Diaz v. Washington State Migrant Council

• Decision Date: 22 November 2011
• Docket Number: No. 29005–1–III.,29005–1–III.
• Citation: 165 Wash.App. 59,265 P.3d 956
• Court: Washington Court of Appeals
• Parties: Carlos DIAZ and Rosalinda Diaz, husband and wife, Respondents, v. WASHINGTON STATE MIGRANT COUNCIL, a Washington non-profit corporation, Appellant.

165 Wash.App. 59

265 P.3d 956

Carlos DIAZ and Rosalinda Diaz, husband and wife, Respondents,

v.WASHINGTON STATE MIGRANT COUNCIL, a Washington non-profit corporation, Appellant.

No. 29005–1–III.

Court of Appeals of Washington, Division 3.

Nov. 22, 2011.

Karen P. Kruse, Catharine M. Morisset, Jackson Lewis LLP, Seattle, WA, for Petitioner.

George Fearing, Attorney at Law, Kennewick, WA, for Respondents.

SIDDOWAY, J.

[165 Wash.App. 64] ¶ 1 This interlocutory appeal calls upon us to address a corporation's responsibility for responding to discovery when members of its board of directors refuse to provide relevant information because of concern for their individual exposure to criminal prosecution. The trial court correctly recognized that while the board members had the right, individually, to invoke their privilege against self-incrimination when deposed, a corporation enjoys no Fifth Amendment privilege.

¶ 2 Following oral argument and preparation of this opinion, the parties notified us that they had settled their disputes and requested dismissal of the appeal. Notwithstanding that the case is moot, we choose to review the discovery issues, which are likely to recur. ¹

¶ 3 We hold that when a party makes a proper discovery request for information relevant to its claims and a corporation fails to respond because corporate principals refuse to provide needed information, a court may order a response from the corporation and, if the corporate principals persist in withholding information, may impose the adverse consequence of the frustrated discovery on the corporation. An adverse inference is an appropriate remedy for the failure to permit discovery.

FACTS AND PROCEDURAL BACKGROUND

¶ 4 The Washington State Migrant Council is a nonprofit Washington corporation that provides educational services to children of low income, migrant, and seasonal farm workers in rural communities across the state. It receives much of its funding through grants from the federal government, particularly the federal Head Start program. At times relevant to this case it operated with an annual budget of $33 million. Its operations are overseen by a nine-member board of directors, which, consistent with federal requirements, includes parents whose children have participated in its Head Start programs. 42 U.S.C. § 9837(c)(1)(B)(iv).

¶ 5 In September 2007, the Yakima Herald–Republic reported that a Migrant Council board member and chair, had a social security number identical to that of a woman living in Spokane. The story questioned whether the board chair was legally in the United States. Carlos Diaz, who was employed by the Migrant Council as its executive director from 1983 until December 2007, claims that the board chair thereafter admitted to Mr. Diaz that he was an illegal immigrant. Mr. Diaz learned at about the same time that the Internal Revenue Service had notified Migrant Council personnel that social security numbers provided by some of the board's other members and used by the Migrant Council on Forms 1099 (reporting stipends and expense reimbursements) did not match federal records. Mr. Diaz claims that after consulting an attorney he concluded that the illegal immigration status of a board member could compromise the Migrant Council's future funding and pressed board members to provide proof of their legal status or, if not legally in the United States, that they resign.

¶ 6 The board discharged Mr. Diaz in December 2007. He filed this action challenging his discharge as invalid, given what he claims was the illegal constitution of the board; alternatively, he seeks damages for a discharge that he contends violated public policy. The Migrant Council claims that its board discharged Mr. Diaz for misconduct and poor performance.

¶ 7 Mr. Diaz served discovery on the Migrant Council seeking, among other information, the citizenship and immigration status of its board members. The Migrant Council objected to the discovery, principally on the bases that the discovery was not reasonably calculated to lead to the discovery of relevant evidence and that it should be foreclosed on grounds of prejudice to the board members.

[165 Wash.App. 67] ¶ 8 At issue are the following interrogatory and request for production:

INTERROGATORY NO. 20 : For each member of the board of directors, indicate: (1) the nation of his or her citizenship; and (2) whether the member was legally within the United States at the time of Carlos Diaz' termination from employment.

