U.S. Commodity Futures Trading Commission v. Trade Exchange Network Limited , 117 F. Supp. 3d 22 ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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COMMODITY FUTURES TRADING )
COMJVIISSION, )
)
Plaintiff, )
)
v. ) Civil Action No. 12-1902 (RCL)
)
TRADE EXCHANGE NETWORK )
LIMITED and INTRADE )
THE PREDICTION MARKET )
LHVIITED )
)
Defendants. )
___)
W
(Civil Contempt and Motion to Vacate Order Imposing Sanctions)
On December 3, 2014, this Court ordered that defendants, Trade Exchange Network Ltd.
(“TEN”) and Intrade the Prediction Market Ltd. (“Intrade”), show cause as to why they are not in
civil contempt of the Court’s June 24, 2014 Order [33]. Order Granting Pl.’s Motion for Order to
Show Cause Why Defs. Are Not in Civil Contempt and for Sanctions at 1, Dec. 3, 2014, ECF No.
37 (“December 3 Order”). Before the Court are the United States Commodity Futures Trading
Commission’s (“CFTC’s”) Motion and Memorandum in Support of an Order to Show Cause Why
Defendants Are Not in Civil Contempt and for Sanctions, ECF No. 35, TEN and Intrade’s
Response to Order [37] to Show Cause, ECF No. 40, and the CFTC’s Reply, ECF No. 46. The
Court will hold defendants TEN and Intrade in civil contempt for the reasons stated below.
In the same December 3 Order, this Court imposed sanctions for the defendants’ violations
of Rule 37(b)(2)(A) of the Federal Rules of Civil Procedure. December 3 Order at 2. Before the
Court are TEN and Intrade’s Motion to Vacate and Reconsider the Portion of the Court’s
December 3 Order [37] Imposing Sanctions, ECF No. 38, the CFTC’s Opposition, ECF No. 39,
and TEN and Intrade’s Reply, ECF No. 42. The Court will DENY the defendants’ Motion to
Vacate and Reconsider the Portion of the Court’s December 3 Order Imposing Sanctions for the
reasons stated below.
I. BACKGROUND
On June 24, 2014, this Court denied defendants’ Motion for a Protective Order for
Information Protected by the Irish Data Protection Act, ECF No. 23, granted plaintiff’ s Motion to
Compel Production of Documents and Interrogatory Responses, ECF No. 25, and ordered the
defendants to “produce all documents responsive to the CFTC’s requests for production and also
complete their responses to the CF TC’s interrogatories within twenty (20) days of the entry of this
order, and [to] produce Ronald Bernstein for a deposition regarding the location of documents and
witnesses within ten [10] days of the entry of this order, at a date and time convenient to the
parties.” Mem. Op. and Order at 1, June 24, 2014, ECF No. 33 (June 24 Order).
The CFTC admits that it deposed Ronald Bernstein on July 7, 2014, in compliance with
the June 24 Order. Pl.’s Mot. at 3. As of July 14, 2014, the deadline of the June 24 Order, the
defendants had produced the following documents: Intrade’s Supplemental Responses to
Plaintiff‘s First Set of Interrogatories, Intrade’s Supplemental Responses to Plaintiff’s First
Document Requests, TEN’s Supplemental Responses to Plaintiff’s First Set of Interrogatories,
TEN’s Supplemental Responses to Plaintiff’s First Document Requests, “(i) roughly 2,400 pages
of Bates labeled documents,” including defendants’ corporate records, bank records, and
information on trading balances, and an mbox file containing “correspondence and service tickets
that are responsive to Intrade Document Request No. 3 E-mail from Jeff Hamlin to David Slovick
and Kathleen Banar (July 14, 2014), ECF No. 35-1; Hamlin Dec]. 1] 7, ECF No. 40-1. The
defendants also provided plaintiff with access to their customer database. Hamlin Dec]. 11 6.
However, the defendants failed to produce complete responses to all of the CFTC’ s interrogatories,
including Interrogatories Nos. 6, 7 and 8. TEN’s Supp. Resps. P1.’s lst Set Interrogs., ECF No.
35-2; Intrade’s Supp. Resps. Pl.’s 1st Set Interrogs., ECF No. 35-3; TEN’s 3d Supp. Resps. P1.’s
lst Set Interrogs., ECF No. 35-12; Intrade’s 3d Supp. Resps. Pl’s lst Set Interrogs., ECF No. 35-
13. Further, the mbox file that contained customer correspondence and service tickets had not been
reviewed for responsiveness and contained malware. Letter from Kathleen Banar to David Deitch
(Aug. 7, 2014) at 1, ECF No. 35—5.
