Residential Funding Corp. v. Degeorge Financial
| Decision Date | 26 September 2002 |
| Docket Number | No. 01-9282.,01-9282. |
| Citation | 306 F.3d 99 |
| Parties | RESIDENTIAL FUNDING CORPORATION, Plaintiff-Appellee, v. DeGEORGE FINANCIAL CORP., DeGeorge Home Alliance, Inc. and DeGeorge Capital Corp, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Jonathan Ross, Erica W. Harris (Susman Godfrey, L.L.P., Houston, TX), for Defendants-Appellants.
Jeffrey A. Hall, Philip S. Beck, Steven E. Derringer, Rebecca L. Weinstein (Bartlit Beck Herman Palenchar & Scott, Chicago, IL); Joshua W. Cohen (Cummings & Lockwood, Stamford, CT), for Plaintiff-Appellee.
Before JACOBS, CABRANES, and F.I. PARKER, Circuit Judges.
We consider here the standard district courts should employ in determining whether a party's failure to comply with discovery requests warrants the imposition of sanctions.
DeGeorge Financial Corp., DeGeorge Home Alliance, Inc., and DeGeorge Capital Corp. (collectively, "DeGeorge") appeal from a final judgment in favor of Residential Funding Corporation ("RFC") entered by the United States District Court for the District of Connecticut (Janet Bond Arterton, Judge) after a jury trial on cross-claims for breach of contract. On appeal, DeGeorge challenges only the District Court's denial of its motion for sanctions—in the form of an adverse inference instruction—for RFC's failure to produce certain e-mails in time for trial. The District Court denied the motion based on its finding that the delay in producing the e-mails was not caused by an action of RFC that was taken in bad faith or with gross negligence and its finding that DeGeorge had not shown that the missing e-mails would be favorable to its case.
We hold that (1) where, as here, the nature of the alleged breach of a discovery obligation is the non-production of evidence, a District Court has broad discretion in fashioning an appropriate sanction, including the discretion to delay the start of a trial (at the expense of the party that breached its obligation), to declare a mistrial if trial has already commenced, or to proceed with a trial with an adverse inference instruction; (2) discovery sanctions, including an adverse inference instruction, may be imposed where a party has breached a discovery obligation not only through bad faith or gross negligence, but also through ordinary negligence; (3) a judge's finding that a party acted with gross negligence or in bad faith with respect to discovery obligations is ordinarily sufficient to support a finding that the missing or destroyed evidence would have been harmful to that party, even if the destruction or unavailability of the evidence was not caused by the acts constituting bad faith or gross negligence; and (4) in the instant case, the District Court applied the wrong standard in deciding DeGeorge's motion for sanctions.
Accordingly, we vacate the order of the District Court denying DeGeorge's motion for sanctions and remand with instructions for a renewed hearing on discovery sanctions.
This litigation involved cross-claims for, inter alia, breach of contract, with the parties' dispute centered principally on events in the latter part of 1998. RFC initiated the case by filing suit on January 15, 1999, in Minnesota state court. DeGeorge counterclaimed on February 11, 1999.
On May 7, 1999, DeGeorge filed a petition for bankruptcy in the United States Bankruptcy Court in the District of Delaware. The bankruptcy proceeding was subsequently transferred to the District of Connecticut.
After the bankruptcy filing, RFC removed the Minnesota state court action to the United States District Court for the District of Minnesota. On January 14, 2000, that Court transferred the case, on the parties' joint request, to the District of Connecticut.
On April 7, 2000, RFC moved to refer the case to the bankruptcy court, and, on July 21, 2000, it moved to stay discovery. After an extended briefing period, the District Court denied both motions on December 27, 2000.
On January 4, 2001, the parties held a discovery planning conference pursuant to Rules 16(b) and 26(f) of the Federal Rules of Civil Procedure and Rule 38 of the Local Rules of the District of Connecticut. Report of Parties' Planning Meeting dated January 5, 2001, at 1. At that meeting, the parties agreed that discovery would commence "immediately" and be completed by August 1, 2001, and that the case would be ready for trial by September 1, 2001. Id. at 10-11. On January 19, 2001, the District Court entered a scheduling order reflecting the parties' agreed-upon discovery schedule. Scheduling Order on Counterclaim dated January 19, 2001, at 1.
On April 12, 2001, DeGeorge served its document discovery requests, which included a request for all documents, including electronic mail, relating to DeGeorge. RFC responded to DeGeorge's document requests on May 22, 2001, and asserted no objection to the request for e-mail.
