In Re: USA Commercial Mortgage Co., No. 2:2009cv01947 - Document 100 (D. Nev. 2010)
Court Description: ORDER Denying 59 and 62 Motion for District Judge to Reconsider Order. Granting 66 Motion for District Judge to Reconsider Order. IT IS FURTHER ORDERED that the total award of $50,000 is reallocated as follows:$25,000 against A nthony Monaco, Susan Monaco, and the community thereof,jointly and severally,' and $25,000 against W inthrop Couchot Professional Comoration. Signed by Judge Robert C. Jones on 5/6/2010. (Copies have been distributed pursuant to the NEF - SD)
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FILED Erk' jERii1) - RECEI C/ED - sFr '.b'E/)()!1 CIIJNCFL,E/ kiizsu' r .REC;;JF 't2 klt - 6 2t 1:() 3 UNITED STATES DISTRIC (Y! CLEl) 7: ;p k't4lFI r ?''' :7RlS J%1;C ?J JR' f iSTf :C;T Clf ). 'L' .uz. n k PFRLITV DISTRICT O F NEVAD A USACM LIQUIDATING TRUST, Plaintiff, 2:09-cv-01947-RCJ-PA L AN THON Y M O NACO etal., O RD ER Defendants. This28U.S.C.j 1334 adversaryproceedingarisesoutofthe allegedunlawfuluseofand failuretorepay fundsofbankruptUSA Comm ercialM ortgageCo.(SCUSACM D')bytwo form er USACM insiders,Thom asA.Hantgesand JosephD.M ilanowski(collectively,theS6culpable Insiders''),inconjunctionwithDefendantsAnthonyMonaco,SusanMonaco,andMonaco D iversitied Corp.,in orderto tinance protitable realestate developm cnts. In Re: USA Commercial Mortgage Co. PlaintiffUSACM LiquidatingTrust(the ût-l-rust'')allegestheCulpablelnsidersdirected Doc. 100 the transferof$5 m illion ofU SACM 'S funds in orderto capitalize realestate developm ent venturesbetween them selvesand Dcfendants.Thcunlaw fuladvancesm ade these 20 devclopm ents possible,Defendantsreceived over$23 m illion from the developm ents,and 21 USA CM wasneverrepaid. AlIcausesof action have bcen dism issed exceptthe fourth cause of 22 acticm foruqjustenrichment.DefendantsarguethattheTlust'sunjustenrichmentclaim is 23 barredby:(1)theexistcnceofan expresscontract' ,(2)lack ofstanding' ,and (3)thedefenseofin 24 paridelicto. Defendantspreviously raised each oftheseargum entsin a m otion to disrniss, 25 Dockets.Justia.com 1 w hich was denied by the Banl truptcy Court. On January 27,2010,the Courtdenied Defcndants' 2 M otion forSummaryJudgment(//4)andgranted inpartPlaintiff'sM otion to lmposeSanctions 3 forDiscovery Abusesandto CompelDiscovery(#15).(See//55).ThcCourtdenied adefault 4 judgmentbutgrantedmonetarysanctionsinthetotalamountof$50,000:(i)$25,000against 5 AnthonyMonaco,SusanMonaco,andthecommunitythereof,jointlyandseverally;and(2) 6 $12,500 each againstW inthrop CouchotProfessionalCorporation (ttW inthrop Couchot'')and 7 Santoro,Driggs,W alch,Kcarney,Holley& Thompson (tisantoro''). Each ofthcscDetkndants 8 has now m oved forrcconsidcration ofthc orderforsanctionspursuantto Rules 54,59,and 60. 9 (See#59,#62 #66).Forthereasonsgivenherein,theCourtdeniestheM onacos'andW inthrop 10 Couchot'sM otionsforReconsideration (//59,//62)and grantsSantoro'sM otion for 11 Rcconsidcration (//66). 12 1. BA C KG RO UND l3 A. USACM and USAIP 14 U SACM was a licensed m ortgage brokcrthatoriginated and serviced m ulti-beneticiary 15 loanssecuredbyrcalpropcrty.(#18!(9).Throughouttherelevanttimeperiod,USACM was 16 owned by Hantges,M ilanowski,The Jam ie Linn Hantges Separate Property TrustUAD 6/l2/97 17 (içlamieW iseTrust''),RedGranite,LLC (idlkedGranite''),andPaulS.Hamilton.(#19!(!(2... 4, . 18 //20-1.atl57).In addition to Hantgcs,M ilanowski,andVictoriaLoob,USACM alsohad other 19 ofticers,încludingachiefl inancialofficer,Robel'tA.Hilson.(//21,Ex.H,at11:24-14:4). ln 20 addition,Eugene Bucklcy,served asan outside directorfrom early 2001untilrcsigning in 21 September2003.