World Wide Polymers, Inc. v. Shinkong Synthetic Fibers Corp. , 694 F.3d 155 ( 2012 )

10-3476
World Wide v. Shinkong
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
____________________
August Term, 2012
(Argued: January 18, 2012 Decided: September 14, 2012)
Docket No. 10-3476
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WORLD WIDE POLYMERS, INC.,
Plaintiff-Counter-Defendant-Appellant,
v.
SHINKONG SYNTHETIC FIBERS CORPORATION,
Defendant-Counter-Claimant-Appellee.
____________________
Before: WALKER, LEVAL, and POOLER, Circuit Judges.
Appeal from orders of the United States District Court for the Southern District of New
York (Loretta A. Preska, C.J.) striking plaintiff’s expert report and claim for money damages
after plaintiff attempted to file its expert disclosures seven weeks late, and later granting
defendant summary judgment. Because we find plaintiff lacked (1) sufficient notice of such
severe consequences for late filing; (2) an opportunity to respond before being sanctioned; and
because we find the penalty far exceeded the transgression, we vacate and remand for further
proceedings consistent with this opinion.
Vacated and remanded in part, affirmed in part.
___________________
RICHARD DePALMA, Thompson Hine LLP (Joseph B. Koczko,
Jeanette Rodriguez-Morick, on the brief), New York, N.Y., for
Plaintiff-Counter-Defendant-Appellant World Wide Polymers, Inc.
TODD R. GEREMIA, Jones Day (Victoria Dorfman, Julie A.
Rosselot, on the brief), New York, N.Y., for Defendant-Counter-
Claimant-Appellee Shinkong Synthetic Fibers Corp.
POOLER, Circuit Judge:
World Wide Polymers, Inc. (“WWP”) sued Shinkong Synthetic Fibers Corp. in
November 2003 seeking damages and injunctive relief arising out of the failure of a joint venture
between the parties. After an initial flurry of activity, the case lay dormant for nearly three years
before discovery resumed. The United States District Court for the Southern District of New
York (Loretta A. Preska, C.J.) granted several requests to extend the discovery schedule, but in
granting the last one expressly stated “[n]o further extensions will be granted.” WWP proceeded
to file its expert disclosure in support of its request for damages seven weeks late without first
seeking an extension of time from the district court. Shinkong objected to the late filing and
asked the district court to strike the expert report and WWP’s claim for damages. The district
court granted Shinkong’s request. Because the district court acted without providing WWP with
(1) sufficient notice of such severe consequences for late filing; and (2) an opportunity to
respond before being sanctioned; and because we find the penalty imposed far outweighed the
transgression, we vacate and remand for further proceedings consistent with this opinion.
BACKGROUND
WWP is a New Jersey-based distributor of polyethylene terephthalate (“PET”), the
plastic
used for soft drink bottles. Shinkong is a Taiwan-based company that manufactures and supplies
PET.
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In May 1998, the parties entered into a customer protection agreement wherein Shinkong
agreed to sell its product only through WWP to customers that WWP independently developed
on Shinkong’s behalf, subject to Shinkong approving those customers. To be approved by
Shinkong, WWP was required to (1) provide Shinkong with the customer’s name; (2) make a
sale of Shinkong PET to the customer; (3) obtain the customer’s approval of the use of Shinkong
PET to make its plastic bottles (for example, Pepsi bottlers could only use Pepsi-approved PET
to make bottles for Pepsi products); and (4) obtain Shinkong’s approval. WWP alleges that it
held up its end of the bargain, finding customers and obtaining the necessary product
certification approvals, only to have Shinkong sell directly to the customers WWP lined up,
cutting WWP out of the sales process. The relationship between the parties ended in late 2001.
