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Whitesell Corp. v. Electrolux Home Products, Inc.

United States District Court, S.D. Georgia, Augusta Division

February 14, 2019




         On February 11, 2019, this Court conducted a hearing on Defendants' "Motion for Sanctions and to Stay the Joint Discovery Plan" ("Sanctions Motion"). (Doc. No. 1070.) At the outset of the hearing, having thoroughly reviewed the extensive briefs of the parties and evidence of record prior thereto, the Court announced its finding that Plaintiff Whitesell Corporation ("Plaintiff") had violated its discovery obligations and had misled Defendants and the Court. The only issue to be determined at that point was the matter of sanctions. The Court afforded Plaintiff an opportunity to I present evidence and argument in mitigation of this finding. Defendants also presented evidence and argument of the prejudice they have suffered. The Court took the matter of sanctions under advisement. Presently, and upon careful consideration, the Court has determined that the only appropriate sanction in this case is to strike Plaintiff s claim for lost profits as requested by Defendants in their Sanctions Motion.

         I. BACKGROUND [1]

         Through its Second Amended Complaint, Plaintiff claims that Defendants failed and refused to fully transition and purchase from Plaintiff all parts as required under the parties' Strategic Partnership Agreement, their Settlement Memorandum, and the 2005 Consent Order. Plaintiff seeks lost profits resulting from these breach of contract claims. Defendants have consistently maintained that any breach of their commitment obligations under the various agreements was caused by Plaintiff's own conduct, alleging in part that Plaintiff did not have the capability of supplying the parts.

         Product cost information (i.e., cost per part) has been sought by Defendants throughout discovery. Defendants have unequivocally sought any data or information, whether Plaintiff relied upon it or not, that related in any way to the cost of parts on a per-part basis. Defendants had reason to believe from prior litigation testimony that Plaintiff's IFS system contained such information.[2] Defendants filed a motion to compel, unsatisfied that Plaintiff did not possess such information. The Court concluded early in the discovery process that the most efficient and meaningful way to resolve the parties' numerous discovery disputes was to conduct regular discovery hearings.[3] The production of product cost information often took center stage at these hearings. Plaintiff represented to this Court and to Defendants time and time again that per-part cost data does not exist in IFS or anywhere else.[4] Upon the Court's pointed inquiry on this issue, Plaintiff maintained that it would be using only company-level financial documents (such as tax returns and general ledgers) and monthly earning reports to calculate part costs for purposes of its lost profits claim. The Court instructed Plaintiff to be sure that it had no responsive information, lamenting that it could not order production of something that did not exist. On July 14, 2017, Plaintiff certified to the Court that it had "produced all responsive data and information, in its possession, custody and control concerning product costs and expenses."[5] (Doc. No. 923.) Plaintiff continued its representation that no additional per-part cost data existed in a letter to Defendants on March 23, 2018. (See Doc. No. 1099, Ex. 12, at 1.)

         In May 2018, Defendants deposed Plaintiff's employee, Chris Jones, who testified that every part entered into IFS contains a "Unit Cost" data field, i.e., product level cost data. When confronted with this testimony and upon Defendants' demand for the information, Plaintiff refused to provide the data because, in its estimation, it was unreliable.[6] Plaintiff further maintained that the data was irrelevant to the case because its damages expert did not intend to rely upon it in his calculations. Defendants filed a motion to compel seeking this data from the IFS system on July 13, 2018. And so began over seven months of litigation related to Plaintiff s wrongful withholding of the product cost information in the IFS system. Plaintiff did produce the requested information in July 2018, but only after the close of fact discovery-including the four-day Rule 30(b)(6) deposition of Mr. Neil Whitesell, Plaintiff's principal.[7]

         To be sure, Plaintiff has violated its discovery obligations in failing to timely provide responsive information to the requests of Defendants and this Court. Plaintiff consistently denied the existence of per-part cost data, and when its deceit was revealed, it refused to produce the information because it is "unreliable" and unnecessary to support its claim of lost profits. This position, however, is antithetical to the purpose and scope of discovery. Federal Rule of Civil Procedure 26(b)(1) provides that parties may obtain discovery that is "relevant to any party's claim or defense" (emphasis added). Relevance for discovery purposes is much broader than relevance for trial purposes and should be allowed "unless it is clear that the information sought has no possible bearing on the subject matter of the action." Dunkin' Donuts, Inc. v. Mary's Donuts, Inc., 2001 WL 34079319, *2 (S.D. Fla. Nov. 1, 2001). The party resisting discovery has the burden to show that the information is not relevant or is of such marginal relevance that the potential harm the discovery may cause would outweigh the presumption in favor of broad disclosure. EEOC v. AutoZone, Inc., 2007 WL 9717741, *2 (S.D. Ala. Aug. 3, 2007). In this case, Plaintiff did not "resist" production of the per-part cost data in IFS (thereby allowing the Court to adjudge the propriety of withholding the information); rather, it denied its existence. A party may not unilaterally determine what evidence it will disclose and produce based upon its own evaluation of its usefulness or relevance.

         Now that the information has been produced, Plaintiff persists that the data is unreliable and useless and therefore Defendants have suffered no prejudice. In closing statements at the hearing, Plaintiff's counsel suggested that this Court should wait until the close of expert discovery to ascertain the relevance of the undisclosed data. He further surmised that a jury would also readily determine that the IFS per-part cost data is not reflective of Plaintiff's product costs. But that is the Court's point. It was not within Plaintiff's authority to make that decision for the jury, or for the Court for that matter, by withholding the information.


         A. Federal Rule of Civil Procedure 37[8]

         Rule 37(b)(2)(A) provides for sanctions for a party's failure to obey a court order to provide discovery, including the ability to strike pleadings in whole or in part. An oral order may provide the requisite basis for a Rule 37(b)(2)(A) sanction. Malautea v. Suzuki Motor Company, 987 F.2d 1536, 1542 n.7 (11th Cir. 1993) (citing Avionic Co. v. General Dynamics Corp., 957 F.2d 555, 558 (8th Cir. 1992) ("Oral proceedings compelling discovery that 'unequivocally give a litigant notice' of the discovery required are sufficient for Rule 37(b)(2) sanctions.")). In this case, the Court orally pronounced during the discovery hearings that Plaintiff should provide any and all per-part cost data in its possession in response to the challenged discovery requests. Plaintiff failed to obey the Court's directives when it failed to disclose the existence of the subject IFS data.

         Rule 37(c) (1) addresses a party's failure to disclose or supplement an earlier response to a discovery request. It states:

If a party fails to provide information . . . as required by Rule 26(a) or (e)[9], the party is not allowed to use that information ... to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless. In addition to or instead of this ...

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