Hydrotech v. Bara Infoware, Inc., et al., No. 1:2009cv00069 - Document 54 (E.D. Cal. 2009)

Court Description: MEMORANDUM DECISION Re: Plaintiff's Motion to Withdraw Admissions and Motion for Leave to Respond to Requests for Admission 36 , signed by Judge Oliver W. Wanger on 8/10/09: Plaintiff's Motion is GRANTED; Plaintiff's opposition is due on or before 9/11/09. (Hellings, J)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 8 HYDROTECH, INC., a Nevada corporation, 9 1:09-CV-00069-OWW-SMS Plaintiff, MEMORANDUM DECISION RE: PLAINTIFF S MOTION TO WITHDRAW ADMISSIONS AND MOTION FOR LEAVE TO RESPOND TO REQUESTS FOR ADMISSION (Doc. 36.) 10 11 12 13 14 v. BARA INFOWARE, INC., a California corporation; U.S. Specialty Insurance Company, a Texas Corporation; and Does I through x, inclusive, 15 Defendants. 16 17 18 19 20 I. INTRODUCTION Before the court for decision is Plaintiff Hydrotech, Inc. s motion to withdraw admissions and motion to respond to requests for admissions. 21 22 23 24 25 26 27 II. BACKGROUND Although the parties dispute many of the relevant facts, this is a general summary: this case arises out of a subcontract between Hydrotech, Inc. ( Hydrotech ) and Bara Infoware, Inc. ( Bara ), wherein Hydrotech agreed to perform pipeline refurbishing services as part of the Repair Storm Water Systems Components - 28 1 1 Lemoore Naval Air Station (the Project ). On September 17, 2007, 2 Bara entered into a contract with the U.S. Navy to improve the 3 Lemoore Naval Air Station. 4 Miller Act payment bond from Defendant U.S. Specialty Insurance 5 Company ( U.S. Specialty ) in the approximate amount of $607,000.00 6 as required by the Navy on this project. 7 Specialty agreed to be bound with Bara to make payments to all 8 persons having a direct contractual relationship with Bara or to 9 any subcontractor of On November 13, 2007, Bara secured a Bara. On November Under the bond, U.S. 20, 2007, Bara and 10 Hydrotech entered into a subcontract to the Project via written 11 proposal. 12 During the course of Hydrotech s work on the project, a 13 dispute arose over the timeliness of Bara s payments to Hydrotech. 14 As a result, Hydrotech ceased all work on the project. 15 September 17, 2008, the parties settled their dispute, entering 16 into a Partial Settlement Agreement. 17 its work on the Project. 18 not paid timely progress payments for work it performed on the 19 Project and it was not paid in full for work it performed on the 20 Project. 21 payments to Hydrotech were timely and complete. On Hydrotech then completed However, Hydrotech claimed that it was Bara disputed Hydrotech s claims, arguing that its On January 12, 2009, Hydrotech filed a complaint against Bara 22 23 and 24 enrichment (Count II); and under the Miller Act (Count III). (Doc. 25 1.) 26 amount allegedly owed to Hydrotech under its contract with Bara. 27 28 U.S. Specialty for breach of contract (Count I); unjust Hydrotech seeks damages in the amount of $193,846.48, the Defendant U.S. Specialty filed its answer to Plaintiff s complaint on February 13, 2009. (Doc. 8.) 2 Defendant Bara filed 1 its answer on February 23, 2009. (Doc. 9.) 2 On April 17, 2009, Defendant Bara propounded to Hydrotech (by 3 mail) written discovery including Requests for Admissions, Set 4 One.1 5 were due on May 20, 2009.2 Under Rule 36 of the Federal Rules, Plaintiff s responses 6 On May 1, 2009, John D. Moore, Esq., of the Law Offices of 7 Michael B. Springer, filed a motion to withdraw as counsel of 8 record for Plaintiff Hydrotech. 9 declaration, the Springer law firm represents Hydrotech in a number 10 of pending actions in San Diego, Bakersfield, and Fresno (this 11 action). 12 Michael B. Springer performed various legal service on behalf of 13 Hydrotech, billing Hydrotech for such costs and fees on a monthly 14 basis. 15 approximately $38,619.26, most of which was overdue for 120 days.3 16 On May 20, 2009, Hydrotech s attorney of record, Mr. Moore, 17 sent a letter to Bara s counsel requesting a two month extension to (Doc. 19.) According to Moore s Moore stated in his declaraton that the Law Offices of As of May 1, 2009, Hydrotech owed the law office 18 19 1 20 21 22 23 24 25 26 27 28 Defendant Bara also propounded Special Interrogatories, Set One, and Requests for Production of Documents, Set One and Set Two. (Doc. 44, 8:22-8:24.) 