WWP filed its complaint on November 7, 2003, alleging breach of contract, breach of
fiduciary duty, tortious interference with business relations, and unfair and deceptive trade
practices. WWP sought retrospective damages, punitive damages and injunctive relief. The
original discovery schedule called for WWP to serve its expert witness report by February 28,
2005, with all expert discovery completed by April 29, 2005. Both deadlines went unmet. The
docket indicates the matter went virtually dormant between September 2004 and May 2007 until
revived by an inquiry from the district court. Discovery resumed, although the process was not
without conflict. After an attempt to settle failed, the district court granted the parties’ request
for permission to extend discovery to February 28, 2009. In endorsing the schedule, the district
court noted that “the February 28 discovery cut-off date will not be changed.” The district court
ordered a conference for January 14, 2009. However, WWP’s counsel failed to appear, blaming
his recent firm change. The district court re-scheduled the conference for January 20, 2009. In
advance of the conference, Shinkong asked the court for permission to file a Rule 41(b) motion
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to dismiss the action for failure to prosecute. The district court did not grant permission, and
there is no indication in the record that the parties discussed the issue with the district court.
On February 19, 2009, WWP — with the consent of Shinkong — asked the district court
to extend the discovery deadline to April 30, 2009, explaining:
As Your Honor may recall, during the January 20 conference call,
WWP raised the issue of needing a damages expert at trial. Your
Honor observed that the damages testimony might be of such a
nature that it could be put in at trial by WWP’s principals, and the
parties agreed. However, shortly thereafter, we realized that nearly
all of the documents pertinent to a damages calculation have been
designated “attorney’s eyes only,” and therefore may not be
reviewed by WWP’s principals under the Stipulated Protective
Order in this case. Shinkong has consented to an adjournment of
the discovery cut off to provide time for WWP to retain an expert
and to make appropriate disclosures. WWP is currently working to
engage an appropriate expert witness.
The district court granted the adjournment.
The day before the discovery cutoff expired, WWP —again with the consent of Shinkong
—asked the district court to extend the close of discovery to August 21, 2009, with WWP’s
expert disclosures due on June 10, 2009. The district court granted the request, but warned “[n]o
further extensions will be granted.” WWP did not make its expert disclosures until July 29, 2009
- seven weeks after the June 10, 2009 deadline. On August 14, 2009, WWP wrote to the district
court, explaining that it did not serve its expert report on time because “[t]he preparation and
delivery of plaintiff’s expert report took longer than anticipated.” The letter, in the form of a
status update to the district court, suggested deadlines for Shinkong’s expert production, but
noted the Shinkong had not responded to WWP’s request for dates. Shinkong responded on
August 20, 2009, with a letter reciting the litany of stops and starts in litigating the case, and
ended by asking the court to sanction WWP by striking the late expert report and WWP’s request
for damages.
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The next day — before WWP responded to Shinkong’s demand for sanctions — the
district court issued an order striking both WWP’s expert report and request for damages. The
district court stated, “[h]aving reviewed counsel’s recent letters (attached), I now hold that ‘no
further extensions’ means ‘no further extensions’ ” WWP then moved for reconsideration. The
district court, after full briefing, denied the motion:
If the Court were to reconsider the August 24 order, it would be
adhered to. “[D]iscovery orders are meant to be followed. A party
who flouts such orders does so at its peril.” Bambu Sales v. Ozak
Trading, 58 F.3d 849, 854 (2d Cir. 1995) (internal quotation marks
omitted). Here, the Court was simply enforcing its order of April
30, 2009 [dkt. no. 32] that “[n]o further extension will be granted.”
As noted in the August 24 order, “‘no further extensions means no
further extensions.”
Shinkong then moved for summary judgment on WWP’s request for a permanent
injunction — its sole remaining claim for relief — and on Shinkong’s counterclaim for breach of
contract. The district court granted the motion dismissing WWP’s request for injunctive relief
because “the loss of customers and business resulting from the breach of an exclusive
distributorship agreement is typically compensable in monetary damages.” The district court also
found that even if injunctive relief were available, it would enter summary judgment on the
claim for injunctive relief based on the merits. It denied the motion with regard to Shinkong’s
counterclaim. The parties stipulated to the counterclaim’s dismissal, without prejudice to
renewal if WWP prevailed on appeal, and this appeal followed.
