Smith & Fuller, P.A. v. Cooper Tire & Rubber Co.

• Decision Date: 21 June 2012
• Docket Number: No. 11–20557.,11–20557.
• Citation: 82 Fed.R.Serv.3d 1399,685 F.3d 486
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: SMITH & FULLER, P.A.; Hugh N. Smith, Appellants, v. COOPER TIRE & RUBBER COMPANY, A Delaware Corporation, Defendant–Appellee.

685 F.3d 486

82 Fed.R.Serv.3d 1399

SMITH & FULLER, P.A.; Hugh N. Smith, Appellants,

v.COOPER TIRE & RUBBER COMPANY, A Delaware Corporation, Defendant–Appellee.

No. 11–20557.

United States Court of Appeals,Fifth Circuit.

June 21, 2012.

Hugh N. Smith (argued), Smith & Fuller, P.A., Bellair Bluffs, FL, for Appellants.

Thomas Christopher Trent (argued), Johnson, Trent, West & Taylor, L.L.P., Houston, TX, Joseph P. Thacker, Thacker Martinsek, L.P.A., Perrysburg, OH, for Defendant–Appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before REAVLEY, PRADO and OWEN, Circuit Judges.

REAVLEY, Circuit Judge:

The law firm of Smith & Fuller, P.A. and Attorney Hugh N. Smith appeal from the district court's award of sanctions in favor of the Appellee because the Appellants violated the court's protective order. The district court imposed the sanctions pursuant to Fed.R.Civ.P. 37(b). Appellants contend that the district court lacked authority to impose sanctions and that the fees and expenses sought by the appellee were unreasonable. We AFFIRM.

I. Factual Background

In the underlying action in this case, Appellants Smith & Fuller, P.A. and Hugh N. Smith represented the Trenado family in a products liability suit against Appellee Cooper Tire & Rubber Company. That case resulted in a jury verdict in favor of Cooper in September 2010. Prior to trial, the district court entered an Amended Protective Order of Confidentiality pursuant to Fed.R.Civ.P. 26(c) to protect Cooper's trade secrets and confidential information produced during discovery. The Protective Order strictly limited access of protected information to “authorized persons, solely in the performance of their duties in connection with the trial preparation of this case.” Smith and his law firm do not dispute that they violated this Protective Order.

In August 2010, Smith and his firm inadvertently disseminated Cooper's trade secrets and confidential information to a number of personal injury lawyers during a conference sponsored by Attorneys Information Exchange Group, Inc. about obtaining discovery from Cooper.¹ The release of the confidential information occurred when someone from Smith's firm mistakenly copied it onto compact discs that were then distributed to the attorneys attending the conference. Cooper discovered the violation when its counsel in this case received documents from a plaintiff's attorney in an unrelated suit against Cooper. Many of those documents were marked with Trenado Bates numbers and had been deemed confidential.

On September 2, 2010, the district court entered an order on Cooper's Motion to Enforce Protective Order, which stated that “[i]t is clear that the court's Protective Order has been violated.” The court ordered Smith and his firm to take immediate action to enforce the Protective Order and to correct the violation. The court reserved its ruling on Cooper's motion for sanctions.

Following trial, the district court held that Smith and his firm did not willfully violate the Protective Order. It determined, however, that sanctions should be imposed for several reasons. The court recognized that Cooper had sought a strongly worded protective order and had vigorously moved for its enforcement. Smith understood the importance of complying with the order inasmuch as Cooper'sproduction of confidential documents was made in reliance upon the protections given by the court; yet, Smith allowed dissemination of the protected information to personal injury lawyers who sue Cooper and other tire manufacturers. As a result, Cooper incurred attorneys' fees and expenses in its effort to identify the violation and to enforce the Protective Order. The court also noted that Smith had previously violated a similar protective order.² The district court held that sanctions were appropriate in order to deter future violations of protective orders and to reflect the seriousness of such orders.

Pursuant to Fed.R.Civ.P. 37(b)(2)(C), the court ordered Appellants to reimburse Cooper for the attorneys' fees and expenses connected to Appellants' violation of the Protective Order. The court ordered Cooper to submit affidavits setting forth the services for which it sought reimbursement, including time expended, reasonable hourly rates sought, and proof of expenses incurred. After reviewing Cooper's submission, the court ordered Appellants to pay Cooper $29,667.71 in fees and expenses. Appellants now appeal.

II. Standard of Review

A district court's imposition of sanctions pursuant to Rule 37(b) is reviewed for an abuse of discretion. O'Neill v. AGWI Lines, 74 F.3d 93, 95 (5th Cir.1996). “The district court's underlying findings of fact are reviewed for clear error and its underlying conclusions of law reviewed de novo.” Am. Airlines, Inc. v. Allied Pilots Ass'n, 228 F.3d 574, 578 (5th Cir.2000).