2 Defendant Bara served a portion of the discovery on April 16, 2009 and supplemented the requests on April 17, 2009. Hydrotech s counsel calendared the discovery responses from that date. Under Rule 36(a), the deadline to provide written responses was May 20, 2009. 3 Mr. Moore s declaration and moving papers indicate that counsel made numerous attempts to collect the overdue balance. These efforts were unsuccessful. As a result of this failure, Counsel attempted to secure Hydrotech s consent to withdraw from this case. Hydrotech refused to consent, leading to counsel s motion to withdraw as attorney of record. 3 1 respond to the written discovery, including the Requests for 2 Admissions, Set One. 3 request 4 Hydrotech a seven day extension, requesting Hydrotech provide 5 discovery responses by May 29, 2009. 6 Bara with discovery responses by the May 29, 2009 deadline. for a two On May 22, 2009, Bara denied Mr. Moore s month extension. Bara s counsel granted Hydrotech did not provide 7 On July 1, 2009, Defendant Bara moved for summary judgment or, 8 in the alternative, summary adjudication on Plaintiff s first, 9 second, and third causes of action.4 (Doc. 26.) With its motion, 10 Defendant Bara filed a Statement of Undisputed Facts, supported 11 entirely 12 Admissions ). (Doc. 30.) Defendant Bara seeks summary judgment on 13 the grounds that Plaintiff s own admissions render it unable to 14 produce sufficient evidence to establish the existence of each 15 element of its first, second, and third causes of action. by the Requests for Admissions, Set One ( Deemed Hydrotech filed a Motion to Withdraw Admissions and Motion for 16 17 Leave to Respond to Requests for Admission on July 2, 2009. (Doc. 18 36.) 19 36(b). 20 excuse for its failure to respond, no prejudice results by the late 21 discovery responses, and the merits of the case are served by 22 permitting Hydrotech to respond. Hydrotech argues that it is entitled to relief under Rule Specifically, Hydrotech argues that it had a reasonable 23 On July 2, 2009, Hydrotech filed an ex parte application for 24 an order shortening time to allow a hearing on its motions prior to 25 the hearing on Defendant Bara s summary judgment motion. (Doc. 26 27 4 28 Defendant Bara filed an amended motion on June 2, 2009. (Doc. 34.) 4 1 39.) The application was granted on July 8, 2009. (Doc. 42.) 2 Defendants Bara and U.S. Specialty Insurance filed their 3 oppositions to Hydrotech s motion Motion to Withdraw Admissions and 4 Motion for Leave to Respond to Requests for Admission on July 17, 5 2009. 6 (Docs. 44, 46.) According to a declaration filed by Mr. Moore on July 22, 7 2009, U.S. Specialty s attorney stated that, as professional 8 courtesy to counsel, it would not propound any discovery until the 9 pendency of counsel s motion to withdraw. (Doc. 50, Exh. A.) As 10 of August 3, 3009, U.S. Specialty has not propounded any discovery 11 in this litigation. 12 13 As of August 3, 2009, Hydrotech has not responded to Defendant Bara s discovery requests. 14 III. 15 16 When a party fails LEGAL STANDARD to timely respond to requests for 17 admission, the matters requested are automatically deemed admitted. 18 See Fed. R. Civ. P. 36(a)(3) ( A matter is admitted unless, within 19 30 days after being served, the party to whom the request is 20 directed 21 objection addressed to the matter and signed by the party or its 22 attorney. ). A matter admitted under this rule is conclusively 23 established unless the court, on motion, permits the admission to 24 be withdrawn or amended. serves on the requesting party a written answer or Fed. R. Civ. P. 36(b). 25 Withdrawal or amendment of the admissions may be permitted if 26 withdrawal (1) will promote the presentation of the action on the 27 merits; and (2) will not result in prejudice to the party who 28 obtained the admission in maintaining the action or defense on the 5 1 merits. Fed. R. Civ. P. 36(b). [A] district court must 2 specifically consider both factors under the rule before deciding 3 a motion to withdraw or amend admissions. 