rePlanet Holdings, Inc. v. Federal Insurance Company ( 2020 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 rePLANET HOLDINGS, INC., Case No. 1:19-cv-00133-NONE-EPG 12 Plaintiff, ORDER RE: DEFENDANT’S MOTION TO COMPEL 13 v. (ECF NO. 48, 60) 14 FEDERAL INSURANCE COMPANY, 15 Defendant. 16 17 Plaintiff rePlanet holdings, Inc. (“Plaintiff”) brings this suit against Defendant Federal 18 Insurance Company (“Defendant”) alleging causes of action under California law for breach of 19 contract, breach of the covenant of good faith and fair dealing, and fraud stemming from 20 Defendant’s refusal to pay insurance proceeds on Plaintiff’s first-party insurance claims. 21 Defendant previously filed a motion to compel seeking supplementation of certain 22 interrogatory and request for production responses. In response to that motion, Plaintiff agreed to 23 supplement its discovery responses by a Court-imposed deadline; Plaintiff missed the deadline, 24 and Defendant now seeks preclusive and monetary sanctions. For the reasons that follow, 25 Defendant’s request for preclusion sanctions is denied; however, the Court will award Defendant 26 attorney fees for its partial success on the motion to compel and time spent ensuring that Plaintiff 27 met its supplementation responsibilities. 28 1 I. BACKGROUND 2 A. Plaintiff’s Allegations 3 According to Plaintiff’s Complaint, Plaintiff is a recycling company that allows customers 4 to exchange their recyclables for vouchers. The vouchers can then be used as if they were cash at 5 participating grocery stores. In July 2017, Plaintiff asserts that it discovered it had reimbursed 6 grocery stores for recycling vouchers even though it did not receive the recyclables corresponding 7 to the vouchers. Plaintiff asserts that, unbeknownst to it, third parties, including a Miles Heth, 8 forged counterfeit rePlanet vouchers and entered the forged vouchers into commerce. Plaintiff 9 alleges that one of its employees, Herman Granillo, stole printers on which rePlanet vouchers 10 were created, the proprietary paper used to create the vouchers, and the computer equipment used 11 to create the vouchers. Granillo then used this stolen equipment to create vouchers not backed by 12 any recyclables remitted. 13 Plaintiff claims that it lost millions of dollars due to these criminal schemes. Plaintiff 14 alleges that these losses were covered pursuant to an insurance policy issued by Defendant. 15 Defendant, however, failed to pay insurance benefits, contending that Plaintiff’s losses were not 16 covered under the pertinent policy. Plaintiff subsequently brought this suit against Defendant for 17 breach of contract, breach of the covenant of good faith and fair dealing, and fraud. 18 B. Defendant’s Motion to Compel 19 A discovery dispute arose concerning a series of requests asking Plaintiff to identify and 20 produce the alleged counterfeit vouchers underlying this suit, as well as evidence of payments 21 Plaintiff made to grocers corresponding with the vouchers. After informal conferences on the 22 subject, on November 8, 2019, Defendant filed a motion to compel responses to the following 23 interrogatories and requests for production: 24 DEFENDANT’S INTERROGATORY NO. 2: Identify each payment payments by YOU to one of YOUR grocery store 25 partners for a stolen, counterfeit, and/or FORGED recycling voucher that YOU attribute to Herman Granillo. 26 DEFENDANT’S INTERROGATORY NO. 3: 27 Identify each payment by YOU to one of YOUR grocery store partners for a stolen, counterfeit, and/or FORGED recycling voucher that YOU 28 attribute to Miles Heth. 1 DEFENDANT’S INTERROGATORY NO. 4: Identify each stolen, FORGED, or counterfeit voucher that YOU attribute 2 to Herman Granillo. 3 DEFENDANT’S INTERROGATORY NO. 5: For each FORGED voucher that YOU attribute to Herman Granillo, 4 identify the name of the RELANET attendant whose name was FORGED on the voucher. 5 DEFENDANT’S INTERROGATORY NO. 6: 6 Identify each stolen, FORGED, or counterfeit voucher that YOU attribute to Miles Heth. 7 DEFENDANT’S INTERROGATORY NO. 7: 8 For each FORGED voucher that YOU attribute to Miles Heth, identify the name of the REPLANET attendant whose name was FORGED on the 9 voucher. 10 DEFENDANT’S REQUEST FOR PRODUCTION NO. 5: All DOCUMENTS REFLECTING payments by YOU to any of YOUR 11 grocery store partners for stolen or FORGED recycling vouchers during the period from January 1, 2012 to January 1, 2018. 12 DEFENDANT’S REQUEST FOR PRODUCTION NO. 10: 13 All DOCUMENTS that RELATE TO Miles Heth and/or others not employed by YOU FORGING the electronic signature of YOUR 14 attendants on YOUR vouchers. 15 DEFENDANT’S REQUEST FOR PRODUCTION NO. 22: All DOCUMENTS that RELATE TO Herman Granillo FORGING the 16 electronic signature of YOUR attendants on YOUR vouchers. 