United States District Court, S.D. New York
THE ESTATE OF LARRY SHAW, AND SUSAN SHAW, AS THE EXECUTOR OF THE ESTATE OF LARRY SHAW, asserting claims on behalf of a New York Corporation, SHAW FAMILY ARCHIVES, LTD., ON A SHAREHOLDER DERIVATIVE BASIS, and/or, when so pleaded, asserting INDIVIDUAL CLAIMS FOR THE BENEFIT OF THE ESTATE OF LARRY SHAW, Plaintiffs,
EDIE SHAW MARCUS aka EDITH SHAW MARCUS, META SHAW STEVENS, DAVID MARCUS, MELISSA STEVENS, GARY ADELMAN, ESQ., and SAM SHAW INC., Defendants, And SHAW FAMILY ARCHIVES, LTD., As a Nominal Party to the Action. SAM SHAW, INC., META STEVENS, EDITH MARCUS, MELISSA STEVENS, DAVID MARCUS and MELISSA STEVENS and DAVID MARCUS, on behalf of and in their capacity as shareholders of SHAW FAMILY ARCHIVES, LTD. on a derivative basis, Plaintiffs,
THE ESTATE OF LARRY SHAW, SUSAN SHAW and JAKOB SHAW, Defendants, SHAW FAMILY ARCHIVES, LTD., As a Nominal Defendant.
OPINION AND ORDER
C. MCCARTHY UNITED STATES MAGISTRATE JUDGE.
this Order, the Court addresses a pattern of delinquent
conduct by Joseph H. Adams ("Mr. Adams"), former
counsel to Plaintiffs Estate of Larry Shaw and Susan Shaw
(jointly "Plaintiff), in connection with his complete
disregard for the Court's Orders and lack of respect for
the Court and opposing counsel.
2, 2016, Defendants in Action 1, Sam Shaw, Inc., Meta
Stevens, Edith Marcus, Melissa Stevens and David Marcus, Esq.
(the "Shaw Family") filed a letter motion for
sanctions relating to Plaintiffs failure to comply with the
Court's Discovery Orders, and for cost-shifting relating
to the forensic review of Plaintiff Susan Shaw's laptop
computer (the "Sanctions Motion"). (Docket
275). Plaintiff filed its opposition on May 23, 2016 and May
24, 2016. (Docket Nos. 300, 301).
Shaw Family filed a second motion for sanctions (the
"Omnibus Sanctions Motion") on June 13, 2016.
(Docket Nos. 327, 328, 329). On August 12, 2016 and August
19, 2016, Plaintiff filed incomplete versions of its
opposition to the Omnibus Sanctions Motion on this
Court's Electronic Case Filing ("ECF") system,
and served the Court with a courtesy copy of one of the
versions of these submissions. (Docket Nos. 370, 377). The
Court continued to receive letters from Plaintiff seeking
extensions of time to file the complete and corrected
opposition, with certain exhibits filed under seal. (Docket
Nos. 374, 378). On August 22, 2016, Plaintiff filed the final
version of its opposition to the Omnibus Sanctions Motion,
with Exhibits I, J, and K filed under seal, and served the
Court with a courtesy copy of the submission. (Docket No.
380). Plaintiffs earlier submissions in opposition to the
Omnibus Sanctions Motion, (Docket Nos. 370, 377), were
subsequently marked deficient by the Clerk's Office.
Accordingly, on September 20, 2016 the Court returned the
courtesy copy of those deficient submissions to counsel for
Plaintiff. The Court has retained the courtesy copy of Docket
No. 380, as well as the Shaw Family's reply, (Docket Nos.
382, 383), and has deemed the motion fully
reasons set forth below, the Sanctions Motion and the Omnibus
Sanctions Motion are granted in part and denied in part.
