Kathleen McCarthy v. Ameritech Publishing, Inc.

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 14a0182p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
KATHLEEN A. MCCARTHY, ┐
Plaintiff-Appellant/Cross-Appellee, │
│
│ Nos. 13-3295/3331
v. │
>
│
AMERITECH PUBLISHING, INC., dba AT&T │
Advertising Solutions and AT&T Advertising & │
Publishing, Inc.; AT&T INC.; │
Defendants-Appellees/Cross-Appellants. │
┘
Appeal from the United States District Court
for the Southern District of Ohio at Dayton
No. 3:10-cv-00319—Thomas M. Rose, District Judge.
Argued: March 20, 2014
Decided and Filed: August 13, 2014
Before: BOGGS, SILER, and GIBBONS, Circuit Judges.
_________________
COUNSEL
ARGUED: Kirstie N. Young, BIESER, GREER & LANDIS, LLP, Dayton, Ohio, for
Appellant/Cross-Appellee. Terrence J. Miglio, KELLER THOMA, P.C., Detroit, Michigan, for
Appellees/Cross-Appellants. ON BRIEF: Kirstie N. Young, David C. Greer, BIESER, GREER
& LANDIS, LLP, Dayton, Ohio, for Appellant/Cross-Appellee. Terrence J. Miglio, Barbara E.
Buchanan, KELLER THOMA, P.C., Detroit, Michigan, for Appellees/Cross-Appellants.
_________________
OPINION
_________________
JULIA SMITH GIBBONS, Circuit Judge. Kathleen McCarthy filed suit against
Ameritech Publishing, Inc. (API) and AT&T, her former employers, to recover damages for
1
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claims related to the August 2008 termination of her employment. The merits of those claims
are the subject of a separate appeal. This appeal concerns a litigation dispute that arose during
the course of that case. McCarthy submitted several requests for admission (RFAs) to API, but
API refused to admit the veracity of the disputed facts. More than a year later, however, API
turned over to McCarthy an email establishing that one of the disputed facts was, in fact, true.
McCarthy moved for sanctions under Federal Rule of Civil Procedure 37(c)(2), and the district
court granted the request, awarding McCarthy $15,313.11—a fraction of what she sought.
McCarthy appeals the amount of the award and seeks to collect the fees and expenses she
incurred to prepare and present the sanctions motion. API cross-appeals the propriety of the
sanctions. We affirm in part and reverse in part.
I.
The facts of this case are more comprehensively set forth in the companion appeal that
addresses the merits of McCarthy’s claims (No. 12-4510). In this appeal, a truncated version
will suffice.
API, a wholly owned subsidiary of AT&T, implemented a force reduction in its Dayton,
Ohio, office in July 2008. API managers informed McCarthy that her position at the company
would be terminated the following month. API provided McCarthy with two options. First, she
could retire in August 2008 and receive a lump-sum termination payment. If she selected this
option, she was allegedly told that she would not receive certain retirement benefits. In the
alternative, McCarthy could opt into AT&T’s Employment Opportunity Pool and continue to
receive healthcare benefits and a reduced wage until she reached the age of sixty-five in May
2009, when she could retire with full benefits. McCarthy chose the latter option.
In August 2010 McCarthy sued API in federal district court, alleging numerous claims
related to the termination of her position. About four months later McCarthy served API with
multiple RFAs, including RFA No. 10: “Admit that the Plaintiff would have been eligible to
receive retirement health benefits if her employment had terminated in August, 2008.” API
denied RFA No. 10 in January 2011. McCarthy and her counsel pressed further and explored
this issue throughout the litigation, and API continued to deny McCarthy’s eligibility. But API
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did turn over a pension-plan document showing that AT&T was the plan administrator, and in
July 2011 McCarthy amended her complaint to add AT&T as a defendant.
Then, suddenly, counsel for the defendants acknowledged in a May 2012 email that
McCarthy was eligible to receive post-retirement medical benefits as of the date on which she
entered the Employment Opportunity Pool. The defendants provided McCarthy with an August
2008 email from Tami Honda, a senior human resources manager at AT&T, to API managers
Dwight Cameron and David Zawisa. In the email, Honda wrote that someone at Hewitt, API’s
health and welfare benefits vendor, had determined that McCarthy was eligible for retirement
healthcare benefits in August 2008 under a “grandfather rule” applicable to former employees of
LM Berry, a company that API had acquired.