4 States, 474 F.3d 616, 622 (9th Cir. 2007). Conlon v. United 5 The first requirement of Rule 36(b) is satisfied if refusing 6 to withdraw the admissions will have the practical effect of 7 preventing the moving party from any presentation of the merits of 8 the case. 9 1995). Hadley v. United States, 45 F.3d 1345, 1348 (9th Cir. The party who obtained the admission bears the burden of 10 demonstrating to the court that withdrawal of the admissions will 11 prejudice him in maintaining the action on the merits. 12 474 F.3d at 622. 13 nor a pretrial order entered, in this case, the decision whether to 14 allow the withdrawal of Plaintiff Hydrotech s admissions is not 15 subject to the manifest injustice standard for modifying a pretrial 16 order under Rule 16(e). Conlon, As a pretrial conference has not yet been held, 17 IV. 18 19 A. DISCUSSION Presentation of the Merits 20 Plaintiff argues that withdrawal of the admissions would 21 promote the merits of the case because the admissions relate to the 22 foundational elements of its claims against Defendants. 23 states that it did not intend to admit most, if not all, of the 24 requests for admission, which Defendant Bara exclusively relied on 25 to satisfy its Rule 56 burden. 26 upholding the deemed admissions would preclude any presentation of 27 the merits of the case. 28 Plaintiff In essence, Plaintiff states that Defendant Bara argues that upholding the admissions would not 6 1 eliminate presentation of the merits because the merits are served 2 by the intentional acts of Plaintiff. 3 Defendant U.S. Insurance contends that Hydrotech s refusal to 4 respond to the Requests For Admission is indicative of the fact 5 that Hydrotech is unwilling to seriously maintain this action and 6 pursue its claims against Defendants. 7 According to Defendants, granting the motion would not promote the 8 merits because Plaintiff displayed an unwillingness to maintain its 9 action. (Doc. 44, 9:25-9:27.) (Doc.48, 8:5-8:8.) 10 Rule 36 provides that the court may permit withdrawal ... 11 when the presentation of the merits will be subserved thereby and 12 the party who obtained the admission fails to satisfy the court 13 that withdrawal ... will prejudice that party in maintaining the 14 action or defense on the merits. 15 the motion is directed to the sound discretion of the district 16 court, see 999 v. C.I.T. Corp., 776 F.2d 866, 869 (9th Cir.1985), 17 the discretion should not be exercised in terms of the defaulting 18 party s excuses, but in terms of the effect upon the litigation and 19 prejudice to the resisting party. 20 that the admissions significantly impair Plaintiff's ability to 21 present the merits of its case. Fed. R. Civ. P. 36(b). Although In this regard, it seems clear 22 Defendant Bara s RFAs dealt with whether Plaintiff breached 23 its contract, whether Bara fully performed, and whether Plaintiff 24 suffered any damages as a result of Bara s acts or omissions. 25 These admissions directly relate to Plaintiff s claims for breach 26 of contract, unjust enrichment, and its claim under the Miller 27 28 7 1 Act:5 2 3 RFA 1: Admit that Hydrotech was paid in full for the work 4 it performed on the Project. (SUF No. 1.) 5 6 RFA 3: Admit that Hydrotech breached the agreement by 7 abandoning or walking off the Project. (SUF No. 5.) 8 9 10 RFA 8: Admit that Bara did not breach its agreement with Hydrotech. (SUF No. 2.) 11 12 RFA 13: Admit that Hydrotech was not damaged as a result 13 of Bara s actions; (SUF No. 4.) 14 15 RFA 14: 16 Admit that Bara was not unjustly enriched. (SUF No. 3.) 17 18 In RFAs 3, 8, and 13, the admissions relate to Plaintiff s 19 claims for breach of contract because they speak directly to 20 whether there was a breach and if Plaintiff was damaged as a 21 result. 22 precluded from advancing its breach of contract cause of action. 23 RFA 1 addresses Plaintiff s Miller Act claim because an essential 24 element to maintain a right of action on the payment bond is 25 nonpayment. If the requests are deemed admitted, Plaintiff will be Full payment forecloses Plaintiff s claim under the 26 27 28 5 Defendant Bara s Statement of Undisputed Facts, filed concurrently with its motion for summary judgment, was supported entirely by RFAs 1, 3, 8, 13, and 14. 