Apex Oil Company v. The Belcher Company of New York, Inc. And Belcher New Jersey, Inc., Shea & Gould
Docket: 745
Court: Court of Appeals for the Second Circuit; August 30, 1988; Federal Appellate Court
The case involves an appeal by the law firm Shea. Gould regarding monetary sanctions imposed by a district court for alleged abuses during pretrial discovery in a lawsuit brought by Apex Oil Company against its client, The Belcher Company of New York, Inc. and Belcher New Jersey, Inc. The district court sanctioned Shea. Gould under Federal Rule of Civil Procedure 37(c) for Belcher's failure to admit certain statements in requests for admission, imposing a total of $10,469.25. Additionally, the court awarded $7,171.25 in sanctions under 28 U.S.C. § 1927 for Shea. Gould's strategy of requiring the plaintiff to file a motion to compel discovery rather than providing requested information voluntarily.
The appellate court reversed the Rule 37(c) sanctions, ruling that such sanctions cannot be applied to a party's attorney. It also clarified that sanctions under Rule 26(g) cannot be based on composite paraphrases of requests for admission but must be grounded in the actual requests. However, the court remanded the case for recalculation of sanctions concerning one specific request for admission and upheld the imposition of sanctions under § 1927. The underlying litigation involved a dispute where Apex accused Belcher of fraud and breach of contract, while Belcher contended that Apex breached the contract by delivering non-conforming oil. A jury initially ruled in favor of Apex, awarding $432,365.04, but this judgment was reversed in a related decision. Discovery proceedings were marked by significant contention, with Belcher objecting to over half of Apex's requests for admissions on various grounds.
On January 2, 1986, Apex's defense counsel advised filing a motion to compel if responses were deemed inadequate. The next day, Apex's counsel communicated with Belcher's counsel about the perceived inadequacies and indicated an intention to file a motion on January 6. Just before filing, defense counsel informed Apex's counsel of intent to provide supplemental responses to twelve requests, contingent on a redefinition of "Belcher," which Apex accepted. Despite this, on January 7, dissatisfied with the limited supplemental responses, Apex filed a motion to compel with Magistrate Caden, who oversaw discovery. Belcher opposed the motion, arguing the definition of "Belcher" was objectionable and suggesting that Apex could seek sanctions post-trial if necessary. Although the motion was never resolved, Belcher submitted supplemental responses on January 9 and 21.
Apex also faced delays regarding document production. On October 30, 1985, it filed a motion to compel document production after Belcher had delayed for five months, providing only a few documents. Shea. Gould contended the motion sought document identification related to a separate litigation but ultimately complied after the motion was filed.
The final discovery issue involved the identification of Belcher's expert witness. On September 19, 1985, Apex sought the identity of Belcher’s expert under Rule 26(b)(4). Shea. Gould stated no expert had been selected. However, shortly before trial, it indicated Belcher might call an expert. On January 17, after discussions about witness lists, Apex filed a motion to compel expert identification. Defense counsel later agreed to disclose expert details during a conference call with Magistrate Caden, claiming they were unaware of Apex's motion and had only recently retained an expert.
Post-trial, Apex moved for sanctions against Belcher and Shea. Gould under several legal provisions. On March 20, 1987, Judge McLaughlin partially granted the motion, sanctioning Shea. Gould under Rule 37(c) for failing to admit four factual matters, while denying sanctions for four others deemed not sanctionable.
The district court imposed sanctions under 28 U.S.C. § 1927 against Shea. Gould for attorney's fees and costs incurred by Apex related to compelled document production, supplemental responses to requests for admissions, and identification of Belcher's expert witness. The court found that Shea. Gould had engaged in a tactic of misleading plaintiff's counsel into filing a discovery motion, only for the defense to later comply with the requests. Despite attempts by plaintiff's counsel to resolve issues informally per Local Rule 6(a), the court determined that Shea. Gould's failure to meet reasonable requests constituted bad faith, justifying sanctions under § 1927. The total sanctions amounted to $10,469.25 under Rule 37(c) and $7,171.25 under § 1927, with no sanctions against Belcher, as Apex's motion for sanctions was directed only at him. Shea. Gould did not contest the sanction amounts.