(1d.,Ex.1,at48:1-3and 66:7-15).Thereisno evidenccin therecord to 22 suggcstthatthcJam ic W isf zTrust,Red Granite,Hilson,Bucklcy,and/orH am ilton were aware 23 oforparticipatcd in thc CulpableInsiders'm isconduct. 24 HantgesandMilanowskicreatedUSA lnvestmentPartners,LLC (tiUsAIP'')asa 25 page 2 of 15 1 holdingcompanyforlandacquisitionand/orrealestatcdevelopmententities.(#l8!(1l). 2 U SA IP obtained m any ofthese interestsw ithoutm aking any cash contributions oratm ost 3 nominalcontributions inexchange.(1d.! 12).Rather,theinvestm entsheld by USAIP were 4 principally obtained asa resultofthe Culpable Insiders'm isconductin divcrting m illionsof 5 dollarsfrom USACM to USAIP fortheirown gain.(f#.! 12-13).USACM neverheld any 6 ownership interestinUSAIP.(/J.1111). 7 B. 8 Eagle Ranch LLC w asa realestatc holding com pany owned by sevcralinvestorsthat 9 10 TheEagleRanchProject heldseveralhundred lotsin Victonzille,California.tfJ.!(! 14-15). EagleRanch,LLC'S m anagcrthroughoutthe relevanttim e period w asU SA Com m ercialRealEstate Group,which 11 wasowned and managed bytheCulpablclnsiders.(1d.j 15). The lotsowned by EagleRanch, 12 LLC were partofa pre-existing çtEagle Ranch''developm entthathad previously been ow ncd l3 and partiallydevelopcdby lnco l' lom esCorp.(i61nco5').(/#.!(14' ,//21,Ex.A ,at50:10-18). l4 Anthony and Susan M onaco each had exposure to the Eaglc Ranch developm cntduring their 15 tenure atInco in the m id to late 1990'sas superintendentand vicepresidentofm arketing, 16 respectively.(#2l,Ex.A,at49:16-50:l8,51:2-15;id.,Ex.C,at36:18-37:16,38:22-39:18), 17 Thus,the Culpable Insidersretained Anthony and Susan M onaco as paid consultantsto assistin 18 pre-developm entoftheIotsowned byEagleRanch,LLC.(#2l,Ex.A,at53:25-56:3, .id.,Ex.C, 19 at51:14-52:5). ln August2000,theCulpablclnsidersand theM onacosformed EagleRanch 20 Residential,LLC (içERR'')inordertodevelopthclotsownedbyEagleRanch,LLC.(//6,Ex.1). 21 W henERR wasfonned,theM onacoslackedthecapitaltofundtheproject,(#2l,Ex.A,at 22 257:7-25,105:2-108:15),andEagleRanch,LLC,beîng aholding company,hadno încom eof 23 itsown,(#l8! l5).Asaresult,theCulpableInsiderscaused USACM to advance 24 $5,004,445.16 to Eagle Ranch,LLC,ERR,and/orthird partiesforthe benetitofEagle Ranch, 25 page 3 of 15 1 LLC andERR.(1d.!1116,18-19).TheadvanccsUSACM madctofundtheEagleRanch 2 projectwerecapitalcontributions' ,haditnotbeenfortheadvances,thedevelopmenteffortsof 3 theEagleRanchprojectncverwouldhavebecnpossible.(//21,Ex.A,at257:7-25, 4 105:2-108:1j). 5 C. 6 RevenuesoftheEagleRanchprojectwerenotusedtore-paytheadvancesmadefrom TheW illowbrook Projectand OtherProjects 7 USACM SSfunds,butwereinsteaddivertedintootherrealestateprojects.(/#.,Ex.A,at 8 257:7-25,105:2-108:15).Thetirsttwooftheseprojectsultimatelywercownedby 9 10 W illowbrook Residential,LLC (çûW illowbrook'').Theprojectsowned by W illowbrook were entirely capitalized w ith salesrevenuesdiverted from the developm entofthe Eagle Ranch 11 projectandwithfundsadvancedfrom USACM.(f#.,Ex.A,at258:5-19,126:10-22,142:8-18). 12 Haditnotbeenforthcseadvances,thedevelopmentoftheW illowbrookprojectsneverwould 13 havebeenpossible.(/J.).AsthedevelopmentoftheprojcctsownedbyW illowbrook 14 Residcntiat LLC began to generaterevenue,theserevenucsw ere used,along w ith ERR l5 revenuesandadditionaldiversionsofUSACM assets,tocapitalizeotherrealestatcprojects. 16 (/#.,Ex.A,at258:20-25,260:3-18).Eachoftheseprojects---owneddirectlyorindirectlyby l7 DcfendantsandUSAIP functioned asasingle,integratedcompany(colleetively,the l8 ttfanamcraResidentialGroup,''or1TRG'').(1d.,Ex,A,at262:3-263:1, .//18!J !21-22).Funds 19 w ereroutinely 20 commingledbetwecnERR,W illowbrook,andotherTRG projects,ascashwascirculatedonan 21 tûas-necded''basis.(#21,Ex.A,at263:7-264:9). 