By the deadline specified in the Order, the defendants further failed to search their own
intercompany e-mails for responsive documents. Letter from Jeffrey Hamlin to Kathleen Banar
(Aug. 14, 2014) at 2 (defendants stating that they “are currently searching all intercompany e—mails
for documents that are responsive to CFTC’s document requests” and promising to produce
responsive documents, including mbox files for all other managers and customer support
employees, by August 31, 2014), ECF No. 35-7.
Furthermore, the defendants were still “running additional searches for documents
potentially responsive to RFP Nos. 3 and 13, to include web pages, exchange rules, FAQs, market
rules, market specifications, and contracts offered.” Id. (promising to provide these documents by
August 31, 2014). The defendants fiirther failed to “obtain[] documents from overseas, including
documents that might have been stored in the barn owned by John Delaney’s mother (the ‘Delaney
Barn’), documents in the companies’ storage facilities, and imaged hard drives of computers stored
in the companies’ Lucan office.” Id. at 3. Defendants also failed to request records from any banks
in response to the CFTC’s document request by the deadline of the June 24 Order. Id. at 2.
On November 7, 2014, the CF TC submitted its Motion and Memorandum in Support of an
Order (1) To Show Cause Why Defendants Are Not in Civil Contempt and (2) For Sanctions
Against Defendants Pursuant to Fed. R. Civ. P. 37(b)(2)(A). TEN and Intrade failed to file their
memorandum of points and authorities in opposition to the plaintiff’ s motion for sanctions within
14 days of the CFTC’s motion, or at any time thereafter. On December 3, 2014, the Court granted
the plaintiff s motion and imposed sanctions. See December 3 Order at 1-2.
H. CIVIL CONTEMPT OF THE JUNE 24, 2014 ORDER
A. Civil Contempt Standard
Courts possess “inherent power to enforce compliance with their lawful orders through
civil contempt,” Shillitani v. United States, 384 US. 364, 370 (1966), which is essential to “the
enforcement of the judgments, orders and writs of the courts, and consequently to the due
administration of justice,” Broderick v. Donaldson, 437 F.3d 1226, 1234 (DC. Cir. 2006) (citation
omitted). In particular, district courts have the authority to enforce the deadlines they impose. See
In re Fannie Mae Sec. Litig, 552 F.3d 814, 822-23 (DC. Cir. 2009). Civil contempt is remedial in
nature and is “used to obtain compliance with a court order or to compensate for damage sustained
as a result of noncompliance.” NLRB. v. Blevins Popcorn C0., 659 F.2d 1173, 1184 (DC. Cir.
1981).
A party moving for civil contempt must show, by clear and convincing evidence, that “(1)
there was a clear and unambiguous court order in place; (2) that order required certain conduct by
[d]efendants; and (3) [d]efendants failed to comply with that order.” United States v. Latney’s
Funeral Home, Inc., 41 F. Supp. 3d 24, 29-30 (D.D.C. 2014). A clear and unambiguous order does
not leave any reasonable doubt “as to what behavior was expected and who was expected to behave
in the indicated fashion.” Project B.A.S.I.C. v. Kemp, 947 F.2d 11, 17 (lst Cir. 1991). Once the
plaintiff has made a prima facie case demonstrating that the defendant failed to comply with the
Court’s order, “the burden shifts to [the defendant] to produce evidence justifying its
noncompliance.” Secs. &Exch. Comm ’n v. Bilzerian, 112 F. Supp. 2d 12, 16 (D.D.C. 2000).
The defendants’ intent in failing to comply with a court order is irrelevant. Id However,
the defendants “may justify [their] failure to comply with a court order by establishing [their]
inability to comply or good faith substantial compliance.” Int ’1 Painters & Allied Trades Indus.
Pension Fund v. ZAK Architectural Metal & Glass LLC, 736 F. Supp. 2d 35, 40 (D.D.C. 2010)
(citing Food Lion, Inc. v. United Food & Commercial Workers Int ’1 Union, 103 F.3d 1007, 1017
(DC. Cir. 1997)). To demonstrate good faith substantial compliance, the defendants have to show
that they “took all reasonable steps within [their] power to comply with the court’s order.” Food
Lion, Inc., 103 F.3d at 1017 (citations and internal quotation marks omitted).
