accountant since the mid-1990s, and request that he provide copies of any financial records in his possession pertaining to American Friends. See Affidavit of Howard K. Fishman (May 8, 2009) ("5/8/09 Fishman Aff."), D.E. # 44, ¶¶ 11-15. According to Fishman, Strauss produced copies of American Friends' informational returns, and represented that he had "no other documents." Id. ¶ 12. As is apparent from the record that has since developed, however, Fishman never bothered to inquire as to whether Strauss searched for electronic documents, never bothered to visit Strauss' office, and never bothered to follow up with persons identified by Strauss as potential sources of documents. See infra pp. 14-19.
On January 4, 2005, due to American Friends' delay, this Court granted the government's request for an additional three months to complete discovery. See 1/3/05 Gov't Letter, at 1-2; Order (Jan. 4, 2005), D.E. # 10. The Court warned the parties that further delays would not be tolerated, and ordered American Friends to supplement its responses to the government's discovery demands. See id.
Meanwhile, Strauss had prepared amended informational returns for the relevant tax years, in which he had excluded from income the tuition payments claimed to have been received by American Friends on behalf of YOY. See 5/8/09 Fishman Aff. ¶ 16. In early 2005, Fishman filed the amended returns with the IRS, see id., and this case was administratively closed to enable the IRS to audit the returns, see Order (March 31, 2005), D.E. # 14, which it did in December 2006. See 5/8/09 Fishman Aff. ¶ 16. On January 10, 2008, the IRS rejected the amended returns as inaccurate. See id., Ex. A. Thereafter, this case was reopened for further proceedings.
On June 20, 2008, this Court entered an order scheduling further discovery and setting a fact discovery deadline of December 12, 2008. See Scheduling Order (June 20, 2008), D.E. # 22. The government promptly served its Second Set of Requests for Production on American Friends; this time, the government specified the types of documents sought, demanding all "invoices, receipts, copies of cancelled checks, cash receipt journals, written documentation of donations, or correspondence, relating to donations or tuition payments received by [American Friends]" for the relevant tax years. See Government's Second Set of Requests for Production, at 3.
American Friends did not seek any further discovery. See Transcript of Hearing Held on May 19, 2009 ("5/19/09 Tr."), D.E. # 52, at 3. Nor did it timely respond to the government's discovery demands. Accordingly, on November 14, 2008, after nearly four months with no response from American Friends -- and no response from Fishman to the government's three attempts to reach him -- the government filed a motion to compel. See Letter from Lisa L. Bellamy, Counsel for the Government, to the Court (Nov. 14, 2008), D.E. # 23. This prompted a court order directing American Friends to "either respond to the gov[ernmen]t's discovery demands or show cause, via ECF, why the Court should not enter a compulsion order and impose sanctions." Endorsed Order (Nov. 17, 2008), D.E. # 24. Finally, on November 19, 2008, in lieu of the latter option, American Friends provided the government with four documents, all of which predated the filing of this action.
The parties appeared before the Court for a settlement conference on December 18, 2008. Fishman repeatedly represented, as he has throughout the course of this litigation, that American Friends' financial records predating 2002 had been lost or destroyed, See Tr. of Hearing Held on December 18, 2008 ("12/18/08 Tr."), D.E. # 53, at 6, 7, 8, 10-11. In fact, that loss or destruction has been cited by American Friends as the reason for the lengthy delay in filing its informational returns for 2000, 2001 and 2002, see id. at 10-11, as well as its inability to produce documents in connection with this litigation. See American Friends' Responses to the Government's First Set of Interrogatories, Response No. 2. Fishman blames this problem on Isabel Kogan, American Friends' managing agent/bookkeeper during the relevant tax years. See id. at 6-10. Strauss blames Fishman. See infra p.14 n.5. And American Friends' president, Rabbi Samuel Wagner, reportedly testified at deposition that "only God knows the truth[.]" 12/18/08 Tr. at 15.
After this Court's settlement proposal was rejected, a briefing schedule for dispositive motions was set and, on March 30, 2009, the government moved for judgment on the pleadings. It was not until after the government had filed its dispositive motion that the general ledger and tuition checks suddenly surfaced. In drafting American Friends' papers opposing the government's motion, Fishman decided to attach as exhibits copies of the amended informational returns submitted to the IRS in 2005, but he purportedly could not locate them. See 5/8/09 Fishman Aff. ¶ 19. Apparently, despite the pendency of this litigation, Fishman either did not retain copies of those returns (which he had submitted to the IRS), or else he lost them. Accordingly, on April 27, 2009, just a few days before American Friends' response was due, Fishman allegedly called Strauss -- whom he had not spoken with since late 2006, see 5/19/09 Tr. at 26 -- to ask Strauss whether he had retained copies of the amended informational returns. See 5/18/08 Fishman Aff. ¶ 20.
Two days later, Strauss informed Fishman that he had located copies of the amended informational returns. See id. ¶ 20. Around 1:00 p.m. the following day (the deadline for American Friends' opposition papers), Fishman visited Strauss' office to obtain the copies.