22 D. Distributions to D efendants 23 Although USACM provided the capitalthatm ade developm entofthe Eagle Ranch 24 andTRG projectspossible,USACM wasnevcrrepaidfor$3,024,445.16oftheadvancesthatit 25 page 4 of 15 l madetothcEagleRanchandTRG projects.(#l8!1 !r25-26).lncontrast,Anthonyand Susan 2 M onaco- whonevercontributed apennyoftheirown funds- pocketed in excessof$23 3 m illion oftherevenucsgeneratedbythedevelopmentofthe EagleRanchprojectand the 4 developmentand/orsalcofTRG projects.(#21,Ex.A,at278:7-12,277:3-278:6, 5 l32:13-134:18).BothAnthonyand Susan M onaco conceded duringtheirdepositionsthat 6 USACM should havebeen repaid beforethedistributionsweremade.(/J.,Ex.A,at275:3-8. , 7 j#.,Ex.C.,at132:4-1l). 8 II. 9 10 LEG A L STAN DAR DS A. Rule 37 Rule 37 ofthe FederalRulcsofCivilProcedure pcrm itsa courtto im pose sanctions l1 againstaparty ortheparty'sattorney fordiscoveryviolations. Sanctionsm ay im posed ifaparty 12 failsto complywith adiscoveryorder,Fed.R.Civ.P.37(b)(2)(A),orifapartySsfailstoprovide 13 infonnatfonoro idcntifyawitnessasrequircdbyRule26(a)or(c),''Fed.R.Civ.P.37(c)(1). 14 ln the lattercase,the culpable party %ûisnotallow ed to use''theundisclosed inform ation or 15 witnessasevidence,unlessthefailurewassubstantiallyjustiticdorharmless.Fed.R.Civ.P. 16 37(c)(l).Additionaily,acourthasthediscretion afteram otion and hcaringto:(1)ordcr 17 paymentofrcasonableexpenses,includingattorney'sfees,causedbythefailure' ,(2)inform the 18 juryofthefaîlurc;and(3)imposcotberappropriatesanctions,încludinganyofthosclistedin 19 Rule37(b)(2)(A)(i)-(vi).Fed.R.Civ.P.37(c)(l)(A)-(C).ThepotentialsanctionslistedinRule 20 37(b)(2)(A)(i)-(vi)include:(1)directingthatthcmattersencompassedby thediscovely failures 21 betaken asestablished;(2)prohibiting theculpableparty from supportingoropposing relevant 22 claimsordefcnses;(3)striking plcadings;(4)stayingproceedingsuntilcompliance;(5) 23 dismissing theaction in wholcorinpart;or(6)renderingadefaultjudgmcntagainstthe 24 culpablcparty.Fed.R.Civ.P.37(b)(2)(A)(i)-(vi). 25 Page 5 of 15 1 The imposition oforrefusalto im pose discovery sanctionsisreviewed foran abuse of 2 discretion.SeeChildressv.DarbyLumber.Inc.,357F'.3d 1000,10I0 (9th Cir.2004).Findings 3 offactunderlying discovcry sanctionsarercview ed forclearerror.Payne v.Exxon Corp.,12 1 4 F.3d 503,507(9th Cir.1997). Ifthedistrictcourtfailstclmakefactualfindings,thedecision 5 whetherto im pose sanctionsisreview ed de novo.Adriana lnt'1Corp.v.Thoeren,913 F.2d 6 1406,1408(9th Cir.1990). 7 B. M otionsfor Reconsideration 8 A motiontoaltcroramendajudgmentmustbemadewithintwenty-eight(28)daysof 9 entryofjudgmcnt.Fed.R.Civ.P.59(e).Here,judgmentwasenteredonJanuary27,2010 and 10 thepresentmotionsweretiledonFebrua:y22,2010,(çce#59,//62' ),andFebruary24,2010, 11 (see//66),which aretwenty-six and twenty-eightdayslater,respectively.Thereforethemotions 12 to rcconsiderarctimelyundcrRule59(e)and shouldbeconsideredunderthatruleasopposed to 13 Rulc60(b).Am.Ironvvorkstf Erectors,Inc.v.7V.Am.Contr.Corp.,248F.3d 892,898-99 (9th 14 Cir.200l).M oreover,invocationofRule59(c)requiresafinaljudgmentorappealable )5 interlocutoz' yorder,Balla p.ltlahoStateBd,ofCorn,869F.2d461,466(9thCir.1989),andthe 16 sanctionsorderwasneither. A n orderdenying a m otion for contempt,forexam ple,isnota 17 ijudgments'forthepurposesofRule59(e)becauseitdocsnottsendl)thelitigationonthemerits l8 andleavegqnothingforthecourttodobutexecutethejudgment.''/J.at467(quotingCoopers 19 dtLybrandv.Livesay,437U.S.463,467(i978)(quotingCatlinv' .UnitedStates,324U.S.229, 20 233(l945))).TheEighthCircuithasheldthatRule11sanctions,atleast,arenotgovernedby 21 Rule59(e).Lupo p.R.Rowland J:Co.,857 F.2d482,484-85 (8thCir.1988). ,seealso Ruehman 22 23 v.VillageofpalosPark,842F.Supp.1043,1060(N.D.111.1993). However,a districtcourthas inhcrentpowerto reconsiderîtsinterlocutory ordersifit 24 tindsjustcausetodoso,solongasitretainsjurisdïctioninthematter.CfryofL.A.,HarborDl' v. 25 laagc 6 of 15 1 v.SantaM onicaBaykeeper,254 F.3d 882,885 (9th Cir.2001). 