During the first week of June 2001, the parties agreed that they would "work diligently to obtain hard copies of emails that were in computer form so that [they] could have a mutual production of emails." E Mail from Attorney E. Harris to Attorney R. Weinstein re: Production of Emails, dated June 8, 2001. On June 8, 2001, RFC told DeGeorge that it was "in the process of retrieving e-mails from the back-up tapes" and that "[it] would let [DeGeorge] know when it had an estimate on a production date for the e-mails that are being retrieved off of the storage tapes." E-mail from R. Weinstein to E. Harris re: Production of Emails, dated June 8, 2001.
In mid-June 2001, after RFC's in-house lawyer responsible for technology issues determined that "RFC did not have the internal resources necessary to retrieve [the e-mails from the back-up tapes] in the permitted time frame," Decl. of Michael McGuire, dated Sept. 19, 2001, ¶ 3, RFC retained Electronic Evidence Discovery, Inc. ("EED") to assist RFC in the e-mail retrieval project. Id. ¶¶ 3-4.
In early July 2001, RFC informed DeGeorge that it had been unable to retrieve any emails from its back-up tapes. DeGeorge requested copies of the back-up tapes so that it could have its technical experts attempt to retrieve e-mails from them, and indicated its willingness to enter into any requested confidentiality agreement. E-mail from E. Harris to R. Weinstein re: Refusal to produce back up tapes, dated July 10, 2001. RFC refused to produce the back-up tapes, prompting DeGeorge to raise the issue with the District Court. See id.
On July 12, 2001, at a settlement conference before Magistrate Judge Joan G. Margolis, DeGeorge raised the issue of RFC's refusal to produce e-mails or backup tapes. The parties agree that RFC told Magistrate Judge Margolis that it "was going to engage a vendor" to retrieve the emails. See RFC Memorandum Opposing Mot. for Sanctions at 2-3; DeGeorge Mot. for Sanctions at 3 (); Appellants Br. at 3 (same).1 The parties understood at the July 12, 2001 conference that RFC would produce e-mails with the assistance of a vendor.
On or about July 25, 2001, EED apparently informed counsel for RFC that it would take "a couple of weeks" for it to print out the e-mails and transmit them to counsel for review. See Tr. of Telephone Conf. of August 15, 2001, at 27. RFC, in turn, informed DeGeorge that day that it would begin producing responsive e-mails on a rolling basis starting on August 6, 2001. E-mail from R. Weinstein to E. Harris re: Emails, dated July 25, 2001. It represented that the e-mails would take "a few weeks" to produce. Id. At this point, discovery was set to close on August 1, 2001, with jury selection to begin on September 5, 2001. Supplemental Scheduling Order, dated July 18, 2001.
RFC did not begin producing e-mails on August 6, 2001, as it had promised. Instead, it informed DeGeorge on August 9, 2001, that it was continuing work on the production of e-mails and that "[s]o far[,] most [of the e-mail printouts it had received from EED are] completely unrelated to the case." E-mail from R. Weinstein to J. Ross re: PRD boxes, dated August 9, 2001.
By August 15, 2001, DeGeorge still had not received any production of e-mails from RFC. Accordingly, it raised the matter in a conference call with Judge Arterton on that date. See Tr. of Telephone Conf., dated August 15, 2001, at 24. RFC informed Judge Arterton that it had encountered technical difficulties, but that it expected to complete production "in the next couple of weeks." Id. at 25. Judge Arterton ordered that production of the e-mails be completed by August 20, 2001. Id. at 27.
RFC did not produce a single e-mail between August 15 and August 20, 2001. Instead, it informed DeGeorge on August 21, 2001, that EED was just beginning to print out e-mails due to additional "technical problems" and that responsive e-mails would be forthcoming "over the next couple of days." E-mail from R. Weinstein to E. Harris re: Back-up tape e-mail, dated August 21, 2001.
On August 24, 2001, RFC produced 126 e-mails dating from January 1998 through early August 1998, and 2 e-mails from September 1998. There were no e-mails produced from October to December 1998—the critical factual time period.
DeGeorge immediately inquired as to the reason there were no e-mails from the end of 1998. E Mail from E. Harris to J. Hall et al. re: Emails produced from Back Up Tapes, dated August 24, 2001 at 11:57 a.m.; see also E Mail from E. Harris to R. Weinstein et al. re: Emails produced from Back Up Tapes, dated August 24, 2001 at 4:45 p.m. RFC responded that "[i]f there were no responsive e-mails for 10/98-12/98... it was either because there were no responsive e-mails from that date or because they did not exist on the accessible back-up tapes." E-mail from R. Weinstein to E. Harris et al. re: Emails produced...
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