Kiddie Academy Domestic Franchising, LLC v. Wonder World Learning, LLC Civil No. 17-cv-03420-ELH United States District Court, D. Maryland Filed April 08, 2020 Counsel Vernon W. Johnson, III, Jamie Lee, Nixon Peabody LLP, Washington, DC, for Kiddie Academy Domestic Franchising, LLC. Harry M. Rifkin, Law Offices of Harry M. Rifkin LLC, Baltimore, MD, for Wonder World Learning, LLC, Supriya Sumanth, Sumanth Nandagopal. Coulson, J. Mark, United States Magistrate Judge LETTER TO ALL COUNSEL OF RECORD *1 Counsel: Pending before this Court is Wonder World Learning, LLC, Supriya Sumanth, and Sumanth Nandagopal's (“Defendants”) request for sanctions against Kiddie Academy Domestic Franchising, LLC, Joshua Frick, Lene Steelman (“Plaintiffs”), Third-Party Defendants, and Plaintiffs’ Counsel – Nixon Peabody, LLP, Vernon Johnson III, and Kenneth Nichols for alleged discovery failures. (ECF No. 84). Defendants request this Court dismiss Plaintiffs’ claims; award judgment in favor of Defendants; and award attorneys’ fees to Defendants pursuant to Federal Rules of Civil Procedure 37(b) and 41(b). (ECF No. 84 at 1). Plaintiffs and Third-Party Defendants filed an Opposition. (ECF No. 85). Defendants have filed a Reply. (ECF No. 86). I find that no hearing is necessary. See Local Rule 105.6. For the reasons set forth below, Defendants’ Motion (ECF No. 84) is DENIED. Before discussing the instant Motion, it is essential to reiterate the history of discovery in this case, so that Defendants’ latest assertions can be evaluated in the proper context. In short, the scope of permissible discovery has been narrowed by the Court over time, a fact Defendants’ Motion largely ignores. On September 10, 2019, Judge Hollander referred this case to me for all discovery and related scheduling. (ECF No. 45). At that time no formal discovery disputes were pending, however, the parties’ joint status report to Judge Hollander (at what was supposed to be the end of discovery) forecasted that the parties were unhappy with each other's discovery responses and that discovery motions were being contemplated. (ECF No. 43). Because formal discovery motions practice is often an inefficient model for resolving discovery disputes, on September 13, 2019, I entered a Paperless Order whereby the parties were to confer with each other in an attempt to resolve, or at least narrow the dispute, and then raise any unresolved issues in a succinct letter to me, prior to any formal motions. (ECF No. 47). Rather than abide by my Order, on October 4, 2019, Defendants filed a lengthy Motion to Compel Discovery. (ECF No. 48). In that Motion, Defendants took issue with Plaintiffs’ discovery responses to interrogatories and requests for production, including some of those raised in the present motion.[1] The gravamen of the dispute was the effect of Judge Hollander's March 31, 2019 Order dismissing large swaths of Defendants’ Amended Counterclaim and leaving only Defendants’ claim for Negligent Misrepresentation. (ECF No. 34). As Plaintiffs then noted, many of the disputed discovery requests were overly broad on their face, especially in relation to the single cause of action that Judge Hollander's Order spared. Blatant examples include some of the very requests that are issue in the instant motion: Request 7: “Any documents relating in any way to any meetings among any management personnel at Kiddie concerning [Defendants]. Request 13: “Any documents relating in any way to and complaints by [Defendants] relating to its Kiddie Academy franchise.” *2 Request 15: “Any documents relating in any way to any communications within Kiddie concerning the performance of [Defendants].” (ECF No. 84-1 at 3) (emphasis added). On October 10, 2019, the Court denied Defendants’ Motion to Compel for ignoring the procedure set forth in its September 13, 2019 Paperless Order. (ECF No. 51). Nonetheless, the Court provided guidance to Counsel on the now greatly narrowed scope of permissible discovery relating to the surviving Negligent Misrepresentation Count. This included specific guidance on three (of the four) requests at issue here. (ECF No. 51). The Court further instructed the parties to meet and confer regarding that guidance, and that if any disputes developed, to follow the streamlined discovery dispute procedure set forth in the Court's September 13, 2019 Paperless Order. Consequently, by October 10, 2019, the playing field had significantly changed — the scope of permissible discovery was significantly narrowed. If Defendants objected to that narrowing, they could have pursued an appeal of that ruling with Judge Hollander at that time. The Court also ordered that “no further discovery motions shall be filed without permission of the Court after [the streamlined process] has been complied with in good faith and, as necessary, addressed by the Court.” (ECF No. 51). On October 17, 2019, the Court granted a limited extension of discovery to accommodate the supplementation outlined in its October 10 Order, and any discovery directly flowing from that supplementation. (ECF No. 54). In so doing, the Court cautioned that this limited extension was “not an opportunity to revisit other discovery already provided and for which reasonable follow-up (including depositions) could have been pursued.” Id. The Court instructed the parties to confer and propose a schedule for the Court's consideration. That did not occur. However, as observed in this Court's January 28, 2020 Order (discussing another discovery dispute), Plaintiffs apparently filed revised responses on December 20, 2019 (ECF No. 85 at 