2 C. lnterlocutory Review 3 There are tw o differentvehîcles to obtain interlocutory appeal:FederalRule ofCivil 4 Procedure54(b)and28U.S.C.j1292(b).Rule54(b)pcrmitsaCourttoenterjudgmentaftcr 5 m aking a ruling partially disposing ofa case,orto aw aitits rulings on rem aining causesof 6 actioninthecasebeforeentcringjudgment,atitsdiscretion: 7 W hen an action presentsm orethan oneclaim forrelief whetherasaclaim , counterclaim crossclaim or third-party claim- or when m ultiple parties are 8 involved,thecourtmaydirectentryofatinaljudgm entastooneormore,butfewer than all,claimsorpartiesonlyïfthecourtcxpresslydeterminesthatthereisnojust 9 reason fordelay. O therwise,any orderorotherdecision,howeverdesignated,that adjudicatesfewerthanal1theclaimsortherightsandliabilitiesoffewerthanalIthe l0 partiesdoesnotend thc action asto any oftheclaim sorpartiesand m ay berevised atany timebeforetheentryofajudgmentadjudicatingal1theclaimsanda1lthe l1 parties'rightsand liabilities. 12 Fed.R.Civ.P.54(b).Section !292(b)allowsforinterlocutoryreview ofnon-dispositiverulings 13 in acasc undera narrow setofcircum stances: 14 15 16 W hen adistrietjudge,in making in acivilactionan ordernototherwise appealable under this section,shallbe ofthe opinion thatsuch order involves a controlling question of1aw asto which thereissubstantialground fordifferenceof opinion and thatan imm ediate appealfrom the orderm ay m aterially advance the ultim ate term ination ofthe litigation,he shallso state in w riting in such order.The CourtofAppealswhichwouldhavejurisdictionofanappealofsuch actionmay 17 18 thereupon, in its diseretion,perm it an appeal to be taken from such order, if application is m adc to itw ithin ten days after the entry ofthe order:Provided, however,Thatapplication foran appealhcreundershallnotstay proceedingsin the districtcourttlnlessthedistrictjudgeortheCourtofAppealsorajudgethereof 19 shallso ordcr. 20 28U.S.C.j 1292(b).lfadistrictcourtincludcstherequiredlanguageintheorder,thisgivesthe 21 CourtofAppealsjurisdictiontoaccepttheintcrlocutoryappealatitsdiscretion.Althoughthe 22 jurisdictionalstatutedoesnotusethctcnninology,inclusionofthejurisdictionallyrcquired 23 language by the districtcourtiscom m only referred to as ççcertification.'' The Ninth Circuithas 24 carefully explaîned thediffercnce betwecn these two routcs to intcrlocutory review : 25 pagc 7 of 15 Somc oîourcasesuse thephrase içRule 54(b)certification.'' Thisisa misnomerbornofconfusionbetween Rule54(b)and28U.S.C.j 1292(b),onlythe latter of w hich requires a certification. The tw o procedures apply to different situations.Rule54(b)applicswherethedistrîctcourthasenteredafinaljudgment astoparticularclaimsorparties,yetthatjudgmcntisnotimmediatelyappealable because otherissues in thecase remain unresolved. Pursuantto Rule 54(b),the districtcourtmayseverthispartialjudgmentforimmediateappealwheneverit determinesthatthereisnojustrea8onfordelay.A courtofappealsmay,ofcourse, review suchjudgmentsforcompliancewiththerequirementsoffinality,butaccords a greatdeference to the districtcotlrt. Bycontrast,scction1292(b)addresscsthesimationwhereapartywishesto appcalan interlocutory order,such as pertaining to discovery,denying sum m al'y judgment,denying a motion to remand,ordecertifying a class. Nonnally,such interlocutory orders are notim m ediately appealable. ln rare circum stances,the districtcourtm ay approve an im m ediate appealofsuch an orderby certifying