17 DEFENDANT’S REQUEST FOR PRODUCTION NO. 26: All of YOUR vouchers that contain a FORGERY during the period from 18 January 1, 2012 to January 1, 2018. 19 The Court held a hearing on Defendant’s motion to compel on November 15, 2019. Most 20 of the argument centered upon whether Plaintiff had an obligation to identify and produce the 21 entire universe of fraudulent vouchers attributable to Heth and Granillo. Plaintiff argued that such 22 an exercise was overly burdensome and not proportionate to the needs of the case because it 23 could prove its damages through expert testimony and sampling. Plaintiff further argued that it 24 complied with its discovery obligations by producing some of the vouchers it “previously 25 identified as counterfeit as well as a spreadsheet documenting all of the data rePlanet has on each 26 counterfeit voucher, including the forged name thereon and the name of the rePlanet attendant 27 who was actually working the day the counterfeit was printed.” (ECF No. 48, p. 22.) As to the 28 other vouchers, Plaintiff invoked Federal Rule of Civil Procedure 33(d), to argue that Defendant 1 could itself inspect the entire universe of vouchers to determine which were fraudulent. 2 The Court refused to accept this invocation of Rule 33(d) as satisfying Plaintiff’s 3 discovery obligations. Instead, the Court suggested that Plaintiff supplement its discovery 4 responses to identify and produce all allegedly counterfeit vouchers that it intends to rely on as 5 evidence, including those its expert would rely upon in creating a sampling methodology. 6 Plaintiff insisted that such a supplementation—though arduous—could be completed by 7 January 10, 2020. The Court accordingly set January 10, 2020, as the deadline for Plaintiff to 8 complete the supplementation and allowed for further briefing to address the adequacy of the 9 supplementation. (ECF No. 50.) 10 As for those discovery requests relating to evidence of grocer payments associated with 11 the fraudulent vouchers, Plaintiff claimed that there were no invoices corresponding to individual 12 vouchers; instead, invoices were issued to Plaintiff from participating grocery stores periodically 13 that encompassed both fraudulent and non-fraudulent vouchers. Plaintiff maintained that it 14 already produced said invoices, labeled REPL015856-REPL021650 reflecting the amounts 15 Plaintiff paid its grocery store partners. The Court ordered Plaintiff to supplement its discovery 16 responses to clarify the lack of invoices associated with specific vouchers. 17 On January 9, 2020, Plaintiff filed an “Ex Parte Application for 10-Day Extension to 18 Serve Supplemental Responses to Discovery.” (ECF No. 53.) The Court granted the extension 19 and Plaintiff was given until January 20, 2020, to supplement its discovery. (ECF No. 54.) 20 C. FURTHER BRIEFING AND HEARING RELATED TO 21 SUPPLEMENTATION 22 On January 31, 2020, Defendant filed a supplemental brief contending that Plaintiff’s 23 supplemental discovery responses served on January 20, 2020, “were incomplete, did not identify 24 or produce all of the vouchers that it intends to reply on for its purported sampling analysis, and 25 did not identify the grocer invoices that purportedly contain payments for the fraudulent vouchers 26 at issue.” (ECF No. 60, p. 1.) Defendant seeks preclusive sanctions preventing Plaintiff from 27 utilizing any vouchers as evidence that were produced after January 20, 2020. 28 On February 8, 2020, Plaintiff filed a response to the supplemental briefing in which it 1 claimed that it diligently supplemented its discovery in accordance with the Court’s order. (ECF 2 No. 64.) By February 7, 2020, Plaintiff contended it had produced the allegedly fraudulent 3 vouchers associated with Vons, Albertsons, Ralphs, and Stater Bros. Plaintiff represented that it 4 would complete review of the last set of vouchers from Food4Less and serve them within “a 5 matter of days.” (Id. at p. 7.) 6 The Court held a further hearing regarding the supplementation on February 19, 2020. 7 Plaintiff at that time represented that all vouchers it intended to rely upon as evidence were 8 produced by February 14, 2020. However, Plaintiff also reserved the right to produce more 9 allegedly fraudulent vouchers prior to the current discovery cut-off date of March 13, 2020. 10 II. LEGAL STANDARDS 11 Federal Rule of Civil Procedure 37 governs motions to compel. It provides, as follows: 12 (3) Specific Motions 13 (B) To Compel a Discovery Response. A party seeking discovery may move for an order compelling an answer, designation, production, or inspection. 