The opinion
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
BRAD WARRINGTON,
Plaintiff,
v. Case No.: 2:22-cv-77-JES-KCD
RAKESH PATEL and ROCKY
PATEL PREMIUM CIGARS, INC.,
Defendants.
/
ORDER
“Willful,” “intentional,” “bad faith,” “refusal to comply,” “persistent
failure,” “pattern of intentional delay and obstruction,” “delay tactics,” “willful
disregard,” “refusal to cooperate”—these are just a few of the words used by
Plaintiff in his motion (Doc. 87) requesting that the Court impose sanctions on
Defendants for their failure to follow the Court’s discovery order (Doc. 75). But
upon review of the briefing (Docs. 87, 100, 104), the Court finds that the fluff
doesn’t fit the facts. Thus, the motion is denied.
I. Background
This is a shareholder dispute in the discovery phase. Brad Warrington
and Rocky Patel’s business relationship began in 1996. Once neighbors and
close friends, Warrington supported Rocky’s vision to start a cigar company
and partnered with him to do so. Warrington became a minority shareholder
in Rocky Patel Premium Cigars, Inc. (“Patel Cigars”).
Fast forward to 2015, when Warrington sought to divest his holdings in
the company. To do so, he had to comply with the terms of a buy-sell agreement,
under which the company has the right of first refusal. Warrington began
verbal discussions with Patel Cigars about selling his shares to the company,
but they could not agree on the share’s value. Warrington then asked for the
company’s financials, but it failed to respond. Thus, Warrington was allegedly
forced to enter an agreement to sell only part of his shares at a discounted
price.
Warrington claims Defendants purposefully withheld corporate records,
concealed the true value of Patel Cigars, and did not comply with their
obligations under the buy-sell agreement. This all resulted in Warrington’s
inability to properly value his shares in the company. From these general facts,
the operative complaint contains a host of state-law claims. (Doc. 1.)
Last August, following oral argument, the Court ruled on a discovery
dispute involving financial documents. (Doc. 75.) The Court ultimately found
that Warrington was entitled to discovery of financial documents going back to
1996. Given the broad timeframe, Defendants reported that many documents
were in paper format and not saved digitally.
The day after the Court’s discovery order, a stay was entered pending an
interlocutory appeal about whether the case should go to arbitration. Discovery
halted.1 The stay was lifted on March 23, 2023. (Doc. 79.) Shortly after,
Defendants began producing the financial documents at issue in the Court’s
discovery order.
In April, a warehouse containing thousands of archived paper documents
was made available to Warrington for inspection, copying, or scanning to
digital format. Given the volume, Defendants were told it would cost around
$60,000 to scan the warehouse materials. Then, at the end of April, Defendants
served Warrington with an amended response to the discovery requests,
stating that all responsive documents had been produced electronically
(Defendants provided a password protected link to access those documents)2 or
were available for inspection as they are kept in the ordinary course at the
warehouse. (Doc. 100 at 10; Doc. 100-7.) Nine days later, Warrington’s counsel
responded with a two-sentence email: “I am following up on this because your
recent discovery response remains inadequate. Let me know if you are
opposed.” (Doc. 100-3.) Within minutes, counsel for Defendants asked for more
specificity, offering to correct any inadequacies. (Doc. 100-4.) Defendants got
1 Warrington complains that he has been waiting 15 months for responsive documents to be
produced, but he doesn’t account for the time that the case was stayed.
2 The financial documents produced in electronic format went as far back as 2005. (Doc. 100-
10 at 3.)
no response. Rather, the next day, Warrington filed this motion for sanctions
having never visited the warehouse to inspect the documents.
Warrington alleges that Defendants have not produced “full, fair, and
complete responses” to his first set of discovery requests despite the Court’s
order. (Doc. 87 at 9.) In particular, Warrington states that of the documents
the Court ordered be produced, Defendants have failed to supply: Rakesh
Patel’s tax returns before 2014; Patel Cigars’ tax returns before 2008; bank
statements before 2015; financial statements before 2005; board meeting
information before 2016; loan information before 2016; complete details on
related party transactions, corporate assets, and loans; IP related payments;
and information on entities owned partially or fully by Rakesh Patel. (Doc. 87
at 5.)