McCarthy immediately moved for sanctions under Federal Rule of Civil Procedure
37(c)(2). She argued that API had failed to provide accurate answers to six separate RFAs,
including RFA No. 10. In a July 2012 opinion, the district court granted in part and denied in
part McCarthy’s motion, concluding that both defendants should be sanctioned for their
inaccurate response to RFA No. 10 but that their responses to the other RFAs did not warrant
sanctions.1 The court allowed McCarthy thirty days to move for attorney’s fees and expenses
related to the sanctions, and McCarthy timely submitted her request the following month.
In late November and early December 2012, after awarding summary judgment to the
defendants on the merits of each of McCarthy’s claims, the district court held three days of
hearings to address McCarthy’s motion for attorney’s fees. On February 7, 2013, the court
awarded McCarthy $15,313.11 in fees and expenses—a fraction of the $153,688.39 she
requested. The court first concluded that Rule 37(c)(2) did not permit McCarthy to recover fees
and expenses related to the preparation of her fee application. The court then examined
McCarthy’s billing records and calculated the lodestar amount. The parties timely appealed.
1
The district court imposed the sanctions on both API and AT&T. The defendants later filed a motion for
reconsideration, and in August 2012 the district court relieved AT&T of liability for the sanctions because AT&T
was not a party to the suit at the time of the relevant transgressions. McCarthy does not appeal that order.
Nos. 13-3295/3331 McCarthy v. Ameritech Publ’g, Inc., et al. Page 4
II.
“A district court’s decision to invoke Rule 37 sanctions is reviewed by this court for an
abuse of discretion.” Beil v. Lakewood Eng’g & Mfg. Co., 15 F.3d 546, 551 (6th Cir. 1994)
(internal citations omitted). “An abuse of discretion occurs when (1) the district court’s decision
is based on an erroneous conclusion of law, (2) the district court’s findings are clearly erroneous,
or (3) the district court’s decision is clearly unreasonable, arbitrary or fanciful.” Id.III.
Although API does not appeal the district court’s July 2012 decision granting McCarthy’s
motion for sanctions, API nevertheless challenges the propriety of those sanctions in its brief.
McCarthy defends the district court’s decision to award sanctions but protests the amount of the
award. Both API and McCarthy claim that the issues raised by their adversaries are not properly
before this court. We will address those arguments in turn.
A.
API contends that the award of sanctions was improper for two reasons. API first
maintains that McCarthy is not entitled to sanctions under Rule 37(c)(2) because she did not
“make the proof.” Federal Rule of Civil Procedure 36(a)(1) provides that a party may serve on
any other party a request to admit the truth of any discoverable fact. Rule 37(c)(2) is the
enforcement mechanism for Rule 36: “If a party fails to admit what is requested under Rule 36
and if the requesting party later proves . . . the matter true, the requesting party may move that
the party who failed to admit pay the reasonable expenses, including attorney’s fees, incurred in
making that proof.” API argues that McCarthy did not “make the proof” because API, not
McCarthy, ultimately established McCarthy’s eligibility for post-retirement healthcare benefits
when API provided McCarthy’s counsel with the relevant email in May 2012.
District courts ordinarily impose Rule 37(c)(2) sanctions when one party refuses to admit
a fact and the other party is compelled to prove the truth of that fact to the jury. In those
circumstances the party that requested the admission is entitled to recover the fees and costs it
incurred to “make that proof.” But nothing in the language of the rule prevents a party from
obtaining sanctions when an opposing party initially refuses to admit a fact but later concedes its
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truth. See Johnson Int’l Co. v. Jackson Nat’l Life Ins. Co., 812 F. Supp. 966, 988 (D. Neb. 1993)
(“While a party may reduce its exposure for fees and expenses by making an appropriate
concession in the pretrial order, such a concession will not provide the party with a safe harbor
for the prior ill-advised denial where the adverse party has spent time and money to prove the
fact denied.”).
McCarthy established her August 2008 eligibility for post-retirement healthcare benefits
by subpoenaing records and deposing witnesses, and through that discovery she made the proof.
In May 2012, about a year and a half after McCarthy requested the admission, API finally turned
over an August 2008 email in which an AT&T human-resources manager told an API manager
that McCarthy was entitled to post-retirement healthcare benefits. LaRhonda Duncan, an API
corporate designee, then confirmed the contents of the email, and McCarthy’s August 2008
eligibility for post-retirement healthcare benefits, during a subsequent deposition. It was the
dogged efforts of McCarthy and her counsel to obtain information about McCarthy’s eligibility
that ultimately led to the disclosure of the August 2008 email. Accordingly, we have no trouble
concluding that McCarthy, not API, made the proof.