6) and completed the final tranche of their document production on January 17, 2020. (ECF No. 78). In the interim, on November 15, 2019, Judge Hollander permitted a narrow amendment of the factual allegations supporting the Negligent Misrepresentation counterclaim, but not an expansion of that claim. (ECF No. 63). Judge Hollander also permitted Defendants to add individual claims for negligent misrepresentation against two of Plaintiffs’ employees: Steelman and Frick. Id. Based on this narrow amendment, on January 28, 2020, this Court permitted additional targeted discovery of documents relating to the specific incidents detailed in Judge Hollander's opinion, as well as similarly narrow depositions of Steelman and Frick regarding those incidents. (ECF No. 78). As to Frick, the discovery was limited to an email dated March 24, 2014 to Defendants regarding a potential loan from Evolve Bank. With respect to Steelman, discovery was limited to pro formas prepared by Steelman dated May 9, 2011 and June 19, 2013 and, in particular, information in those pro formas regarding to the number of teachers required under Texas law, the cost of child-sized toilets, and the estimated costs of payroll and property taxes. Id. A new discovery deadline of March 10, 2020 was set. Id. *3 Wholly disregarding the Court's streamlined discovery dispute process, as set forth in its September 13, 2019 order (ECF No. 47) and reiterated in its October 10, 2019 Order (ECF No. 51) — including the Court's specific provision that no discovery motions were to be filed without prior Court approval — Defendants filed the instant Motion for Sanctions against Plaintiffs, Plaintiffs’ Counsel, and Third Party Defendants Steelman and Frick for discovery failures. (ECF No. 84). Defendants justify this by their assessment that “another motion to compel was only going to stall their case even more.” (ECF No. 89 ¶ 8). The Court agrees with that statement as far as it goes, but Defendants give no reason why the Court's streamlined discovery dispute process—a process designed to bypass the formal motions practice that Defendants decry—was also completely ignored. Federal Rule of Civil Procedure 37 governs discovery related sanctions. This rule empowers the Court to impose sanctions for a party's failure to provide court-ordered discovery.[2] This Court also “has the inherent authority in appropriate cases to impose sanctions against a litigant or a member of the bar who has acted in bad faith, vexatiously, wantonly, and for oppressive reasons.” Glynn v. EDO Corp., No. JFM-07-01660, 2010 WL 3294347, at *2 (D. Md. Aug. 20, 2010), see also Poole v. Textron, Inc., 192 F.R.D. 494, 497 (D. Md. 2000). The Court is mindful that this inherent authority “ought to be exercised with great caution, in circumstances such as those involving the very temple of justice being defiled.” Glynn, 2010 WL 329427, at *2. This is not such a circumstance. The gist of the pending motion is that Plaintiffs (and Third-Party Defendants) wrongfully failed to produce “committee reports, minutes of committee meetings, phone logs, notes of telephone conversations and flash reports,” and misrepresented that they did not exist. (ECF No. 84-1 at 1). Defendants allege that these documents have been hidden or destroyed by Plaintiffs, Third Party Defendants, and/or their counsel because such documents would prove that Plaintiffs knew that Defendants and the majority of other franchisees performed well below projections touted by Plaintiffs. Id. at 2–3. Accordingly, Defendants argue that sanctions are appropriate because Plaintiffs’ failure to provide adequate and complete discovery responses resulted in serious prejudice to Defendants. In support of Defendants’ allegations regarding the existence of these documents, Defendants submit the Sworn Statement of Plaintiffs’ former employee, Lisa Conley.[3] Defendants assert that during Ms. Conley's tenure as Plaintiffs’ Finance Manager, from November 2013 to September 2016, bi-weekly reports were generated by each department (Finance, Education, Real Estate and Construction) for use in bi-weekly committee meetings, and that Defendants “were frequently a subject of these reports.” (ECF No. 84-2 ¶¶ 2, 4). Further, Ms. Conley states that minutes were taken during meetings and that Defendants’ franchise was frequently discussed. Id. ¶ 5. Ms. Conley also states that she was instructed to log all calls with franchisees, and that notes were frequently taken. Id. ¶¶ 7, 8. Finally, Ms. Conley states that weekly “flash reports” were generated by the Accounting Department listing every franchisee and tracking their actual performance against projected budgeted performance, and this included Defendants. Id. ¶ 9. *4 In further support of their Motion, Defendants rely on Defense Counsel's Sworn Statement to the effect that Plaintiffs’ Counsel[4] represented “on several occasions” and most recently “in October 2020 (sic)” that Plaintiffs’ personnel did not take notes of telephone conversations concerning Defendants and did not have any minutes or notes of any meetings wherein Defendants’ franchise was discussed. (ECF No. 84-3 ¶¶ 2, 3). Defendants argue that these representations conflict with Ms. Conley's statement that such documents existed during her tenure. Defendants contend that the “committee reports, minutes of committee meetings, notes of telephone conversations and flash reports” described by Ms. Conley come within their Requests for Production 7, 13, 14 and 15, as originally drafted. In so arguing, they ignore the substantial narrowing in this Court's