BASES FOR SANCTIONS
of their Sanctions Motion and Omnibus Sanctions Motion, the
Shaw Family argues that the Court should impose sanctions as
follows: (i) Plaintiff and Mr. Adams should bear the costs
relating to the Shaw Family's forensic review of Susan
Shaw's laptop computer (the "Computer"); (ii)
Plaintiffs and Mr. Adams' conduct requires monetary
sanctions and the dismissal of Plaintiff s Second Amended
Complaint (the "Complaint") and Plaintiffs Answer
to the Shaw Family's Amended Complaint (the
"Answer") pursuant to Federal Rules of Civil
Procedure Rule 16(f) ("Rule 16"); (iii) Plaintiffs
and Mr. Adams' failure to comply with the Court's
Discovery Orders require monetary sanctions and dismissal of
the Complaint and the Answer pursuant to Federal Rules of
Civil Procedure Rule 37 ("Rule 37"); (iv)
Plaintiffs and Mr. Adams' conduct warrants sanctions
pursuant to the Court's inherent power; (v) Mr.
Adams' conduct warrants sanctions pursuant to 28 U.S.C.
§ 1927; and (vi) the Court should report Mr. Adams'
conduct to the grievance committee.
Shaw Family bases its request for sanctions on the following
instances of misconduct,  which occurred throughout the pendency
of this case and over the course of nine discovery
conferences before the undersigned, often ranging from two to
three hours each: (i) Mr. Adams and Plaintiff Susan Shaw
failed to preserve relevant material on the Computer, which
now requires a forensic examination; (ii) Mr. Adams failed to
comply with Court Orders relating to the production of the
Computer; (iii) Mr. Adams failed to comply with the
Court's April 15, 2015, December 23, 2015, April 19,
2016, May 19, 2016, and July 28, 2016 Discovery Orders; (iv)
Mr. Adams invited a third party to eavesdrop on the January
7, 2016 telephonic meet-and-confer, which included sensitive
and confidential information; and (v) Mr. Adams behaved
unprofessionally and disrespected opposing counsel and the
Court at hearings before the undersigned.
Cost-Shifting Pursuant to Zubulake
26(b) of the Federal Rules of Civil Procedure states that
parties may "obtain discovery regarding any matter, not
privileged, that is relevant to the claim or defense of any
party, " except where, inter alia, "the
burden or expense of the proposed discovery outweighs its
likely benefit, taking into account the needs of the case,
the amount in controversy, the parties' resources, the
importance of the issues at stake in the litigation, and the
importance of the proposed discovery in resolving the
issues." Fed.R.Civ.P. 26(b).
is a presumption that "the responding party must bear
the expense of complying with discovery requests."
Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358
(1978). However, pursuant to the Federal Rules of Civil
Procedure Rule 26(c) ("Rule 26(c)"), a district
court may issue an order protecting the responding party from
undue burden or expense by "conditioning discovery on
the requesting party's payment of the costs of
discovery." Oppenheimer, 437 U.S. at 358;
see Zubulake v. UBS Warburg LLC, 216 F.R.D. 280, 283
(S.D.N.Y. 2003) (''Zubulake
III'). Such an order may be granted only on the
motion of the responding party and "for good cause
shown." Fed.R.Civ.P. 26(c). Further, "the
responding party has the burden of proof on a motion for
cost-shifting." Zubulake III, 216 F.R.D. at
Zubulake v. UBS Warburg LLC, the court set forth an
analytical framework for determining whether it is
appropriate to shift the costs of electronic discovery. 217
F.R.D. 309, 322 (S.D.N.Y. 2003) ("Zubulake
I"). In that case, the plaintiff claimed that key
evidence was located in e-mails that were contained only in
backup tapes and sought an order compelling the defendant,
UBS Warburg LLC ("UBS"), to produce the e-mails at
its own expense. Id. at 311-312. After UBS was
ordered to produce the e-mails, the Zubulake I court
considered whether cost-shifting was appropriate.