Second, API argues that the district court’s sanctions award constituted an abuse of
discretion because RFA No. 10 sought information that was of “no substantial importance” in
this litigation. Rule 37(c)(2) requires the district court to award reasonable fees and costs
associated with a party’s refusal to admit a fact unless, among other things, “the admission
sought was of no substantial importance.” Fed. R. Civ. P. 37(c)(2)(B). API contends that
McCarthy’s August 2008 eligibility for post-retirement healthcare benefits was of no substantial
importance to the causes of action alleged in her original complaint.
That argument plainly lacks merit. If McCarthy was eligible for post-retirement
healthcare benefits in August 2008, API’s representations to the contrary were false and
misleading. Those misleading representations allegedly led McCarthy to forgo retirement in
August 2008 and instead opt into the Employment Opportunity Pool—a decision, it turns out,
that led her to work for nine months with no added benefit. The representations therefore go to
the heart of her unjust-enrichment claim, which alleged that “AT&T has been unjustly enriched
as a result of its improper and unlawful conduct in the approximate amount of $31,547.49, which
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constitutes the value of McCarthy’s services for the 1,443 hours she worked from August 15,
2008 until May 7, 2009.”
API argues that McCarthy cannot prevail because neither the unjust-enrichment claim nor
any other claim in McCarthy’s original complaint survived summary judgment. But the
importance of the disputed fact does not turn on whether the requesting party is later able to
prove other, independent facts that relate to other elements of the claim. A fact is of substantial
importance when it is “material to the disposition of the case,” SEC v. Happ, 392 F.3d 12, 34 (1st
Cir. 2004), meaning that it tends to prove or disprove one of the disputed elements of the claim,
see Hicklin Eng’g, L.C. v. Bartell, 439 F.3d 346, 351 (7th Cir. 2006); Wash. State Dep’t of
Transp. v. Wash. Natural Gas Co., 59 F.3d 793, 806 (9th Cir. 1995). The importance of the
disputed fact is assessed at the time the request for admission is made, not at the end of the case.
An otherwise important fact does not become unimportant simply because the requesting party
subsequently loses the claim on some other basis. McCarthy’s unjust-enrichment claim
ultimately failed because an express contract governed her employment relationship with API,
but API’s misrepresentations were nonetheless “material to the disposition” of that claim.
Accordingly, McCarthy’s eligibility for healthcare benefits was of substantial importance to the
case, and the district court did not abuse its discretion when it awarded sanctions.
B.
McCarthy’s appeal raises an issue of first impression. When a litigant expends resources
to prove a fact that an opposing party refused to admit, Rule 37(c)(2) directs (and does not just
permit) the court to award monetary sanctions equal to “the reasonable expenses, including
attorney’s fees, incurred in making that proof.” Fed. R. Civ. P. 37(c)(2); see also Hicklin Eng’g,
439 F.3d at 351. The district court ordered API to compensate McCarthy for the fees and
expenses that she incurred to make the proof that she was eligible for post-retirement medical
benefits in August 2008. But the court did not award McCarthy any of the fees and expenses
associated with the preparation and presentation of her fee application, concluding that they are
not recoverable under Rule 37(c)(2). On appeal, McCarthy contends that she should recover the
fees and expenses she incurred while preparing and presenting her Rule 37(c)(2) fee application.
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The district court paired and contrasted Rule 37(c)(2) with Rule 37(c)(1), which provides
that a party who fails to make a required disclosure under Rule 26(a) may be ordered to pay the
fees and expenses “caused by the failure.” The district court reasoned that whereas the costs of
preparing and presenting a fee application are no doubt “caused by the failure” to make the
required disclosure, the costs of the fee application are not “incurred in making the proof” of the
unadmitted fact. The district court therefore concluded that the scope of the sanctions provided
in Rule 37(c)(2) is more limited than the scope of other Rule 37 provisions that allow litigants to
recover reasonable fees and expenses “caused by the failure” of an adversary to heed other
discovery rules—e.g., Rule 37(b)(2)(C), (c)(1)(A), (d)(3), and (f). In short, the district court read
the plain language of Rule 37(c)(2) to direct recovery for costs incurred “in making the proof”
but not costs involved in presenting a fee application because, strictly speaking, those costs are
not incurred in proving the requested admission.
We acknowledge the textual discrepancy between Rule 37(c)(2) and the other Rule 37
provisions. But the district court’s constricted interpretation is inconsistent with appellate
decisions in two other circuits implicitly extending the scope of Rule 37(c)(2) to cover the cost of
preparing a fee application. When In re Stauffer Seeds, Inc., 817 F.2d 47 (8th Cir. 1987),
reversed the district court’s calculation of the fees recoverable under Rule 37(c)(2), the Eighth
Circuit instructed that “[t]he magistrate’s scrutiny on remand should extend also to hours
reasonably spent by Booker’s local counsel in seeking the discovery sanctions.” Id. at 50. And
in Hicklin Engineering, L.C. v. Bartell, the Seventh Circuit held that the court “acted properly,”
439 F.3d at 351, when it awarded attorney’s fees under Rule 37(c)(2) “for the time expended by
the defendants in filing and briefing their motion for attorneys’ fees,” Hicklin Engineering, L.C.
v. Bartell, No. 00-c-1516, 2005 WL 3805914, at *3 (E.D. Wis. Mar. 31, 2005).