Order of October 10, 2019, and the guidance provided to the parties based on Judge Hollander's dismissal of most of Defendants’ Amended Counterclaim. (ECF No. 84-1 at 3). Plaintiffs deny any wrongdoing by themselves, Third Party Defendants, or their Counsel. Plaintiffs attach as an exhibit a sworn declaration from former counsel Mr. Nichols specifically disputing Defense Counsel's statement, and describing a contemporaneous writing summarizing the meeting described. (ECF Nos. 85-4 & 85-5). Plaintiffs argue that they have supplemented their production based on this Court's guidance,[5] and also have fully complied with their agreements with Defendants, as set forth in their October 30, 2019 letter to Defense Counsel. (ECF No. 85-5). Further, they detail several examples of their discovery responses that specifically did include materials from “committee reports, minutes of committee meetings, notes of telephone conversations and flash reports,” in instances where such were otherwise responsive to that narrowed scope. (ECF No. 85 at 26–29). The Court finds several fatal flaws in Defendants’ Motion for Sanctions. First, it wholly ignores this Court's previous Orders as to how discovery disputes were to be handled, including this Court's order that no discovery motions were to be filed without prior Court approval. Defendants’ Reply informs the Court that he was “left with little choice but to go forward with the sanctions motion,” and there was “no need for a motion to compel.” (ECF No. 86 at 5). Id. Discovery disputes arise, and the Rules provide mechanisms for the resolution. Here, Defendants deliberately declined to attempt resolution through the preferred means and filed the instant motion. More fundamentally, Defendants’ Motion ignores the narrowing of permissible discovery in this case as outlined in this Court's Orders of October 10, 2019 and January 28, 2020 as a result of Judge Hollander's March 31, 2019 ruling eliminating all but one count. With this narrowing, Plaintiffs’ discovery obligations were likewise limited. Taking Ms. Conley's affidavit at face value, even assuming, hypothetically, that there are “committee reports, minutes of committee meetings, notes of telephone conversations and flash reports” that reference Defendants but have not been produced, Plaintiffs are under no duty to produce them unless they also fall within the much smaller Venn diagram superimposed on Defendants overly-broad discovery requests by the previous rulings of this Court. Plaintiffs set forth in specific detail where that has been the case and where they, correspondingly, have produced such materials. See (ECF No. 85 at 26–29). This production, of course, contradicts any assertion by Defendants that Mr. Nelson represented that the materials do not exist. Defendants’ Motion ignores this narrowed scope, reasserts the overly broad requests already found infirm by this Court, and dramatizes them by way of exclamation points, and a plethora of literary, political, and historical references, without conceding that their case now is a shadow of its former self. *5 Finally, the Court is troubled by the timing of Defendants’ Motion. Ms. Conley has been a resource to Defendants since at least June of 2019. Defendants could have asked Ms. Conley to review Plaintiffs’ supplemental production when first described in Plaintiffs’ letter to Defense Counsel on October 30, 2019, and certainly by the time that supplementation ended with the final batch of documents on January 17, 2020. Almost two months later —after yet another narrowing of discovery as set forth in this Court's January 28, 2020 Order — Defendants for the first time raise these serious charges of misconduct against Plaintiffs, Third Party Defendants and their Counsel without anything close to the justification this Court would expect in support. Doing so on the last day of discovery without prior complaint further undermines those arguments. Accordingly, Defendants’ Motion for Sanctions (ECF No. 84) is DENIED. Despite the informal nature of this letter, it is an Order of the Court and will be docketed as such. Footnotes [1] In their original Motion to Compel, Defendants raised, inter alia, Requests 7, 13 and 15. Their instant motion now adds Request 14. [2] Under Rule 37(b)(2), the authority to which the instant motion is apparently brought, a court may sanction a party for failure “to obey an order to provide or permit discovery[.]” This Court expresses its uncertainty that this rule applies, as Kiddie Academy did respond to the subject requests – as this Court ordered– and interposed objections where appropriate. (ECF No. 85 at 24). Moreover, this rule requires a certification that “the movant has in good faith conferred or attempted to confer with the party failing to act in an effort to obtain the answer or response without court action.” Fed. R. Civ. P. 37(d)(1)(b). As has been the pattern with Defendants Motions, this does not include the required certification, and it does not appear that any such good faith conferral was attempted. [3] Plaintiffs label Ms. Conley a “disgruntled former employee,” (ECF No. 85 at 28–29). This is the second sworn statement that Defendants utilized from Ms. Conley, the first being from June 4, 2019. (ECF No. 40-3). [4] The specific lawyer named, Mr. Nichols, is no longer counsel of record for unrelated reasons. [5] The Court provided this guidance in its October 10, 2019 Order substantially narrowing the scope of discovery, and its January 28, 2020 Order allowing for targeted discovery from Third Party Defendants’ Steelman and Frick.