14 This motion may be made if: 15 (iii) a party fails to answer an interrogatory submitted under Rule 33; or 16 (iv) a party fails to produce documents or fails to respond that inspection will be permitted—or fails to permit inspection—as 17 requested under Rule 34. 18 (5) Payment of Expenses; Protective Orders 19 (C) If the Motion is Granted in Part and Denied in Part. If the motion is granted in part and denied in part, the court may issue any protective order 20 authorized under Rule 26(c) and may, after giving an opportunity to be heard, apportion the reasonable expense for the motion. However, 21 monetary sanctions are not appropriate if, (1) the movant filed the motion before attempting in good faith to obtain the disclosure or discovery 22 without court action; (2) the opposing party’s nondisclosure, response, or objection was substantially justified; or (3) other circumstances make an 23 award of expenses unjust. Id. at 37(a)(A)(i-iii). 24 Rule 37 also addresses sanctions for failure to comply with a discovery order, as follows: 25 (2) Sanctions Sought in the District Where the Action is Pending. 26 (A) For Not Obeying a Discovery Order. If a party or a party’s officer, director, or managing agent—or a witness designated under Rule 30(b)(6) or 27 31(a)(4)—fails to obey an order to provide or permit discovery, including an order under Rule 26(f), 35, or 37(a), the court where the action is 28 pending may issue further just orders. They may include the following: 1 (ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing designated 2 matters into evidence. 3 Id. at 37(b)(2)(A)(ii). 4 However, before issuing sanctions precluding a party from introducing matters into 5 evidence that will bear on the party’s claims or defenses, the Court must consider the following 6 factors, “(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to 7 manage its docket; (3) the risk of prejudice to the party [seeking sanctions]; (4) the public policy 8 favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions.” Rio 9 Props, Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1022 (9th Cir. 2002). As the Ninth Circuit has 10 stated in the context of sanctions under Rule 37, “[w]e have found the element of prejudice to be 11 essential, stating that sanctions which interfere with the litigants’ claim or defenses violate due 12 process when they are imposed ‘merely for punishment of an infraction that did not threaten to 13 interfere with the rightful decision of the case.’” Wanderer v. Johnston, 910 F.2d 652, 656 (9th 14 Cir. 1990) (quoting Wyle v. R.J. Reynolds Industries, Inc., 709 F.2d 585, 591 (9th Cir. 1983)). 15 III. WHETHER PRECLUSION SANCTIONS ARE WARRANTED 16 First, the Court addresses Defendant’s argument that sanctions are warranted because 17 Plaintiff has not provided “identification of each payment by rePlanet to a grocery store partner 18 for a stolen, counterfeit, and/or forged recycling voucher that rePlanet attributes to Granillo…or 19 Heth.” (ECF No. 60, p. 6-7.) Plaintiff did supplement its discovery responses to indicate, as it 20 represented at the November 15, 2019 hearing, that there are not individualized invoices or 21 payments associated with specific fraudulent vouchers as Defendant appears to assume in its 22 interrogatories and requests for production. Plaintiff asserts that it has provided all pertinent 23 invoices to Defendant. The Court takes Plaintiff at its word that it has produced all responsive 24 invoices. See Optimize Tech. Solutions, LLC v. Staples, Inc., No. 14-mc-80095, 2014 WL 25 1477651, at *1 (N.D. Cal. Apr. 14, 2014) (“[T]he court cannot order production of documents 26 that do not exist.”).1 27 1 The Court does not take any position as to whether Plaintiff may adequately prove its damages based on discovery 28 produced. The Court’s ruling only concerns whether Plaintiff is improperly withholding discovery. 1 As for the supplementation of the vouchers upon which Plaintiff will rely on as evidence 2 to establish liability and damages in this matter, Plaintiff, by its own admission, failed to meet the 3 January 20, 2020 deadline set for the completion of supplementation. It did not ask for another 4 extension. Plaintiff now represents that it has completed supplementation. See (ECF No. 68.) 5 Defendant, however, argues that the Court should preclude Plaintiff from introducing into 6 evidence any vouchers produced after January 20, 2020 to support its case. 7 The Court finds the five-factor analysis set out above cuts against preclusion sanctions 8 here. “Where a court order is violated, the first two factors [the public’s interest in expeditious 9 resolution of litigation and the court’s need to manage its docket] support sanctions and the fourth 10 factor [the public policy favoring disposition of cases on their merits] cuts against default. 