Id. at 317.
initial matter, the Zubulake I court stated that
"cost-shifting should be considered only when electronic
discovery imposes an 'undue burden or expense' on the
responding party." Id. at 318 (emphasis
omitted) (quoting Fed.R.Civ.P. 26(c)). "[W]hether
production of documents is unduly burdensome or expensive
turns primarily on whether it is kept in an accessible or
inaccessible format (a distinction that corresponds closely
to the expense of production)." Id. at 318
(emphasis omitted). "Accessible" data is stored in
a readily usable format that "does not need to be
restored or otherwise manipulated to be usable."
Id. at 320. On the other hand, data that is
"inaccessible" is not readily usable and must be
restored to an accessible state before the data is usable.
Id. at 320.
responding party is producing data from inaccessible sources,
the Zubulake I court identified seven factors to be
considered in determining whether shifting the cost of
production is appropriate: (i) the extent to which the
request is specifically tailored to discover relevant
information; (ii) the availability of such information from
other sources; (iii) the total costs of production, compared
to the amount in controversy; (iv) the total costs of
production, compared to the resources available to each
party; (v) the relative ability of each party to control
costs and its incentive to do so; (vi) the importance of the
issues at stake in the litigation; and (vii) the relative
benefits to the parties of obtaining the information.
Id. at 322. The Zubulake I court weighed
the factors, with the first being the most important
consideration and the seventh being the least. Id.
Sanctions Pursuant to Rule 16
authorizes a court to order sanctions if an attorney
"fails to appear at a scheduling or other pretrial
conference" or "fails to obey a scheduling or other
pretrial order." Fed.R.Civ.P. 16(f)(1). Specifically, it
provides that the court "must order the [violating]
party, its attorney, or both to pay reasonable
expenses-including attorney's fees-incurred because of
any noncompliance with this rule, unless the noncompliance
was substantially justified or other circumstances make an
award unjust." Fed.R.Civ.P. 16(f)(2). "In deciding
whether a sanction is merited, the court need not find that a
party acted in bad faith. The fact that a pretrial order was
violated is sufficient to allow some sanction." Charles
Alan Wright, Arthur R. Miller, Mary Kay Kane & Richard L.
Marcus, 6A Federal Practice and Procedure § 1531 (3d ed.
2010) (footnote omitted). The imposition of sanctions
pursuant to Rule 16 is within the sound discretion of the
court. See Neufetd v. Neufeld, 172F.R.D. 115, 118
(S.D.N.Y. 1997); Mahoney v. Yamaha Motor Corp.
U.S.A., 290 F.R.D. 363, 366-367 (E.D.N.Y. 2013). The
sanctions provided by Rule 16(f) are the same as those
provided by Rule 37(b)(2)(B), (C) and (D). See Burgie v.
Euro Brokers, Inc., No. 05 Civ. 968 (CPS)(KAM), 2006 WL
845400, at *10 (E.D.N.Y. Mar. 30, 2006). In determining
whether sanctions pursuant to Rule 16(f) are appropriate,
courts apply the same standards developed with respect to
Rule 37(b)(2) sanctions. See Fed. R. Civ. P. 16
Advisory Committee Notes, 1983 Amendment ("Rule 16(f)
incorporates portions of Rule 37(b)(2), which prescribes
sanctions for failing to make discovery. This should
facilitate application of Rule 16(f), since courts and
lawyers already are familiar with the Rule 37
standards."); see also infra Part II.C.
to Rule 16(f)(2), both a party and its counsel may be held
liable for the expenses, including attorneys' fees and
costs, resulting from the violation of either a scheduling
order or Rule 26(a). Rule 16(f)(2) mandates the award of
attorneys' fees for an unjustified violation of a
scheduling or pretrial order: "[i]nstead of or in
addition to any other sanction, the court must order
the [violating] party, its attorney, or both to pay the
reasonable expenses- including attorney's fees-incurred
because of any noncompliance with this rule, unless the
noncompliance was substantially justified or other
circumstances make an award of expenses unjust."