ANALYSIS
I. Sanctions.
Federal Rule of Civil Procedure 37 governs the district court’s procedures for enforcing
discovery orders and imposing sanctions for misconduct.
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Rule 37 provides in relevant part that:
If a party or a party's officer, director, or managing agent . . . fails
to obey an order to provide or permit discovery, . . . the court
where the action is pending may issue further just orders. They
may include 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;
.. .
(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.
Fed. R. Civ. P. 37(b)(2)(A). Imposing sanctions pursuant to Rule 37 “is within the discretion of
the district court and a decision to dismiss an action for failure to comply with discovery orders
will only be reversed if the decision constitutes an abuse of that discretion.” John B. Hull, Inc. v.
Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176 (2d Cir. 1988).
In “evaluating a district court’s exercise of discretion” to impose Rule 37 sanctions, we
consider a number of factors, including: “(1) the willfulness of the non-compliant party or the
reason for noncompliance; (2) the efficacy of lesser sanctions; (3) the duration of the period of
noncompliance; and (4) whether the non-compliant party had been warned of the consequences
of . . . noncompliance.” Agiwal v. Mid Island Mortg. Corp., 555 F.3d 298, 302 (2d Cir. 2009)
(internal quotation marks omitted) (alteration in original). “Because the text of the rule requires
only that the district court’s orders be ‘just,’ however, and because the district court has ‘wide
discretion in imposing sanctions under Rule 37,’ these factors are not exclusive, and they need
not each be resolved against the party challenging the district court's sanctions for us to conclude
that those sanctions were within the court’s discretion.” S. New England Tel. Co. v. Global NAPs
Inc., 624 F.3d 123, 144 (2d Cir. 2010) (citation omitted).
The district court’s choice of striking WWP’s request for damages reflects a harsh
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sanction, one akin to dismissing the action altogether. Accordingly, we apply the same standards
as we would have if the district court dismissed the case instead. Dismissal “‘is a drastic remedy
that should be imposed only in extreme circumstances,’ . . . usually after consideration of
alternative, less drastic sanctions.” John B. Hull, 845 F.2d at 1176 (quoting Salahuddin v.
Harris, 782 F.2d 1127, 1132 (2d Cir. 1986)). Finally, “[i]n deciding on the suitability of lesser
sanctions, and whether the sanctions should be aimed primarily against the party or the attorney,
it can be important for the district court to assess the relative roles of attorney and client in
causing the delay, as well as whether a tactical benefit was sought by the [misconduct].” Dodson
v. Runyon, 86 F.3d 37, 40 (2d Cir. 1996).
Bereft of findings of fact or legal analysis by the district court, we cannot find imposing
the severe sanction of dismissing WWP’s claim for damages was an appropriate exercise of the
district court’s discretion. Even assuming WWP acted willfully in submitting its expert report
seven weeks late without first seeking the court’s permission, the district court provided no
analysis to support its conclusion that striking WWP’s request for damages was the appropriate
remedy for the infraction. First, there is no indication in the record that the district court
considered any lesser sanctions. Second, while this case was prosecuted in fits and starts, with
numerous requests for extensions along the way, the record indicates this was the first time
WWP missed a deadline without first consulting with opposing counsel and jointly requesting an
extension of time from the court.