that the ordcriçinvolves a controlling question of1aw as to which there is substantial ground fordiffercnce ofopinion and thatan im m ediatcappealfrom the orderm ay lnatcriallyadvancctheultimateterm inationofthelitigation.''28U.S.C.j 1292(b). Even w hcre the district court m akes such a certification, the court of appeals nevertheless has discretion to rcjectthe interlocutory appeal,and does so quite frcquently. Sectionl292(b)isadeparturcfrom thcnormalrulcthatonlyfinaljudgments areappcalable,and thcreforem ustbcconstruednarrowly.Thisexplainsthercasons forthe specific form ofthe certitication required ofthe districtcourtand de novo revicw thereofby the courtofappeals. By contrast,a Rule 54(b)severance is consistentwiththetinaljudgmentrulebecausethejudgmentbeingseveredisaGnal one,whose appealisauthorized by 28 U.S.C.j 1291. Referring to aRule 54(b) severanceorderasaçicertitication''m isleadingly bringsto m ind thekind ofrigorous judgmcntembodiedinthesection1292(b)certiticationprocess.lnreality,issuance ofa Rule 54(b) order is a fairly routine actthatis reversed only in the rarest instanccs. Jamesr.PriceStern Sloan,. J/C.,283 F.3d 1064,1068 n.6(9th Cir.2002)(citationsomitted). 111. AN ALYSIS A. The M onacosand W inthrop C ouchot A sPlaintiffnotes,Defendantshave taken a ttgrab bag''approach to the nlles governing reconsideration and interlocutory appeal,rearguing the m erits ofthe sanctionsorderw ithout 23 addressing the standards thatgovern therules forchallenging it. W hcn the rulesare exam ined, the Court's sanctionsordercannotbechallenged underany oftherulesinvoked:Rules 54,59, Page 8 of 15 1 or60.First,themotionsweretimely underRule59(e),making consideration underRule60(b) 2 inappropriate.Am.lronworks (frErectors,Inc.,248 F.3d at898-99. Second,the Courthasnot 3 cntcredatinaljudgmcntinthiscascastoanyparticularclaimsorparties,soRule54(b)does 4 notapply.Fed.R.Civ.P.54(b).Third,reexam inationon appealoftheCourt'ssanctionsorder 5 willnotmateriallyadvancethelitigation,sorcview underj 1292(17)isnotappropriate. 6 M oreover,sanctionsarc notim m ediately appealablc,so itis unlikely the CourtofAppeals 7 wouldacceptjurisdictionevenirthcCourtttcertified''theissueundereitherRule54(b)orj 8 1292(b).SeeM olskiv.EvergreenDynaslvCorp.,500F.3d 1047,1054-55 (9th Cir.2007) 9 (eiting Cunningham w.Hamilton Ctplfn/v,527U.S.198,204 (1999)). ,Balla,869 F.2dat467. 10 Finally,although timely,theCourtwil)notaddressthepresentmotionsunderRule59(e) 11 becausetheCourt'sorderisnotaSjudgmcnt''underthcmeaningofRule59(e).Balla,869F.2d 12 at467. Howevcr,(he Courthasinhercntpowerto reccmsidcrthe sanctionsorderbecause itisan l3 interlocutoryorderandtheCourtretainsjurisdictionoverthecasc.Cityo. j' L. A,HarborDiv., 14 l5 254 F.3d at885. Defendantsmakeseveralargumentsin supportofreconsideration:(1)theTrtlstdid not 16 requestthe docum ents in thc 'stifty boxes''ofdocum entsin its firstrequestforproduction and 17 neverasked foraccessto them afterdiscovered' ,(2)adverseinferencesareunwarrantcd because l8 no spoilation ofcvidence occurred,therew asno evidence indicating thatthc docum entsw ould 19 have produced unfavorable evidence,thcre isno evidence the M onacos had possession of 20 accounting recordsofthe Devclopm entEntities,there isno correlation betw een the adverse 21 inferences granted and thcdocum cntsalleged notto have been produced there isno evidencc 22 thc soughtafterinform ation wasnotrcadily available elsewhere,the reliefgranted violated thc 23 M onacosproceduralducprocessbccausethe M onacoshad no opportunity to presentlive 24 testimony;and(3)themonetarysanctionsof$50,000werenotreasonableattorneysfeesand 25 page 9 of 15 1 2 costs. First,Defendantsfailed to com ply w ith the discovez' y rules in good faîth. The Trust 3 attempted forovcra year to obtain the disputed m aterialsthatwe now know Defendants 4 possessed butdid notdisclose despitcrcpcated requests. TheTrust'sattem ptsto obtain these 5 m aterials through both routinediscovel' y and the circuitousdepositionsthey w ere forccd to take 6 due to D cfendants'm isdirectionseasily satisties the substance ofthe ûtm eetand confer'' 7 rcquirem entfora sanctionsm otion. M ichaelJ.Yodcr'sdeclaration in supportofthe original 8 motion forsanctionsincludestherequestforproduction atissue(the('RFP'').