B. Analysis
The June 24 Order required the defendants to “produce all documents responsive to the
CFTC’s requests for production and also complete their responses to CFTC’s interrogatories
within twenty (20) days of the entry of [the] [O]rder.” June 24 Order at 15, ECF No. 33. Defendants
argue that the order was not “clear and unambiguous” as those terms are used in the context of
civil contempt proceedings. Defs.’ Resp. at 9. The order was clear and unambiguous because it
separately addressed each request for production objected to by the defendants and identified
requested documents to the best of the Court’s knowledge. See Musalli Factory for Gold &Jewelry
Co. v. New York Fin. LLC, No. 06 Civ. 82 (AKH), 2010 WL 2382415, at *2 (S.D.N.Y. June 14,
2010) (finding a “one-page order direct[ing] Defendants to ‘produc[e] all responsive documents
to plaintiff s counsel’ and ‘direct[ing] Mr. Boktor to appear for a deposition no later than December
14’” to be clear and unambiguous). Furthermore, the defendants have never sought clarification
on any part of the order and now claim that they have substantially complied with the order. Defs. ’
Resp. at 16.
The record clearly indicates that that defendants failed to produce all responsive documents
by the July 14, 2014 deadline. Thus, clear and convincing evidence demonstrates that the June 24
Order was clear and unambiguous, that it required defendants to produce all responsive documents
and complete their responses to the CFTC’s interrogatories, and that the defendants failed to
comply with the order.
The defendants also argue that they are in good faith substantial compliance with the June
24 Order. Even if the defendants did substantially comply with the Order’s requirements during
the five months following the issuance of the Order, they were not in substantial compliance by
the order’s July 14, 2014 deadline. See Food Lion, Inc., 103 F.3d at 1019 (finding that a defendant
failed to prove good faith substantial compliance where defendant claimed that “[a]ll documents
[defendant] discovered during searches of its files were produced to Food Lion by [the deadline],”
but failed to search additional off-site storage boxes before the deadline despite knowing that some
of them contained responsive documents). In Food Lion, Inc, where the defendant “knew of the
existence of the off-site boxes and knew that some of the boxes contained documents covered by
the court order,” the court stated that it did not see any “reason why [the defendant] should not
have searched and produced all documents responsive to the order that were contained in those
boxes,” affirming this Court’s decision to hold the defendant in contempt even though the
defendant claimed that “[a]ll documents [defendant] discovered during searches of its files were
produced to Food Lion by [the] September 15, 1995 [deadline].” Id. (adding that the defendant did
not seek clarification of the order or an extension to the deadline). Similarly, TEN and Intrade
knew of the existence of the intercompany e—mails, Intrade’s website data, potential responsive
documents stored in the companies’ storage facilities, at the companies’ Lucan office and in the
Delaney Barn, as well as their bank records, and yet failed to comply. The defendants never sought
any clarification of the order and never asked for an extension. Accordingly, the defendants did
not take all reasonable steps to comply with the June 24 Order and therefore were not in good faith
substantial compliance with the order.
HI. MOTION TO VACATE AND RECONSIDER THE DECEMBER 3, 2014
ORDER FOR SANCTIONS
A. Rule 54(b) Standard
The December 3 Order at issue is an order for sanctions and is therefore not a final
judgment in the case. Accordingly, the defendants’ claim must be examined under the Rule 54(b)
standard since Rule 54(b) addresses the issue of reconsideration of orders other than final
judgments. See Campbell v. US. Dept. of Justice, 231 F. Supp. 2d 1, 6 (D.D.C. 2002) (explaining
that the standard of review for interlocutory decisions is set by Rule 54(b)). Under Rule 54(b),
“[a]ny order or other decision, however designated, that adjudicates fewer than all the claims. . .
does not end the action as to any of the claims or parties and may be revised at any time before the
entry of a judgment adjudicating all the claims.” Fed. R. Civ. P. 54(b). District courts enjoy
significant discretion to adjudicate motions for reconsideration. Cobell v. Norton, 226 F. Supp. 2d
175, 177 (D.D.C. 2002) (citing Plaut v. Spendthrift Farm, Inc., 514 US. 211, 233-34 (1995)).
Rule 54(b) empowers the Court to reconsider an interlocutory order “as justice requires.”
Capitol Sprinkler Inspection, Inc. v. Guest Servs., Inc., 630 F.3d 217 (DC. Cir. 2011); see also
Childers v. Slater, 197 F.R.D. 185, 190 (D.D.C. 2000) (quoting Fed. R. Civ. P. 60(b) advisory
committee’s notes) (“[I]nterlocutory judgments . . . are left subject to the complete power of the
court rendering them to afford such relief from them as justice requires”). “Asking ‘what justice
requires’ amounts to determining, within the Court’s discretion, whether reconsideration is
necessary under the relevant circumstances.” Cobell v. Norton, 355 F. Supp. 2d 531, 539 (D.D.C.