III. Discussion

A. Application of Rule 37(b)(2) Sanctions to the Violation of a Rule 26(c) Protective Order

As noted above, the district court provided several reasons for its determination that sanctions were proper. The Appellants contend that the violation of the Protective Order was inadvertent and that the court erred by imposing sanctions. They further argue that the district court's remedial powers were limited to the “Inadvertent Disclosure” provision of the Protective Order.

“Fed.R.Civ.P. 37(b) empowers the courts to impose sanctions for failures to obey discovery orders. In addition to a broad range of sanctions, including contempt, Fed.R.Civ.P. 37(b)(2) authorizes the court to impose a concurrent sanction of reasonable expenses, including attorney's fees, caused by the failure to obey a discovery order.” Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, 784 (9th Cir.1983). The district court “has broad discretion under Rule 37(b) to fashion remedies suited to the misconduct.” Pressey v. Patterson, 898 F.2d 1018, 1021 (5th Cir.1990). This discretion, however, is limited. “[U]sually, ... a finding of bad faith or willful misconduct [is required] to support the severest remedies under Rule 37(b)—striking pleadings or dismissal of a case.” Id. at 1021. Lesser sanctions do not require a finding of willfulness. See Chilcutt v. United States, 4 F.3d 1313, 1323 n. 23 (5th Cir.1993) (stating that district courts “have authority to grant a broad spectrum of sanctions” under Rule 37(b), and “neither this Court nor the Supreme Court has ever determined that the lack of willful, contumacious, or prolonged misconduct prohibits all sanctions”). Having found no willful misconduct, the district court here imposed one of the least severe sanctions under its authority. See id. at 1320 n. 17.

Appellants cite the Eleventh Circuit's decision in Lipscher v. LRP Publ'ns, Inc., 266 F.3d 1305 (11th Cir.2001), to argue that the district court lacks authority to impose Rule 37(b) sanctions for violation of Fed.R.Civ.P. 26(c) protective orders. The Lipscher court reasoned that Rule 37(b)(2) does not mention Rule 26(c) protective orders and that the rule applies only when “a party ‘fails to obey an order to provide or permit discovery ....’ ” Id. at 1323 (quoting Rule 37(b)(2)). The court held that “a Rule 26(c) protective order is not ‘an order to provide or permit discovery,’ and therefore, such orders do not fall within the scope of Rule 37(b)(2).” Id. (citations omitted).

The Eleventh Circuit's narrow application of Rule 37(b) has been questioned by several courts.³ Indeed, the effect of the Rule was broadened when it was amended in 1970.⁴ The Advisory Committee Notes to the amendments have been oft cited by courts when imposing Rule 37 sanctions. See, e.g., Westinghouse Elec. Corp. v. Newman & Holtzinger, P.C., 992 F.2d 932, 934–35 (9th Cir.1993); Poliquin v. Garden Way, Inc., 154 F.R.D. 29, 31 (D.Me.1994). There is thus significant authority in support of the imposition of Rule 37(b) sanctions for violation of Rule 26(c) protective orders. See Falstaff Brewing Corp., 702 F.2d at 784 (holding that Rule 37(b)(2) authorizes the court to impose sanctions for disobeying a discovery order); United States v. Nat'l Med. Enters., Inc., 792 F.2d 906, 911 (9th Cir.1986) (upholding the court's grant of sanctions under Rule 37(b) for violation of a protective order); Poliquin, 154 F.R.D. at 31–33 (imposing sanctions of attorney's fees and costs pursuant to Rule 37(b) for violations of a protective order).

Even under Lipscher's narrow reading of Rule 37(b), however, the district court here concluded that its Protective Order in this case was an “order to provide or permit discovery” as the phrase is used in Rule 37(b)(2). We agree. The Protective Order in this case: “govern[ed] confidential material produced or disclosed by these Defendants or Plaintiff[s] in response to formal or informal discovery conducted in this matter” (¶ 3); allowed each party to designate as confidential material “all or any portions of documents, things and information it produces formally or informally to the other parties to this litigation” (¶ 4); addressed the “inadvertent [or] unintentional ... production of any confidential material” (¶¶ 5, 13); included procedures for objecting to the designation of material produced as confidential (¶ 6); limited access to confidential material (¶ 7); contained a provision to address confidential materials when “any subpoenas, requests for production, or any other forms of discovery ... are served on any party to this Protective Order” (¶ 10); and included provisions regulating the storage, use in depositions, and the return of confidential material (¶ ¶ 9, 12, 15).

In our view, by prescribing the method and terms of the discovery of confidential material, the Protective Order was granted “to provide or permit discovery” of confidential documents within the meaning of Rule 37(b). SeeFed.R.Civ.P. 37(b)(2)(A). Indeed, no one disputes that Cooper produced thousands of pages of trade secrets or confidential information in...