8 Act.6 1 Miller RFA 14 directly precludes Plaintiff s unjust 2 enrichment claim. 3 deprive Plaintiff of the opportunity to put on evidence for most, 4 if not all, its claims. Deeming the RFAs admitted would effectively 5 Applying the first factor of Rule 36(b), here, as in Conlon, 6 upholding the [deemed] admissions would practically eliminate any 7 presentation of the merits of the case. 8 622. 9 the elements of his claims against Defendant by conclusively 10 See Conlon, 474 F.3d at The deemed admissions preclude Plaintiff from establishing refuting them. The first factor is satisfied. 11 12 13 B. Prejudice The second factor of Rule 36(b) is satisfied because 14 Defendants have not met their burden of establishing that they will 15 be prejudiced if the admissions are withdrawn. 16 F.3d at 622 ( The party relying on the deemed admission has the 17 burden of proving prejudice. ). Defendants argue that they will be 18 prejudiced by withdrawal of the admissions because they will face 19 difficulties 20 pattern of preventing them from obtaining legitimate discovery by 21 failing to serve timely responses. Defendants also argue that they 22 justifiably relied on Hydrotech s admissions being deemed admitted defending themselves due to See Conlon, 474 Plaintiff s alleged 23 24 6 25 26 27 28 To recover under the Miller Act, a claimant must establish: (1) the materials were supplied in prosecution of the work provided for in the contract; (2) Fuller has not been paid; (3) Fuller had a good faith belief that the materials were intended for the specified work; and (4) the jurisdictional requisites have been met. Hawaiian Rock Prods. Corp. v. A.E. Lopez Enters., Ltd., 74 F.3d 972, 975 (9th Cir. 1996). 9 1 and prepared a motion for summary judgment.7 In this context, prejudice is not established by reliance on 2 3 a deemed admission in preparing a summary judgment motion. Id. at 4 624. 5 prejudice. 6 under Rule 36(b), district courts should focus on the prejudice 7 that the nonmoving party would suffer at trial. 8 Sonoda v. Cabrera, 255 F.3d 1035, 1039-40 (9th Cir. 2001)). 9 prejudice contemplated by Rule 36(b) is not simply that the 10 party who obtained the admission will now have to convince the 11 factfinder of its truth. 12 Village North Associates v. Gen. Elec. Co., 686 F.2d 66, 70 (1st 13 Cir.1982)). 14 face in proving its case, e.g., caused by the unavailability of key 15 witnesses, because of the sudden need to obtain evidence with 16 respect to the questions previously deemed admitted. Nor does a lack of discovery, without more, constitute Id. Instead, [w]hen undertaking a prejudice inquiry Id. (citing The Hadley, 45 F.3d at 1348 (quoting Brook Rather, it relates to the difficulty a party may Id. Here, this is not a motion for withdrawal in the middle of a 17 18 trial, when courts are more likely to find prejudice. See Sonoda, 19 255 F.3d at 1040 (affirming the district court's decision to permit 20 withdrawal where the motion to withdraw was made before trial and 21 plaintiff would not be hindered in presenting evidence to the 22 factfinder); see also 999 v. CIT Corp., 776 F.2d 866, 869 (1985) 23 (denying motion made during trial to withdraw admission because of 24 7 25 26 27 28 Defendant Bara also argues that Hydrotech s stagnant claim has adversely impacted Bara s bonding capacity and, as a result, its ability to secure new construction projects. (Doc. 44, 9:14-9:17.) Generalized speculation concerning Bara s future bonding capacity and its affect on potential construction projects, without more, is insufficient to establish prejudice under Rule 36(b). 10 1 prejudice to other party, which had nearly rested its case and had 2 relied heavily upon the admission). Instead, the parties have 3 until discovery. 4 pretrial conference is March 8, 2010 and a bench trial is scheduled 5 for April 20, 2010. 6 conduct discovery, eight months to prepare pretrial statements, and 7 over nine months to prepare for trial. 8 support a finding of prejudice. 