(See#16,Ex.B). 9 In theRFP,the Trustsoughtûûallrequested Docum entsin D efendants'possession,custody,or 10 control.''(#16-lat38).Documentsspecitically requestcd included:(l)%iDocumentsrelatingto 11 thetinancialaffairsancl/orconditionofany ofthe followingpersonsg:USACM ,USAIP, 12 M ilanowski,Hantgesq'';(2)ttDocumentsrcferring andrelatingtoany transactionsbetween 13 Defendantsand any of(USACM ,USAIP,M ilanowski,llantgesj'';(3)CtDocum entsreferring 14 and relatingtoanytransferts)ofassets(monetaryorothenvise)between Defendantsand 15 USACM ,USAIP,M ilanowski,and/orHantges'';(4)içAI1Communicationbetween Defcndants 16 and USACM ,USAIP,M ilanowski,and/orHantgcsduringtherelevantperiodg,includingq 17 Communieationsrelating orreferringto gtheir)oflicers dircctors,employees,agcnts,servants, 18 consultants,representatives,predecessors,successors,subsidiaries,aftiliates,divisionsorother 19 related organizationss';(5)StDocumentsevidencing Defcndants'Communications,solicitations, 20 m arketing m aterials,orefforts to obtain monies orinvestm entsfrom U SACM ,USAIP, 21 M ilanowski,ancl/orHantgcs'';(6)tr ocuments,refeningorrelating to any business,tinancial, 22 employm entorotherrelationship thathas everexisted between D cfendantsand one orm oreof 23 thefollowing parties:EUSACM ,USAIP M ilanowski,and llantgesj'';(7)ûtllocuments 24 evidencing any assertionsthatDefendantshave m ade orwillm akc thatU SACM received 25 page 10 of 15 1 reasonablyequivalentvalueforthetransfers'', '(8)'tDocumentsevideneingany ofthe 2 Defcndants'legalformation'';(9)''Documentsevidencingthenegotiation,exccution,servicing 3 orrepayrncntofloans,prom issozy notes,or otherdebtinstrum ents oroblsgations ...involving 4 USACM ,USAIP,M ilanowski,and/orHantges'h;(10)çûllocumentsevidencingCommunications 5 ...relating orrefcrringto gsuchdebtl;(11)ûtDocum cntsevidencinganyliability payableto 6 Defendantsby USACM ,USAIP,M ilanowski,and/orHantges'';(12)':Docum entsevidencing 7 Defendants'effortto collectany Iiability owed to Defendantsby U SA CM ,USA IP,M ilanow ski, 8 and/orHantgess';(13)GtllocumentsrelatingorreferringtoanyCommunicationDefendantshave 9 10 had w ith any Person regarding the tinancialcondition ofU SACM ,USAIP,M ilanowski,and/or Hantges'';(14)çtllocumentsrelatingto,referring to,supporting,orrefuting any ofthe 11 affirmativedefensesasserted in responseto theDebtors'complaintr'' ,and (15)tûDocuments 12 refcrring and relating to any m em bership contribution,distribution,orothertransaction between 13 Anthony M onaco and/orSusanM onaco and anyotherDefendant.''(fJ.,Ex,B). 14 In the M otion to lm pose SanctionsforDiscovery Abusesand to Com pelDiscovery 15 (#15),theTrustcomplainedthatDefendantsand thcircounselhad failed to produceçsforty-tive 16 ofthe tifty boxcsofrelevantdocum entsand two docum entservcrsthatthe M onacosidentitied 17 in testiznony ....'',(//15 atIJ3),and thattherewasno responseata1lto RFP numbers4,5,7, 18 and 10-l3,(seeid.! l0 & n.4).Defendantsargued thattheboxescontained nothingrelevant 19 and thatthey were notin the M onacos'custody and controlbecausc the boxesofdocum cnts 20 w cre in the custody ofBuilder'sCapital,to whom the M onacos had sold severalD