The limitation imposed by the district court also creates an inexplicable anomaly between
Rule 37(c)(2) and the other Rule 37 provisions. Why should the other provisions of Rule 37—
subsections (b)(2)(C), (c)(1)(A), (d)(3), and (f)—permit recovery of fees and costs associated
with preparing a fee application, as those costs are “caused by the failure” of an adversary to
comply with the respective discovery requirement, while Rule 37(c)(2) should not? We discern
no justification for such an anomaly. The violations set forth in subsections (d)(1)(A)(iii) and
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(c)(1) of Rule 37, for example, are not inherently more egregious than a violation of Rule
37(c)(2); those subsections, like Rule 37(c)(2), impose sanctions on litigants who fail to provide
information requested by their opponents. Indeed, a violation of Rule 37(c)(2) may be more
contemptible, as it often involves a misleading discovery response rather than a mere failure to
respond. In light of the overlapping purposes of the assorted provisions of Rule 37, it would be
incongruous to interpret Rule 37(c)(2) to bar district courts from awarding reasonable fees and
expenses associated with the preparation and presentation of fee applications.
Rule 36 further supports this result. If a party serves another party with a request for
admission under Rule 36(a)(1), and the requesting party is dissatisfied with the sufficiency of the
answer, the requesting party may ask the court to intervene. Fed. R. Civ. P. 36(a)(6). If the court
intervenes on behalf of the requesting party, Rule 36(a)(6) permits the court to award any fees
and expenses available under Rule 37(a)(5)—including fees and expenses “incurred in making
the motion.” Once again, we can discern no rationale for permitting the district court to award
these fees and expenses when a party provides an insufficient answer to a request for admission
but not when the party unreasonably denies the request for admission. An improper denial
causes no less damage than an evasive answer, and the Federal Rules of Civil Procedure deter
both with comparable force. In both instances, adequate deterrence is enhanced if the district
court is able to charge noncompliant or evasive litigants for the costs of the fee application—an
application directly attributable to their own conduct. See 7 Moore’s Federal Practice § 37.70
(3d ed. 2013) (stating that an “important purpose” of the expense-shifting sanction codified in
Rule 37(c)(2) is to establish incentives for litigants “to respond reasonably and in good faith to
appropriate requests for admissions”).
To harmonize Rule 37(c)(2) with other Rule 37 provisions serving a substantially similar
purpose, we interpret the scope of Rule 37(c)(2) to encompass reasonable attorney’s fees and
costs associated with the preparation and presentation of the fee application. Because Rule
37(c)(2) requires rather than merely permits the district court to make the award, the district
court’s discretion is circumscribed. Only fees and costs that the court determines to be
unreasonable may be withheld.
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McCarthy also challenges the district court’s denial of her request for fees incurred after
May 12, 2012, when API supposedly offered to stipulate to her August 2008 eligibility for post-
retirement healthcare benefits. But McCarthy did not preserve this argument because she did not
include it in her statement of the issues presented for review, as mandated by Federal Rule of
Appellate Procedure 28(a)(5). See Barrett v. Detroit Heading, LLC, 311 F. App’x 779, 796 (6th
Cir. 2009) (citing United States v. Baylor, 517 F.3d 899, 903 (6th Cir. 2008); United States v.
Ballard, 280 F. App’x 468, 471 n.1 (6th Cir. 2008)). McCarthy’s statement of the issues
presented asks whether she is entitled to recover “the cost of presenting Rule 37(c)(2) motions.”
Her argument section likewise identifies only one issue: “McCarthy Should Recover the Cost of
Preparing and Presenting Her Fee Application Under Rule 37(c)(2).” Neither of these statements
encompasses whether McCarthy is entitled to recover fees incurred after API privately
acknowledged her eligibility for post-retirement healthcare benefits. That issue was not properly
raised, and McCarthy therefore forfeited that aspect of her appeal.
IV.
For these reasons, the decision of the district court is affirmed in part and reversed in part.
The case is remanded to the district court with instructions to recalculate the amount of
attorney’s fees and expenses to which McCarthy is entitled under Rule 37(c)(2).