9 November 24, Defendants 2009 to conduct Further, the This leaves defendants almost four months to argue that Plaintiff s This timeline does not discovery abeyance is 10 holding them hostage and prejudicing their ability to prepare its 11 case. (Doc. 44, 8:25-8:27.) 12 still have ample opportunity to conduct discovery on Plaintiff's 13 admissions, and confirm those admissions, if any, in deposition 14 testimony. They have no sudden need to conduct further discovery 15 on the admissions, nor will they be prejudiced by their inability 16 to do so. 17 of the withdrawal, they can obtain Plaintiff s consent or file a 18 motion to extend the discovery deadline. 19 Cal. R. 37-251.) 20 discovery process, they can make a motion to compel disclosure or 21 discovery. Mindful of these concerns, Defendants If Defendants need more time for discovery as a result (Doc. 13; see also E.D. If Defendants have other concerns about the (Id.) 22 In order to carry their burden regarding prejudice, Defendants 23 must identify difficulties they would face in proving their case at 24 trial were the admissions withdrawn. See Sonoda, 255 F.3d at 25 1039-40; Conlon, 474 F.3d at 622. 26 burden. 27 written discovery, this was caused by the loss of communication 28 between Plaintiff and its attorney. Defendants do not meet this Even assuming that Plaintiff has not been responsive to 11 1 Defendants fail to show how withdrawal would hinder their ability 2 to prove their case at trial. 3 The second factor of Rule 36(b) is satisfied. 4 5 6 C. Other Factors Consideration of the two Rule 36(b) factors, however, does not 7 end the inquiry. The Ninth Circuit has made clear that in deciding 8 whether to allow the withdrawal of admissions, the district court 9 may consider other factors, including whether the moving party can 10 show good cause for the delay and whether the moving party appears 11 to have a strong case on the merits. Conlon, 474 F.3d at 625. 12 The majority of Plaintiff s motion focuses on the conflict 13 between Plaintiff and its counsel, and how it purportedly provides 14 a basis for this motion. Plaintiff admits it purposefully did not 15 respond discovery 16 argues that because its attorney filed a motion to withdraw, it has 17 a reasonable excuse for its failure to respond. 18 Gutting v. Flagstaff Brewing Corp., 710 F.2d 1309 (8th Cir. 1983), 19 for the proposition that withdrawal of an attorney is a reasonable 20 excuse to support a motion to withdraw admissions. 21 to Defendant s Defendants counter that requests; internal however, Plaintiff Plaintiff cites dissension between an 22 attorney and his or her client cannot be used as a tool to 23 prejudice opposing parties in active litigation. 24 that Plaintiff received the discovery requests and failed to 25 respond. According to Defendants, the requests are deemed admitted 26 -- pure and simple. 27 arguing that the case involved the actual withdrawal of counsel and 28 an indefinite extension to provide discovery responses. Defendants state Defendants distinguish Gutting on its facts, 12 The record indicates that Plaintiff and its counsel have been 1 careless 3 Specifically, Plaintiff and its counsel did not timely respond to 4 any of Defendant Bara s written discovery, including the Requests 5 for Admission at issue in this litigation. 6 counsel, Mr. Moore, requested a two month extension on May 20, 7 2009, the date of discovery deadline, but failed to seek an 8 extension from the court. 9 to provide a single written response to Bara s discovery requests 10 with respect to their discovery obligations.8 2 Instead, Plaintiff s More problematic is Plaintiff s failure in the ten weeks since the discovery deadline. 11 Counsel for Hydrotech argues, without citation to any Ninth 12 Circuit precedent, that a monetary dispute, such as the one between 13 Hydrotech and MBT, rises to the level of an actual conflict and 14 relieves them of any and all discovery obligations under the 15 Federal Rules.9 16 Professional Conduct states that lawyers are entitled to stop 17 working when clients stop paying,10 a lawyer has a professional Although Rule 1.16(b) of the ABA s Model Rules of 18 19 20 21 22 23 24 25 26 8 However, the record indicates that Hydrotech actively pursued this litigation prior to the dispute over nonpayment. Mr. Moore s declaration demonstrates that MLB provided initial disclosures and attended a pre-trial conference in this case. On May 1, 2009, prior to the deadline to respond to Bara s discovery requests, MBS filed a motion to withdraw as counsel of record for Hydrotech. In its motion to withdraw, MBS described the conflict and that it forwarded the discovery materials to Hydrotech. 