2005). Circumstances that may permit reconsideration include “whether the court ‘has patently
misunderstood a party, has made a decision outside the adversarial issues presented to the court by
the parties, has made an error not of reasoning, but of apprehension, or where a controlling or
significant change in the law or facts [has occurred] since the submission of the issue to the court.
Ficken v. Golden, 696 F. Supp. 2d 21, 35 (D.D.C. 2010) (quoting Cobell v. Norton, 224 F.R.D.
266, 272 (D.D.C. 2004)).
B. Analysis
TEN and Intrade were required to file their memorandum of points and authorities in
opposition to the CF TC’s Motion for Sanctions within 14 days of the date of service of the motion,
which was filed on November 7, 2014. D.D.C. LCVR 7(b) (“Within 14 days of the date of service
or at such other time as the Court may direct, an opposing party shall serve and file a memorandum
of points and authorities in opposition to the motion. If such a memorandum is not filed within the
prescribed time, the Court may treat the motion as conceded”). Defendants failed to file their
opposition within that time period. The Order for Sanctions was issued on December 3, 2014.
Defendants argue that they have committed an “excusable litigation mistake” when they
relied on Cobell v. Babbitt, Case No. 1:96-cv-01285 (D.D.C.), where the plaintiffs filed a motion
for an order to show cause and for sanctions and the Court issued the order to show cause without
receiving the defendants’ opposition. Defs. ’ Mot. at 2. The defendants believed that the appropriate
time to file their opposition would be after the Court issued the requested order to show cause,
since in Cobell the Court held the defendants in contempt and assessed sanctions after the
defendants responded to the order to show cause. Id. at 3.
In Cobell, however, the defendants timely filed their memorandum of points and
authorities under an alternative briefing schedule set forth in the order to show cause, which was
issued before the defendants’ opposition was due under the Local Rules. See Docket Sheet, Cobell
v. Babbitt, Case No. 1:96—cv-01285 (D.D.C.), ECF No. 39-1. No such alternative briefing schedule
was established in this case, and thus TEN and Intrade were bound by LCVR 7(b). Furthermore,
the plaintiffs in Cobell sought the Court to “order Defendants to show cause why they should not
be found in civil contempt and sanctioned,” whereas plaintiff in this case sought a separate finding
of sanctions in their Motion [35]. Pl.’s Consolidated Mot. for an Order to Show Cause Why Defs.
Should Not Be Held in Contempt and for Sanctions for Failure to Comply with Ct. Orders, Cobell
v. Babbitt, Case No. 1:96-cv-01285 (D.D.C.) at 24, ECF No. 39-2. Defendants’ opposition to both
motions was due no later than November 24th, 2014. Failure to respond was properly determined
as a concession.
Justice does not require the Court to reconsider the December 3 Order for Sanctions
because reconsideration is not necessary under the circumstances. Defendants’ counsel is
presumed to be familiar with the Local Rules since they have all been admitted to practice before
this Court. See McDowell-Bonner v. Dist. Of Columbia, 668 F. Supp. 2d 124, 126 (D.D.C. 2009)
(“Admission to practice before this Court requires that an attorney affirm in writing that he or she
is ‘familiar with the Rules of the United States District Court for the District of Colombia [sic].”’).
Defendants’ reliance on a case that is not procedurally on point does not excuse their disregard of
the Local Rules. Defendants argue that they “have not yet presented to the Court their persuasive
presentation on why sanctions are unwarranted and/or why the sanctions sought by the CFTC are
too severe.” Defs.’ Reply at 4. The defendants, however, had a chance to present their arguments
and have subsequently forfeited their opportunity to do so by missing the deadline. The Court in
this case did not patently misunderstand a party, make a decision outside the adversarial issues
presented to the Court by the parties, or make an error not of reasoning, but of apprehension. A
controlling or significant change in the law or facts has not occurred since the submission of the
issue to the Court. Accordingly, TEN and Intrade’s Motion to Vacate and Reconsider the Portion
of the Court’s December 3 Order Imposing Sanctions is denied.
IV. CONCLUSION
For the aforementioned reasons, the Court holds defendants TEN and Intrade in civil
contempt of Court for Violating the Court’s June 24, 2014 Order. The Court will also DENY
defendants’ Motion to Vacate and Reconsider the Portion of the Court’s December 3 Order
Imposing Sanctions.
A separate order consistent with this opinion shall issue this date.
It is SO ORDERED this 3 lst day of July 2015.
C.
ROY C. LAMBERTH
United States District Judge
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