Fed.R.Civ.P. 16(f)(2) (emphasis added). Rule 16(f) also
authorizes the Court to impose sanctions such as striking a
party's pleadings. See N. Am. Karaoke-Works Trade Ass
'n, Inc. v. Entral Grp. Int'l, LLC, No, 06 Civ.
5158 (LTS)(MHD), 2007 WL 844689, at *3 (S.D.N.Y. Mar. 16,
Sanctions Pursuant to Rule 37
sets forth the Court's procedures for enforcing discovery
and sanctioning misconduct. Where "a party .. . fails to
obey an order to provide or permit discovery ... the court
where the action is pending may issue further just
orders." Fed.R.Civ.P. 37(b)(2)(A). Such orders may
include: (i) directing that matters in the litigation be
taken as established by the prevailing party; (ii)
prohibiting the sanctioned party horn supporting or opposing
claims or defenses or from introducing evidence; (iii)
striking pleadings in whole or in part; (iv) staying further
proceedings until the order is obeyed; (v) dismissing the
action or proceeding; (vi) entering a default judgment
against the disobedient party; or (vii) treating as contempt
of court the failure to obey any order except an order to
submit to a physical or mental examination. Fed.R.Civ.P.
37(b)(2)(A); see also Daval Steel Products, a Division of
Francosteel Corp. v. M/V Fakredine, 951 F.2d 1357, 1365
(2d Cir. 1991) ("When a party seeks to frustrate
[discovery] by disobeying discovery orders, thereby
preventing disclosure of facts essential to an adjudication
on the merits, severe sanctions are appropriate.").
Reasonable expenses, including attorneys' fees, also may
be awarded against the party and/or the attorney failing to
act, unless a court finds that the failure "was
substantially justified, or that other circumstances make an
award of expenses unjust." Fed.R.Civ.P. 37(b)(2)(C).
factors are relevant to a district court's exercise of
its broad discretion to order sanctions under Rule 37,
including: (i) the willfulness of the non-compliant party or
the reason for the noncompliance; (ii) the efficacy of lesser
sanctions; (iii) the duration of the period of noncompliance;
and (iv) whether the non-compliant party had been warned of
the consequences of his non-compliance. See Bambu Sales,
Inc. v. Ozak Trading Inc., 58 F.3d 849, 852-54 (2d Cir.
1995), In addition, an award of sanctions under Rule 37
should effectuate its three purposes: (i) obtaining
compliance with discovery orders; (ii) ensuring the
disobedient party does not benefit from non-compliance; and
(iii) providing a general deterrent in the particular case
and litigation in general. See National Hockey League v.
Metropolitan Hockey Club, Inc., 427 U.S. 639, 643
(1976); International Mining Co., Inc. v. Allen &
Co., Inc., 567 F.Supp. 777, 788 (S.D.N.Y. 1983), A court
may consider the full record in the case in order to select
the appropriate sanction. See Diapulse Corp. of America
v. Curtis Pub. Co., 374 F.2d 442, 447 (2d Cir. 1967).
sanctions of striking pleadings and dismissal are the most
extreme sanctions available. See National Hockey
League, 427 U.S. at 643. Dismissal is appropriate
"only where the noncompliance is due to willfulness, bad
faith, fault or gross negligence rather than inability to
comply or mere oversight." Hochberg v. Howlett,
No. 92 Civ. 1822, 1994 WL 174337, at *3 (S.D.N.Y.May 3, 1994)
(citing Societe Internationale Pour Participations
Industrielles Et Commerdales, S.A. v. Rogers, 357 U.S.
197, 212 (1958) and Cine Forty-Second Street Theatre
Corp. v. Allied Artists Pictures Corp.,602 F.2d 1062,
1068 (2d Cir, 1979)). Non-compliance may be deemed willful
"when the court's orders have been clear, when the
party has understood them, and when the party's
non-compliance is not due to factors beyond the party's
control." Abreu v. City of N.Y., 208 F.R.D.
526, 530 (S.D.N.Y. 2002). In addition, "a ...