cfendant 21 cntitiesfor$1.ThcCourtresolvedtheseissuesagainstDefendants,finding thesalcofthe 22 Defendantentitiesto be sham salesand thatDefcndantsretained custody oftheseboxes,in any 23 case. Particularly illum inating was the testilnony ofD avid Fogg,theownerofBuilder'sCapital, 24 who attested thathe did notpossess thedocum entsthattheM onacosclaim ed he did,butthatso 25 laagc 1l of 1j 1 farashe knew ,Thom asCooley,the M onacos'com ptroller,had them . A lso,the explanation 2 thattheM onacoswere having trouble accessing thcirserverswasunsatisfactory. Finally, 3 Defendants apparently nevcrm oved foraprotcctive orderto preventthe discovery ofthese 4 docum ents. 5 lnitially,the Courtrefused to award sanctionsbecause the M onacoshad notbeen 6 questioned underoath, The Trusteethen deposed them and obtained adm issionsfrom Anthony 7 M onaco thathe had access to thestorage unitwhere atleastfifty boxes ofrelevantdocum ents 8 w cre stored and thathe didn'tknow ifthese docum entswere disclosed in response to the RFP. 9 H e also adm itted thathe could haveobtained docum cntsfrom Fogg orCooley by sim ply asking 10 forthcm . l4e flatly adm itted thathisprevious statem ents regarding hiscontroloverthe 11 Defendantentitiesw ere idnottotally true.'' The Courtdeclinesto reconsiderm onetary sanctions 12 as againstthe M onacosorW inthrop Couchot. 13 Second a Courtm ay directthatm atters encompassed by discovery failuresshallbe l4 takenasestablishedasapenaltyforfailingtocomplywithRulcs26(a)or26(e).Fed.R.Civ.P. 15 37(c)(1),((r)(1)(C),and (b)(2)(A)(i).Defendantsarguethatspoilation ofevidenceisrequired as l6 a prerequisiteto im posing such a sanction. Although spoilation ofevidence issufficientto l7 supportanadverseinferenccinstructiontoajuryevcnwithoutanydiscovcl' yviolation,see 18 Akionav.UnitedStates,938F.2d l58,161(9thCir.1991),Rule37doesnotrequirespoilation 19 ofcvidence asa prercquisite forthe 'ttaken asestablishcd''sanction. Akiona involved no 20 discovery violation,and the courtthere did noteven m ention the discovery rules.Seegenerally 21 Akiona,938 F.2d 158. The itadversc inferencc''ruleisa com rlacm-law n2leseparate from the 22 FederalRules ofCivilProcedurc,w hich provide forindepcndentdiscovery-related sanctions. 23 See generally Fed.R.Civ.P.37. ln sum m ary,destruction ofevidence is sufticientto im plicatc 24 the com m on-law 'tadversc inference''instruction,butdestruction ofevidcnce isnotnecessary to 25 page 12 of 15 l invoke the çûtaken asestablishcd''sanction underRule 37. The fonnerisa com m on-law rem edy, 2 wllereas(hc latterisa black-lcttcrtextualsanction available to thc Courtunder Rule 37. 3 Third,theawardoffeesand costswasreasonable.Defendantsarguethat$50,000isnot 4 areasonableaward ofattorrleysfeesand costsin thiscaseunderRule37(b),and thatthcTrust 5 did notattach a certitication ofconsultation and sincere effortto resolve the m atteras required 6 by LocalRule 26-7.The Trustrespondsthatitsfeesand expensesçûrelated directly to dealing 7 w ith the M onaco D efcndants'and thcireounsels'bad faith discovery practices''w as$73,190.94, 8 The Trustattachesthe aftsdavitofA ndrea Levin Kim ,speciallitigation counselforthe Trust,in 9 support.(See//7l!(2). Kim atteststhatthcTl-ustexpended atleast$73,l90.94 tiom November 10 2008 through January 19,2010 tGin dealing w ith issuesrelated to theM onaco D efendants' ll failuretodisclosure gsicqand producedocumcnts,''including communicationswith thc 12 M onacos'counselregarding dciicientproduction,rescarch and bricfing fortwo m otionsto 13 compel,and traveland preparation forthetwohearfngsonthosemotions.(Id.!r3).A tableis 14 attached listing the feesand costs foreaeh day from Februa!y 9,2009 to January 3l,2010,but l5 notfurtheritemizingthem.