Motion for Sanctions Denied in Part After Court Found That Ten Circuit’s Factors Did Not Weigh in Favor of Awarding Sanctions in the Form of Entry of Factual Findings

11 Feb 2023

In UNITED STATES OF AMERICA, EX REL. MARGARARET MCGUINN v. THE J.L. GRAY COMPANY, ET. AL., No. 2:20-cv-31 KG/KRS (D. New Mexico, July 27, 2022), before the Court was Plaintiff’s Motion for Sanctions.

Plaintiff alleged that Defendants made false claims to secure funding from the U.S. Department of Agriculture Rural Development program (“USDA/RD”). Specifically, Plaintiff claimed that Defendants violated the False Claims Act by falsely certifying that they were in compliance with Section 504 of the Rehabilitation Act, the Fair Housing Act, and the Americans with Disabilities Act, in order to receive funding for the construction of apartment buildings and for rental subsidies.

On March 24, 2022, the Court granted Plaintiff’s Motion to Compel and ordered Defendants to provide responses to Plaintiff’s discovery requests by April 8, 2022. In her Motion for Sanctions, Plaintiff stated that as of April 8, she had only received partial document productions from Defendant which amounted to 825 documents.

Plaintiff stated she and Defendants agreed to an extension to May 9, 2022, for Defendants to fully comply with the Court Order. Plaintiff also requested that Defendants re-produce all documents with bates stamps. The parties agreed to a further extension to May 16, 2022, and filed an unopposed motion to extend the pretrial deadlines.

Plaintiff stated that Defendants’ document productions on May 13, 16, and 19 did not conform with the parties’ protocol for production of electronically stored information, in that Defendants produced single PDF files with thousands of pages and no metadata.

As of June 6, 2022, the date Plaintiff filed her Motion for Sanctions, Defendants had not produced the documents in an acceptable format and Plaintiff moved for sanctions asking for a daily fine until the document production was complete, costs and fees for having to bring the motion, and entry of six factual findings.

In response, Defendants explained that they had been using a rolling production in order to get documents to Plaintiff more quickly and pointed to documents produced on March 11, March 21, March 25, April 1, April 7, April 8, May 4, May 13, May 13, and May 20, 2022.

Defendants also stated they re-did the first production by retaining an outside e-discovery vendor to make electronic conversations from PDF files and to bates number the then-converted files. Defendants also argued that the initial production in PDF format was in any case still accessible and reviewable.

Defendants stated their retained vendor had expedited the productions which was completed on June 9, 13, and 14, and that they produced more than 28,000 documents.

A quality control check and supplementation were underway at the time Defendants filed their response brief, and Defendants stated they had not withheld any documents on any basis, including privilege. Defendants argued that sanctions were not warranted, except for reasonable fees and costs associated with the Motion for Sanctions. Defendants contended the circumstances here were not sufficiently egregious for entry of factual findings, especially because Plaintiff had been able to plead and litigate her case despite the discovery delays.

In her reply, Plaintiff argued that factual findings were warranted because the findings Plaintiff sought were not dispositive of all the elements of Plaintiff’s claims or all the properties at issue. Plaintiff furthered argued that she had been prejudiced by Defendants’ delays because she had less time to review the documents and assess her claims.

The Federal Rules of Civil Procedure authorize a district court to impose sanctions, including the imposition of an adverse judgment, for a party’s failure to comply with court orders and discovery requirements set by local and federal rules.

Specifically, Rule 37(b) provides that, if a party “fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a),” the Court may impose sanctions including the following: “(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims; (ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; (iv) staying further proceedings until the order is obeyed; (v) dismissing the action or proceeding in whole or in part; (vi) rendering 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.”

In Ehrenhaus v. Reynolds, the Tenth Circuit identified five factors that a district court should consider in deciding whether to exercise its discretion to enter sanctions under Rule 37(b)(2): “(1) the degree of actual prejudice caused by the disobedient party; (2) the amount of interference with the judicial process; (3) the culpability of the party against whom sanctions are sought; (4) whether the court warned the party in advance that a default judgment would be a likely sanction for non-compliance; and (5) the efficacy of lesser sanctions.” 965 F.2d 916, 921 (10th Cir. 1992). Ultimately, “the chosen sanction must be both just and related to the particular claim which was at issue in the order to provide discovery.” 965 F.2d at 920.

Here, the Court found that the Ehrenhaus factors did not weigh in favor of awarding sanctions in the form of entry of factual findings.

First, while Defendants’ delays in producing documents affected the deadlines in the case, those deadlines were extended to accommodate Defendant’s document production and Plaintiff did not explain with any specificity how she was prejudiced by the delay. The discovery deadline was extended to Oct. 3, 2022, and no trial had been set. Plaintiff stated the delays in production affected her ability to evaluate the case for settlement, but the settlement conference was set for Sept. 27, 2022, and Plaintiff did not ask for it to be postponed. Absent specific allegation of how she was prejudiced, the Ehrenhaus factor did not weigh in favor of entering factual findings.

Second, the production delays did not significantly interfere with the judicial process as the parties only sought one extension of their pretrial deadlines and the delays did not interfere with a trial setting or the settlement conference date.

Third, Defendants’ culpability was not sufficient to warrant entry of factual findings. While the Court was sympathetic to Plaintiff’s argument that Defendants missed the Court’s deadline to complete document production as well as multiple extensions that Plaintiff agreed to, the Court nevertheless found that Defendants’ culpability was lessened by their efforts to fully comply with the Court Order by providing a rolling production to get documents to Plaintiff more quickly, and by hiring a vendor for electronic conversations and bates numbering.

Plaintiff also did not allege the document production was still incomplete, and Defendants stated they were doing a quality control check and supplementation as of the date they filed their response for Motion for Sanctions. The Court found that Defendants’ actions sufficiently lessened their culpability, especially given the large number of documents they have produced.

Finally, the fourth and fifth factors did not weigh in favor of factual entry of factual findings because the Court had not warned Defendants of the likelihood of this sanction, and the Court found that a lesser sanction may be effective.

For these reasons, the Court found that the Ehrenhaus factors did not weigh in favor of entry of factual findings at this time. The cases Plaintiff relied on where factual findings were entered as sanctions do not mandate a different outcome. In those cases, the parties sought discrete factual findings that were linked to the discovery that was not produced, whereas here Plaintiff sought broad findings covering 35 different properties.

Therefore, the Court denied Plaintiff’s Motion for Sanctions as to Plaintiff’s request for entry of factual findings. Because it appeared Defendants produced all relevant documents, subject to quality control and supplementation, the Court also denied Plaintiff’s request for sanctions in the form of a daily fine.

To the extent additional relief may be warranted in the future, the Court denied Plaintiff’s request for entry of factual findings and a daily fine without prejudice. However, the Court did grant Plaintiff’s request for sanctions as to her reasonable fees and costs associated with bringing the Motion for Sanctions.