Because Defendants have conveyed they will not produce all the
documents ordered, Warrington says that the only effective remedy is a default
judgment. (Doc. 87 at 11.) Alternatively, Warrington requests that the Court
establish certain facts from the complaint he sought to prove through discovery
as allowed by Federal Rule 37(b)(2)(A)(ii). That is, Rocky Patel orchestrated
the preferential distribution of Patel Cigars’ assets, concealed and
misrepresented corporate documents, misused company funds, engaged in self-
dealing, usurped opportunities rightfully belonging to the corporation, and
failed to act in the corporation’s best interest. (Doc. 87 at 13.) On top of these
sanctions, Warrington requests, under Federal Rule 37(b)(2)(C), that he be
awarded attorney fees. Notably missing from Warrington’s motion, however, is
any mention of the warehouse full of documents made available to him.
In response, Defendants say they have reasonably complied with the
Court’s order as supported by the affidavits of Patel Cigars’ Chief Financial
Officer and the lawyer responsible for responding to the discovery requests
(Docs. 100-9, 100-10), as well as photographs of labeled banker’s boxes in the
warehouse (Doc. 100-8). They state that hours were spent compiling and
reviewing the financial documents for production.3 And the archived paper
documents are stored and maintained in the warehouse in the ordinary course
of business. Taking an extra step that the Court rarely sees in discovery
disputes, Defendants’ response brief lists the documents Warrington says have
not been produced and explains what efforts were made to obtain those
documents and where they are located. (Doc. 100 at 12-13.) This is the
information that the parties should have exchanged in conferral.
On the conferral issue, Defendants assert that a good-faith effort never
occurred, pointing to the cursory email exchange between the parties before
Warrington filed his motion. The Court agrees that its rules and discovery
3 The task was made even more time consuming because the prior CFO, Bharat Muchhala,
who was intimately familiar with the company’s finances for over a decade, died suddenly in
2022.
handbook, painstakingly drafted to avoid such matters coming before the
Court, were not followed here. This is most evident by the fact that Defendants
contacted Warrington the day before the motion for sanctions was filed, asking
for elaboration on any deficiencies, and Warrington did not respond.
Warrington replies that the parties conferred multiple times. (Doc. 104
at 2.) But the Court notes that the number of conferrals isn’t the focus—the
quality of those conferrals is. The parties must meaningfully confer, not trade
ultimatums by email. Warrington’s counsel cites the emails she sent regarding
the production, but those emails make no attempt to meaningfully discuss any
deficiencies in the production.
The Court could reject Warrington’s motion under Local Rule 3.01(g)
alone. Yet doing so would leave it in a conundrum. Denying the motion would
put the ball back in the parties’ court to work together to solve this dispute.
Can that be done? The Court has little confidence. So to ensure that discovery
moves along, the Court will rule on the motion now.
II. Legal Standard
District courts have broad discretion in controlling discovery and
imposing sanctions. See Dillon v. Champions' BBQ, Inc., No.
807CV544T23MAP, 2008 WL 186528, at *1 (M.D. Fla. Jan. 18, 2008).4 Rule 37
provides the framework for discovery sanctions:
(2) Sanctions Sought in the District Where the Action Is Pending.
(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 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 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;
(ii) prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from
introducing designated matters in evidence;
(iii) striking pleadings in whole or in part;
(iv) staying further proceedings until the order is
obeyed;
(v) dismissing the action or proceeding in whole or in
part;
(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).
4 Unless otherwise indicated, all internal quotation marks, citations, and alterations have
been omitted in this and later citations.
The above sanctions are available to prevent unfair prejudice to the
litigants and ensure the integrity of the discovery process. See CS Bus. Sys.,
Inc. v. Schar, No. 5:17-CV-86-OC-PGBPRL, 2017 WL 9939116, at *1 (M.D. Fla.