9 Plaintiff s counsel states in his declaration that based on the potentially adverse position against Hydrotech, our office determined that we should not prepare responses to discovery, and should permit Hydrotech s new attorney to prepare responses. (Doc. 37, 3:25-3:28.) 27 10 28 See Fidelity National Title Insur. Co. of New York v. Intercounty Nat l Title Insur. Co., 310 F.3d 537 (7th Cir. 2002). 13 1 responsibility to take reasonable steps to avoid reasonably 2 foreseeable prejudice to the rights of the client. 3 Conduct 3-700. 4 own rights, did nothing to protect Hydrotech s rights concerning 5 nonresponsive 6 minimum, counsel should have filed a motion to stay discovery 7 obligations or obtain an extension pending the resolution of its 8 motion to withdraw. Cal. R. Prof. Counsel s motion to withdraw, while protecting its discovery requests under Rule 36(a)(3). At a 9 Nevertheless, when analyzing Rule 36(b), a court should not 10 go beyond the necessities of the situation to foreclose the merits 11 of controversies as punishment. Hadley, 45 F.3d at 1350 (quoting 12 Rubin 13 Cir.1985)). 14 whether the moving party can show good cause for its failure to 15 respond, consideration of the two Rule 36 factors is mandatory. 16 Conlon, 474 F.3d at 625. 17 effectively eliminate full consideration of the merits of the case. 18 Discovery also remains open, and trial is not set to begin for 19 another nine months. 20 Circuit. v. Belo Broadcasting Corp., 769 F.2d 611, 619 (9th While the court may consider other factors, such as Here, upholding the admissions would There is no prejudice as defined by the Ninth The two factor test of Rule 36(b) is satisfied.11 21 Finding no detriment to Defendant's ability to defend the 22 action on the merits, the motion to withdraw is granted as to the 23 deemed admissions, RFA Nos. 1 through 27. 24 has still not served its answers to Defendant Bara discovery If Plaintiff Hydrotech 25 11 26 27 28 The Rule 36(b) test is an equitable one, balancing the right to a full trial on the merits with the parties' justified reliance on pre-trial procedures and the finality of issues deemed no longer in dispute. Crafton v. Blaine Larsen Farms, Inc., 2005 WL 3244451 *1 (D.Idaho). 14 1 requests, including the RFAs, it shall do so immediately, and in 2 any event, by August 28, 2009. 3 possibility that the court may dismiss the complaint for failure to 4 prosecute. Failure to do so risks the 5 6 The hearing on Defendant Bara Infoware, Inc. s motion for 7 summary judgment or, in the alternative, summary adjudication is 8 currently set for September 28, 2009 at 10:00 a.m. 9 Hydrotech s opposition is due on or before September 11, 2009. Plaintiff 10 11 The Court reserves the right to rule on the issue of sanctions 12 against Hydrotech as requested in Bara s Opposition to Hydrotech s 13 Motion to Withdraw Admissions and for Leave to Respond to Requests 14 for Admission. 15 16 V. 17 CONCLUSION 18 19 For the foregoing reasons: 20 21 22 (1) The Motion to Withdraw Admissions and Motion for Leave to Respond to Requests for Admission is GRANTED; 23 24 (2) Hydrotech, Inc. shall serve its responses to Defendant 25 Bara s discovery requests, including the Requests for Admissions, 26 Set One, by August 28, 2009; and 27 28 (3) The hearing on Defendant Bara Infoware, Inc. s motion for 15 1 summary judgment or, in the alternative, summary adjudication is 2 currently set for September 28, 2009 at 10:00 a.m. 3 Hydrotech s opposition is due on or before September 11, 2009. 4 5 IT IS SO ORDERED. 6 Dated: aa70i8 August 10, 2009 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 Plaintiff

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