(Seeid.,Ex.A).ExhibitB consistsofbillinginvoices,withbilling 16 informationpertainingtoothercasesredactcd.(f#.,Ex.B).Therelevantworkisitemized.(See, 17 (4.g.,#7iat20 (ûiADK W orkon discovcrycoordination andresponse/motion to com pclissues' , 18 revisecorrcspondencctoopposingcounselresam e 2.70hrs 1012.50'')).Therestoftheitem s 19 listcd in thetable in ExhibitA appearto be item ized in ExhibitB,and they al1appearto be 20 relatedto thcdiscovery dispute.Thcawardof$50,000 wasreasonablc. 2l Finally,contrary to Defcndants'argum ents,the exhibits attached to M ichaelJ.Y oder's 22 declaration in supportoftheoriginalmotion forsanctionssatisfy LocalRule26-7.(See//16, 23 Exs,A-Y). Thoseexhibitsrccountthediscoverydispute,andtheyineludecommunications 24 from thcTrust'scounselto Defendants'counsclattemptingto resolvethe dispute.(See,e.g., 25 Page 13 of l5 1 #l6,Ex.C).ln ExhibitC,counselfortheTl-ustnoted thatitwasagreeingtoan extension of 2 tim e forD efendantsto reply to the RFP so thatW inthrop Couchotw ould actually provide the 3 docum ents by overnightdelivery from Decem ber 1-2,2008,and notsim ply to provide them 4 moretimetoprepareobjections.W inthropCouchotrespondedthattheywouldcomply. 5 ExhibitD is a February 25,2009 Ietterfrom the Trust'scounselto Richard 14.Golubow ,the 6 M onacos'counsel,com plaining ofdeticienciesin the rcsponseto the RFP and threatening to 7 file a m otion to com pelifthe disputew asnotsatisfactorily addressed. Fuftherem ailcxchanges 8 attached asexhibitsindicate ahistoly ofD efendants'counselrequesting additionalextensionsto 9 com ply. LocalRule 26-7 w assatistied. l0 B. Santoro ll Santoro argucsprîm arily thatitdid notbelievethe m otion forsanctionsw asdirected 12 againstit,because Santoro had no partin the discovery practice in thiscase,which isw hy itdid l3 nottile a responsc to the m otion forsanctions. Santoro attachesthe aftidavitofRichard F. 14 Hollcy,Esq.in support.(See# 67). HeatteststhattheM onacosretained Santoro aslocal 15 counselon oraboutJunc30,2008,(j#.!(7),and thatSantoro'sfunction asIocalcounselwas 16 lim ited to downloading pleadings to forward to chicfcounsel,electronically tiling pleadings, 17 and calculating deadlincs,(id.!18).AccordingtoHolley,Santoro ttneverparticipated in any l8 discovery''and ttwasunaw are ofany discovery disputesbetw een the Trustee and M onaco l9 Defendants''untilthe Trustee tiled the m otion forsanctions,which iswhy Santoro filcd no 20 objectiontothatmotion amotionwhichdoesnotmentionSantorobyname,butonly 21 W inthropCouchot.(/#.!!(10-12,15).Santoro'sargum cntsaremuch betterthan thoseofthe 22 M onacosand W inthrop Couchot,bccause they are based on both a lack ofnotice and a lack of 23 any involvem entwith thc discovel'y practice in thiscase. Although Santoro tcchnically had an 24 opportunity to m ake these argtlm ents in response to the originalm otion forsanctions,itwasnot 25 Page 14 of 15 on reasonable notice thatthe m otion for sanctionswasdirected againstit,because itw asnot nam ed in thc m otion and had notbeen involved in the discovery practice in thiscase. thercfore rcconsidersthe sanctionsorderasto Santoro. C O NCLUSIO N IT IS H EREBY ORDERED thatthe M onacos'and W inthrop Couchot'sM otions for Reconsideration(//59,#62)areDENIED. IT IS FURTHER ORDERED thatSantoro'sM otion forReconsideration (//66)is G RANTED IT IS FURTHER O RDERED thatthe totalaward of$50,000 isreallocated asfollow s: $25,000againstAnthonyMonaco,SusanMonaco,andthecommunitythereof,jointlyand severally, 'and$25,000 againstW inthrop CouchotProfessionalComoration. o''ATLJ1. )1' -t'i1I.-19''p.'qiJ(a$?h1;' $j. ,'' -. i1() R ()BE R T C ,J E S U 1)ltild States istrictJudge Pagc 15 of l5
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