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Estate of Shaw v. Marcus

United States District Court, S.D. New York

March 1, 2017

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,
v.
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,
v.
THE ESTATE OF LARRY SHAW, SUSAN SHAW and JAKOB SHAW, Defendants, SHAW FAMILY ARCHIVES, LTD., As a Nominal Defendant.

          OPINION AND ORDER

          JUDITH C. MCCARTHY UNITED STATES MAGISTRATE JUDGE.

         With 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.[1]

         On May 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 No.[2] 275). Plaintiff filed its opposition on May 23, 2016 and May 24, 2016. (Docket Nos. 300, 301).

         The 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 submitted.[3]

         For the reasons set forth below, the Sanctions Motion and the Omnibus Sanctions Motion are granted in part and denied in part.

         I. BASES FOR SANCTIONS

         By way 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.

         The Shaw Family bases its request for sanctions on the following instances of misconduct, [4] 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.

         II. APPLICABLE LAW

         A. Cost-Shifting Pursuant to Zubulake

         Rule 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).

         There 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').[5] 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 283.

         In 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.

         As an 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.

         If the 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. at 323.

         B. Sanctions Pursuant to Rule 16

         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.

         Pursuant 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, 2007).

         C. Sanctions Pursuant to Rule 37

         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).

         Numerous 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).

         The 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 ...


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