Sept. 5, 2017). But a severe sanction like that of a default judgment, as sought
here, is appropriate only as a last resort. See Malautea v. Suzuki Motor Co.,
987 F.2d 1536, 1542 (11th Cir. 1993) (citing Navarro v. Cohan, 856 F.2d 141,
142 (11th Cir. 1988)). “Violation of a discovery order caused by simple
negligence, misunderstanding, or inability to comply will not justify a Rule 37
default judgment.” Malautea, 987 F.2d at 1542. Imposing a severe penalty
requires a willful or bad-faith failure to obey a discovery order. See
BankAtlantic v. Blythe Eastman Paine Webber, Inc., 12 F.3d 1045, 1050 (11th
Cir. 1994).
Likewise, sanctions are generally not warranted where a party has
shown that it made all reasonable efforts to comply with the court’s order.
Yellow Pages Photos, Inc. v. YP, LLC, No. 8:17-CV-764-T-36JSS, 2019 WL
3817385, at *2 (M.D. Fla. Aug. 14, 2019) (citing BankAtlantic v. Blythe
Eastman Paine Webber, Inc., 12 F.3d 1045, 1050 (11th Cir. 1994)).
III. Discussion
The discovery rule governing the production of documents states that a
party must produce documents or electronically stored information as follows:
(i) A party must produce documents as they are kept in the usual
course of business or must organize and label them to correspond
to the categories in the request;
(ii) If a request does not specify a form for producing electronically
stored information, a party must produce it in a form or forms in
which it is ordinarily maintained or in a reasonably usable form
or forms; and
(iii) A party need not produce the same electronically stored
information in more than one form.
Fed. R. Civ. P. 34(b)(2)(E). The burden of proving that the documents were
produced in the usual course of business falls on the producing party. See
Mizner Grand Condo. Ass’n, Inc. v. Travelers Prop. Cas. Co. of Am., 270 F.R.D.
698, 700 (S.D. Fla. 2010).
Patel Cigars says it has consistently kept certain financial and other
documents in paper format, labeled in banker’s boxes, on its premises over the
years, particularly older documents. For example, one of Warrington’s requests
is for tax returns going back to 1995. There is a banker’s box in the warehouse
labeled “Tax returns 97–2013.” Defendants assert that they have produced all
electronic records they have been able to find after a diligent search, and
additional paper documents stored in the warehouse have been made available
for inspection and copying. Outside of these documents, Defendants are
unaware of any other responsive materials.
Based on the information presented, the Court cannot say that
Defendants willfully failed to comply with the Court’s discovery order in bad
faith. The Court fails to see how Defendants’ conduct meets the egregious
description that Warrington offers. He would have the Court believe that
Defendants have done absolutely nothing to respond to his discovery requests.
Not so. Defendants have made its records available, which as mentioned,
appear organized and labeled.
Warrington complains about how the “dusty, damaged, or stained” boxes
are kept. But as far as the Court can tell, he has not tried to work with opposing
counsel to obtain more information about what is in those boxes, let alone avail
himself of the opportunity to review the warehouse of documents. One
suggestion is to simply ask opposing counsel to explain what is in some boxes
that Warrington has concerns about. Otherwise, from the photos, many boxes
contain labels that indicate they have documents responsive to Warrington’s
requests.
The Court finds no flagrant disregard or willful disobedience of its
discovery order such that sanctions are due. To the contrary, Defendants have
met their burden to show they produced the documents as they are kept in the
ordinary course of business. There may be other relief available concerning the
format of production, such as an order to provide an index or summary, but no
such request is before the Court. Finally, many cases that Warrington cites
about the format of production were before the court on a different posture,
such as a motion to compel, which presents a far different standard than what
the Court must apply now in assessing sanctions.
One last point. Both parties are reminded of their continuing obligation
to meet and confer in a good-faith effort to resolve issues to be raised in a
motion before coming to court. Counsel are also strongly urged to abide by the
mandate of Rule 1 requiring that all civil procedure rules, including rules
governing discovery, be construed and administered “to secure the just, speedy,
and inexpensive determination of every action and proceeding.” Fed. R. Civ. P.
1.
Accordingly, it is now ORDERED:
Plaintiff's Motion for Sanctions (Doc. 87) is DENIED.
ORDERED in Fort Myers, Florida this June 9, 2023.
GEE iad
“ Kale C. Dudek
United States Magistrate Judge
Copies: All Parties of Record
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