Most critically, there is no indication in the record that WWP had any notice that a
possible consequence of late filing could be striking its request for damages and no opportunity
to argue its case before the court prior to such harsh action being taken against it. Parties must
be given notice and an opportunity to respond before a cause of action, or potential remedy, is
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dismissed as a sanction for failure to comply with court orders. See, e.g., Valentine v. Museum
of Modern Art, 29 F.3d 47, 49-50 (2d Cir. 1994) (dismissal appropriate where plaintiff’s
“sustained and willful intransigence in the face of repeated and explicit warnings from the court
that the refusal to comply with court orders to appear for his deposition would result in the
dismissal of his action”); John B. Hull, 845 F.2d at 1177 (upholding dismissal of complaint
where district court issued two warnings that failure to obey discovery orders would result in
dismissal).
While the district court did warn the parties that there would be “no further extensions,”
that is not sufficient to place a party on notice that its request for damages might be stricken.
Furthermore, because the attorney’s failure was one of sloppiness or negligence and did not seek
an unfair advantage over the adversary in the litigation, the late filing of the report did not
warrant so drastic a sanction of the plaintiff (as opposed to the lawyer). Thus, it was not a
transgression warranting the striking of plaintiff’s expert report, much less striking its claim for
damages. See Dodson, 86 F.3d at 39. (“[t]he remedy of [of dismissal] is pungent, rarely used,
and conclusive,” and is employed only where the district court “is sure of the impotence of lesser
sanctions.”).
We understand the district court’s frustration with the lackadaisical manner in which this
case was litigated. However, the district court failed to provide any analysis as to why the first
sanction meted out was one of the most severe sanctions possible, and the record before us
presents no plausible explanation. See Shcherbakovskiy v. Da Capo Al Fine, Ltd., 490 F.3d 130,
140 (2d Cir. 2007) (“With no findings or explanation from the district court, we cannot conclude
that the sanction of dismissal of the complaint and granting of the counterclaims was
appropriate.”). When an attorney’s misconduct or failing does not involve an attempt to place
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the other side at an unfair disadvantage, any sanction should ordinarily be directed against the
attorney rather than the party, absent strong justification. While we do not doubt that a sanction
is appropriate, the facts before us suggest that sanctions should be imposed on the attorney, and
not bar WWP from a full presentation of its case.
On remand, the district court is free to consider the issue of sanctions anew, so long as
such sanctions are consistent with this opinion.
II. Summary judgment.
WWP also appeals from the district court’s grant of summary judgment to Shinkong on
WWP’s claim for a temporary and permanent injunction — the sole remaining claim after the
district court struck the request for damages. As set forth in eBay Inc. v. MercExchange, L.L.C.:
a plaintiff seeking a permanent injunction must satisfy a
four-factor test before a court may grant such relief. A plaintiff
must demonstrate: (1) that it has suffered an irreparable injury; (2)
that remedies available at law, such as monetary damages, are
inadequate to compensate for that injury; (3) that, considering the
balance of hardships between the plaintiff and defendant, a remedy
in equity is warranted; and (4) that the public interest would not be
disserved by a permanent injunction.
547 U.S. 388, 391 (2006).
The district court correctly concluded WWP did not suffer irreparable harm. When the
alleged harm is the loss of customers and business as a result of a breached agreement for an
exclusive distributorship, that harm is compensable with money damages. Jackson Dairy, Inc. v.
H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). There is no question that WWP’s
injuries are compensable with money damages. Further, as a practical matter, nine years have
passed between the filing of the complaint and today. After the passage of so much time, an
injunction cannot provide plaintiff any useful relief. The record makes clear that WWP was in
no hurry to litigate this action — it never sought a preliminary injunction or an expedited
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discovery schedule, nor did it take any action to move the case along quickly, as one might
expect of a party allegedly suffering irreparable harm. There is simply no wrong here than an
injunction can make right. We express no opinion on the remainder of the district court’s
analysis, and on remand the district court is free to revisit the issue of summary judgment anew.
CONCLUSION
For the reasons given above, we (1) vacate the district court’s decision to strike WWP’s
expert report and claim for damages; (2) affirm the grant of summary judgment on WWP’s claim
for injunctive relief; and (3) remand for further proceedings consistent with this opinion.
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