REQUEST FOR PRODUCTION NO. 8 : [Produce] [d]ocuments of citizenship for each member of the Board of Directors at the time of the termination of Carlos Diaz' employment.

Clerk's Papers (CP) at 1611, 1616. Mr. Diaz moved to compel responses. He conceded in moving to compel that the board members were free, individually, to assert their right against self-incrimination guaranteed by the Fifth Amendment to the United States Constitution. CP at 1595. The Migrant Council filed a cross motion for a protective order limiting discovery into citizenship and immigration status. It also sought confidential treatment for any such matters addressed in upcoming depositions of members of its board.

¶ 9 The trial court ordered that the discovery be answered. Although questioning any basis for Mr. Diaz's claim that illegal immigrants could not serve on the board of a Washington nonprofit corporation, it found that the information requested was relevant at a minimum to Mr. Diaz's claim that he was discharged in retaliation for insisting that board members illegally in the United States resign. The trial court also ruled that questioning on immigration status would be permitted at depositions of board members. It agreed to enter a protective order covering the immigration status information “on a tentative basis with the understanding that I will probably at some point lift it,” adding that if, “as [the] legal aspect of this case develops, if it's probative of the plaintiff's case, it's going to come out.” Report of Proceedings (RP) (Sept. 8, 2009) at 40.

¶ 10 Depositions of most board members were taken shortly thereafter. Several, represented by their own lawyers, invoked the Fifth Amendment in response to questions about their citizenship and residency. In a supplemental response to Interrogatory No. 20 following the order compelling discovery, the Migrant Council provided an answer as to one board member but identified other directors who declined to provide personal information concerning their citizenship or legal residency status. It incorporated by reference all deposition testimony of board members addressing these issues, including their invocation of the Fifth Amendment. It supplemented its response to Request for Production No. 8, stating that because board members were not employees it had never completed I–9 verification forms² for them and had no other responsive documents among its business records. It stated that board members had been asked, but declined, to provide the Migrant Council with personal “documents of citizenship.” CP at 1371–73.

¶ 11 Still not having received the requested information and documents, Mr. Diaz moved for an order of contempt. The remedy he requested was that the court strike the defendant's answer and grant judgment in his favor. At the hearing on this second motion, the trial court announced it likely would grant a default judgment in light of Mr. Diaz's inability to obtain answers to “critical questions in this case.” RP (Oct. 30, 2009) at 28–29. The court recognized the right of the board members to invoke the Fifth Amendment, but viewed it as having consequences for the Migrant Council. As explained by the court:

[LAWYER FOR MIGRANT COUNCIL:] ... The board members who have taken the 5th have a personal right to take the 5th concerning their immigration status.

THE COURT: Well, they have that right, but it's not without consequences.

[LAWYER FOR MIGRANT COUNCIL]: They are not parties as to their personal matters, though.

THE COURT: Right.

[LAWYER FOR MIGRANT COUNCIL]: So the Court has no power over them as to—

THE COURT: The question is it either has consequences for Mr. Diaz or consequences for the Washington Migrant Council. I don't think it has consequence for them, because they have a right to take it.

[LAWYER FOR MIGRANT COUNCIL]: Well, and how can it have consequences for the Migrant Council when we are precluded by the ethical rules of the legal profession to talking to these people who took the 5th in deposition about that matter, which is something they received personal immigration [counsel] about?

THE COURT: Well, because they're board members. That's why you have consequences.

Id. at 25. In response to the Migrant Council's lawyer's further protest that she tried to obtain information but was conflicted from providing board members with personal legal advice, the trial court reiterated that the problem was not with the Migrant Council's request, the other members of the board, or with the lawyers; rather, “The problem is that you lose a lawsuit if your board members take the 5th. That's what happens. How else can we litigate this issue?” Id. at 26. Ultimately, the trial court granted the Migrant Council's request for an additional several weeks to convey the prospect of a default to board members, to see if they would reconsider providing information.

¶ 12 At a third hearing scheduled for the Migrant Council to report back, its lawyers informed the court of board members who had now disclosed that they were not citizens of the United States, but invoked the Fifth Amendment rather than respond to questions whether they were lawfully in the country. They identified other board members who continued to invoke the Fifth Amendment in response to questions as to both their citizenship and their lawful presence in the United States. The Migrant Council responded to the remaining outstanding discovery. With several board members...