11 Therefore, it is the third [the risk of prejudice] and fifth [the availability of less drastic sanctions] 12 factors that are dispositive.” Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997). 13 Here, Defendant claims it has been prejudiced by Plaintiff’s untimely production because 14 it has been seeking the subject discovery for nine months and, because of the quickly-approaching 15 discovery cut-off, it will be unable to complete discovery on the tardy vouchers. But, as it 16 indicated at the February 19, 2020, hearing, the Court will briefly extend the non-expert discovery 17 cut-off if necessary to cure whatever prejudice results from the untimely production.2 18 Additionally, as discussed below, less drastic sanctions in the form of monetary compensation are 19 available. Accordingly, the Court finds that preclusion sanctions are not warranted. 20 IV. DEFENDANT’S ATTORNEY FEES 21 Defendant seeks attorney fees in connection with the motion to compel and subsequent 22 request for sanctions. Defendant specifically requests $6,693.00 in monetary sanctions, consisting 23 of $5,000.00 for the original motion and $1,693.00 for the supplemental brief and time spent 24 reviewing Plaintiff’s supplemental voucher production. 25 As noted, Rule 37 allows for an award of monetary expenses when a motion to compel is 26 granted and part and denied in part—as Defendant’s was here. But an award of expenses is not 27 2 Defendant also raised concerns about prejudice that might result from yet-to-occur voucher productions it anticipates Plaintiff will make at the eleventh hour. But, as ordered herein, Plaintiff is precluded from further 28 supplementing the voucher production absent Court order. 1 automatic, and the Court has considerable discretion in this area. At oral argument, Plaintiff 2 claimed that monetary sanctions are inappropriate here because Defendant failed to attempt in 3 good faith to obtain the discovery without court action. The Court disagrees. For one thing, this is 4 the first time Plaintiff has argued a failure to confer before filing a motion to compel; Plaintiff did 5 not raise this argument in any of its briefs. Second, the argument is meritless: the record evidence 6 suggests extensive meet and confer efforts took place before Defendant filed the motion to 7 compel. See (ECF No. 48-1, Declaration of Ken Watnick). 8 Plaintiff also argued that its response to the discovery requests was substantially justified. 9 The Court, again, disagrees. In response to discovery requests to identify and produce the 10 allegedly fraudulent vouchers connected to Granillo and Heth, Plaintiff largely invoked Rule 11 33(d). But the Court has already determined that Plaintiff’s invocation of Rule 33(d) under the 12 circumstances could not substitute for specifically identifying and producing vouchers Plaintiff 13 will rely upon to present and prove its case. In particular, the Court held that Plaintiff must 14 produce any specifically identified vouchers it would use in expert opinion or at trial. Because 15 Plaintiff wishes to rely upon a sampling of vouchers, it was not substantially justified in failing to 16 identify the allegedly fraudulent vouchers revealed in the sample. Thus, Plaintiff’s responses were 17 not “substantially justified.” The Court will award attorney fees accordingly. 18 Reasonable attorney fees are generally calculated based on the traditional “lodestar” 19 method. Camacho v. Bridgeport Financial, Inc., 523 F.3d 973, 978 (9th Cir. 2008). Under the 20 lodestar method, the Court determines a reasonable fee by multiplying “the number of hours 21 reasonably expended on the litigation” by “a reasonable hourly rate.” See Hensey v. Eckerhart, 22 461 U.S. 424, 433 (1983). In fixing a reasonable fee award, the most critical figure is the degree 23 of success that the prevailing party obtained. Farrar v. Hobby, 506 U.S. 103, 114 (1992). Thus, 24 the court may reduce the fees awarded when a movant is only partially successful. See Generally 25 Clark v. Capital Credit & Collection Services, Inc., 561 F.Supp.2d 1213, 1218 (D. Or. 2008). 26 “There is no precise method for determining the amount of attorney’s fees that a partially 27 successful plaintiff should recover.” Id. (citing Hensley, 461 U.S. at 436). “A district court may 28 attempt to determine particular hours that should be eliminated from the lodestar calculation for 1 claims upon which the plaintiff was unsuccessful, ‘or may simply reduce the award to account for 2 the limited success.’” Id. (quoting Hensley, 461 U.S. at 436-37). 