See id. According to Fishman's account of the visit, upon Fishman's arrival, Strauss began searching a Redweld for the documents, and Fishman joined in the pursuit. Fishman "quickly saw that the [R]edweld contained copies of bank statements and a printout of a general ledger." See id. Although Fishman now claims that Strauss informed him that the documents had been reviewed by the IRS in connection with the December 2006 audit, Strauss "was unable to so attest" in his affirmation filed in connection with the instant motions. See id. ¶¶ 20, 30. Fishman took the Redweld with him. See id. ¶ 21.
Fishman claims that later that day (April 30, 2009), he reviewed the entire contents of the Redweld, which contained a host of documents, including the general ledger and tuition checks. See id. ¶¶ 22-23. He made no attempt to inform the government of this new development. See 5/19/09 Tr. at 9. Instead, in the early morning hours of May 1, 2009, Fishman belatedly filed American Friends' papers in opposition to the government's motion for judgment on the pleadings, and attached the recently retrieved evidence. The government thereupon asked Judge Sifton for (1) an adjournment of oral argument on its dispositive motion; and (2) leave to file a motion for discovery sanctions. See 5/1/09 Gov't Letter. On May 5, 2009, Judge Sifton issued an order adjourning oral argument and referring the government's motion for discovery sanctions to the undersigned magistrate judge. See Order (May 5, 2009), D.E. # 41. Later that day, this Court issued an order directing American Friends to show cause why the relief sought by the government should not be granted, see Order to Show Cause (May 5, 2009), D.E. # 43; American Friends moved for leave to file a cross-motion for sanctions; and Judge Sifton referred the cross-motion to the undersigned. This Court heard oral argument on the parties' respective motions for sanctions on May 19, 2009.
The Court notes, at the outset, that the government's motion for judgment on the pleadings, which is currently pending before Judge Sifton, poses a separate substantive dispute concerning whether the Court should consider certain documents (including those at issue here) or whether its inquiry should be limited to evidence that was before the IRS at the time of the collection due process proceeding. To be clear, this Memorandum and Order is limited to the issue of whether discovery sanctions should be imposed on the parties, and does not address the scope of judicial review or the admissibility of those documents under the Federal Rules of Evidence.*fn3 With that caveat, the Court turns to the instant motions for sanctions.
I. Applicability of Rule 26 of the Federal Rules of Civil Procedure
Pursuant to Rule 26(a) of the Federal Rules of Civil Procedure, "a party must, without awaiting a discovery request, provide to the other parties a copy -- or a description by category and location -- of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims or defenses[.]" Fed. R. Civ. P. 26(a)(1)(A)(ii). Under Rule 26(e), a party must supplement its Rule 26(a) initial disclosures, as well as its responses to discovery requests, when ordered to do so by a court and/or where a "party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process[.]" See Fed. R. Civ. P. 26(e)(1)(A)-(B).*fn4
The duty to supplement "applies whether the corrective information is learned by the client or by the attorney[,]" 1993 Advisory Committee Note to Fed. R. Civ. P. 26(e), and extends not only to newly discovered evidence, but to "information that was not originally provided although it was available at the time of the initial disclosure or response." 2007 Advisory Committee Note to Fed. R. Civ. P. 26(e). The duty to supplement is triggered only where "a party[,] or more frequently [its] lawyer, obtains actual knowledge that a prior response is incorrect." Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 433 (S.D.N.Y. 2004) (internal quotation marks and citation omitted; first alteration in original).
"The continuing duty to supplement disclosures strongly suggests that parties also have a duty to make sure that discoverable information is not lost." Id. (alteration in original). Failure to supplement Rule 26(a) disclosures and/or discovery responses may result in the imposition of sanctions. See Fed. R. Civ. P. 37(c)(1).
Rule 26(a) initial disclosures are ordinarily not required in an action (such as this one) "for review on an administrative record[.]" Fed. R. Civ. P. 26(a)(1)(B)(i). Here, however, the Court held an initial conference during which Rule 26(a) disclosures were expressly ordered, see Minute Entry & Order (Aug. 10, 2004), D.E. # 5, and neither party objected that the case was exempt from the initial disclosure requirement. See Fed. R. Civ. P. 26(a)(1)(C) ("A party must make the initial disclosures at or within 14 days after the parties' Rule 26(f) conference . . . unless a party objects during the conference that initial disclosures are not appropriate in this action and states the objection in the proposed discovery plan."). And when discovery was reopened in 2008, "[t]he parties d[id] not request any changes to the timing, form, or requirements for disclosures under Rule 26(a) . . . ." Report of Rule 26(f) Planning Meeting (June 20, 2008), D.E. # 21, at 1.
In any event, the parties have waived any argument concerning the applicability of Rule 26(a) by moving for sanctions on the basis of one another's failure to provide information required by that rule. Accordingly, the Court, like the parties, will assume that the requirements of Rule 26(a) apply.
II. Government's Motion for Sanctions
In its initial application for sanctions, the government did not identify the specific rule underlying its request for preclusion. See generally 5/1/09 Gov't Letter. The government honed its argument in its reply memorandum, contending that preclusion is warranted under Rule 37(c) of the Federal Rules of Civil Procedure, based on American Friends' failure to supplement its initial disclosures and discovery ...