3 Here, Defendant seeks $5,000 for the November 8, 2019 motion to compel. Defendant’s 4 counsel submitted a declaration in support of the fee request in which he states that his hourly rate 5 is $295.00. The time spent on the motion is broken down as follows: 6 • 8 hours preparing the motion to compel; 7 • 1 hour preparing for the hearing on the motion to compel; 8 • 3 hours traveling to and from Plaintiff’s Ontario facility and 1 hour examining 9 vouchers at said facility; 10 • 4 hours on repeated meet and confer efforts related to the motion; and 11 • 3 hours identifying and reviewing the “purported vouchers that were identified in 12 rePlanet’s supplemental interrogatory responses.” (ECF No. 48-1, p. 4.) 13 Defendant also seeks $1,693.00 related to the filing of the January 31, 2020 supplemental 14 brief. Defendant’s counsel claims that he spent in excess of four hours preparing the supplemental 15 brief, reviewing the further supplemental responses, and the documents produced to date. 16 Defendant’s counsel’s paralegal spent 3.8 hours reviewing and organizing the additional vouchers 17 that Plaintiff produced. The paralegal’s hourly rate is $135.00 an hour. 18 Initially, the Court finds that Defendant’s counsel’s rate is reasonable. When calculating 19 the lodestar amount, the Court looks to the “prevailing rates in the relevant community”—in this 20 case the Eastern District of California. Blum v. Stenson, 465 U.S. 886, 895-96 & n. 11 (1984). 21 Two-hundred ninety-five dollars ($295.00) per hour is within the range of rates this Court has 22 found to be acceptable. See Generally E. & J. Gallo Winery v. Strategic Materials, Inc., No. 17- 23 cv-01709, 2019 WL 672766 at *4 (E.D. Cal. Dec. 11, 2019) (surveying reasonable rates within 24 the Eastern District of California and determining that such rates, depending on attorney 25 experience, could range from $200.00 an hour to $450.00 an hour). 26 As for hours reasonably expended, the Court finds that 8 hours to prepare the underlying 27 motion to compel is excessive. The Court will award 4 hours for preparing the motion to compel. 28 And although the Court encourages meet and confer efforts, attorney fees for 4 hours of such 1 efforts is excessive. The Court will award 1 hour for meet and confer efforts. Finally, the Court 2 does not award any hours for time Defendant’s counsel or paralegal spent reviewing vouchers 3 produced, as this task would have to be completed regardless of the motion to compel. 4 With these reductions, the Court finds that Defendant’s counsel reasonably expended 5 eleven hours related to the motion to compel, including the supplemental brief.3 At a rate of 6 $295.00 per hour, the lodestar amount is $3,245.00. But because the motion to compel was not 7 entirely successful—that is, because Plaintiff was not ordered to produce the entire universe of 8 fraudulent vouchers—the Court will reduce the lodestar figure by 50%. Accordingly, Defendant 9 is owed $1,622.50 for its partially successful motion to compel, which includes those expenses 10 incurred in litigating the original motion, as well as the supplemental brief related to enforcing the 11 Court’s order regarding that motion. 12 V. CONCLUSION 13 Accordingly, for the reasons set forth herein, IT IS ORDERED that: 14 1. Defendant’s request for sanctions to preclude the introduction of the allegedly 15 fraudulent vouchers produced and identified after January 20, 2020, is DENIED; 16 2. To the extent Defendant seeks an order compelling further response to interrogatories 17 numbers 2 and 3 or request for production number 5, the request is DENIED; 18 3. Absent Court order, Plaintiff is precluded from further supplementing its identification 19 and production of the allegedly fraudulent vouchers it intends to rely on as evidence in 20 this matter; and 21 \\\ 22 \\\ 23 \\\ 24 \\\ 25 \\\ 26 3 Defendant’s counsel states that he spent in excess of four hours related to the supplemental brief, which included time reviewing “further supplemental discovery responses and the documents produced to date.” (ECF No. 60-1, p. 27 2.) As noted, the Court will not award fees for time Defendant’s counsel spent reviewing discovery responses and documents that would need to be reviewed regardless. Because Defendant’s counsel does not specifically state how 28 much time was spent drafting the supplemental brief, the Court will award 2 hours for same. 1 4. Defendant is hereby awarded $1,622.50 in attorney fees in connection to the partially- 2 successful motion to compel (ECF No. 48) and supplemental briefing (ECF No. 60) 3 related to enforcing the Court’s order on that motion. 4 IT IS SO ORDERED. 6 | Dated: _ March 4, 2020 [Je ey □□ 7 UNITED STATES MAGISTRATE JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11