Regarding sanctions under Federal Rule of Civil Procedure 37(c), the district court sanctioned Shea. Gould for Belcher's failure to admit four factual statements. On appeal, Shea. Gould argued that Rule 37(c) does not allow sanctions against an attorney. The court concurred, emphasizing that Rule 37(c) explicitly applies only to parties and is meant to provide relief by requiring a party that improperly refuses admission to cover the expenses incurred by the other side in proving the matter at trial. The court referenced other subsections of Rule 37, which explicitly allow for sanctioning attorneys, indicating that the omission of attorneys from Rule 37(c) was intentional.
Apex's argument for the imposition of Rule 37(c) sanctions against attorneys is undermined by the case Dorey v. Dorey, which did not address this issue but rather the district court's authority to award sanctions without a discovery order. Additionally, the case Akins v. McKnight highlighted that Rule 37(c) sanctions are intended only for parties providing sworn denials, emphasizing that the rule's application should not be broadly construed. Apex did not pursue sanctions against Shea in the district court, and its current arguments appear to be post hoc rationalizations of the district court's actions. The document notes that any perceived gap in the rules is minimal since Rule 26(g) allows district courts to sanction attorneys for improper responses to discovery requests. The sanctions imposed by Judge McLaughlin can be justified under Rule 26(g), which requires attorneys' signatures on discovery documents to certify their compliance with the rules and the legitimacy of the content. Rule 26(g) imposes a more stringent certification standard than Rule 11, requiring that responses are not only consistent with the rules but also reasonable and not unduly burdensome, reflecting the specific nature of discovery matters.
The excerpt outlines the legal framework governing requests for admission under Rule 36 and the associated sanctions provisions under Rules 26(g) and 37(c). Rule 36(a) allows a party to request admissions regarding facts or legal applications, requiring a response within thirty days. If no timely response is provided, the matter is deemed admitted. A party cannot completely deny a request if part of it is believed to be true; instead, they must address the substance of the request and specify any qualifications. The district court has the authority to deem a request admitted or order a proper response if deemed insufficient.
In the context of a motion for sanctions by Apex, the district court determined that Belcher should have admitted four statements, which Apex claimed would have resolved major trial issues. However, three of these statements were found to be composite paraphrases of multiple requests made by Apex during discovery. The document specifies two of these composite statements regarding the use of oil from the Bordeaux and whether Belcher informed Apex about its use without loss or damage. The original requests referenced included various factual elements related to the oil's use, contractual expectations, and market specifications, demonstrating the complexity and specificity required in addressing requests for admission.
In February 1982, Belcher had no need for 190,000 barrels of No. 2 Heating Oil that met New York Harbor specifications, nor did it purchase such oil on the open market as a substitute for what Apex was supposed to deliver under the contract. During February and March 1982, Belcher did not inform Apex of any damages or expenses resulting from the delivery of oil with a 0.25% sulfur content. Belcher initially denied certain requests for admission and objected to others on grounds of vagueness and irrelevance, particularly those involving third parties. In supplemental responses provided on January 21, 1986, Belcher acknowledged using oil from Tank No. 12 for routine sales but denied specific requests related to the use and disposition of the No. 2 Heating Oil pumped from the Bordeaux, citing vagueness and irrelevance again. Belcher confirmed that it used and paid for the oil as agreed, particularly for truck sales to wholesale customers. Furthermore, it was stated that sanctions against a party or attorney cannot be based solely on paraphrased requests for admission; Rule 26(g) emphasizes the obligation of attorneys to certify responses to specific requests, aiming to prevent excessive discovery and evasion.
Rule 37(c) permits sanctions when a party does not admit the truth of matters requested under Rule 36, provided the requesting party subsequently proves the truth of those matters. The use of composite paraphrases for requests for admission can lead to confusion regarding which specific requests and responses are at issue, complicating the imposition of sanctions. Sanctions should be based on failures to admit specific requests rather than vague composites to maintain clarity for the district and reviewing courts. The document criticizes the reliance on composite paraphrases, deeming them muddled and unhelpful, leading to a reversal of sanctions that were improperly imposed based on such statements.
The district court found that a statement regarding defendants contacting Getty, Apex’s supplier, was composite and problematic, as it merged multiple requests (22 and 23) that were answered differently. The response to the composite was deemed vague and argumentative, highlighting the risks of using such composites for sanctions. Additionally, the fourth statement, which asserted that defendants and Belcher New England were affiliates controlled by Belcher Oil Company, was also subject to scrutiny, but the excerpt does not detail the outcome related to this statement. Overall, the reliance on composite paraphrases for determining admissions and sanctions is discouraged to avoid confusion and ensure clarity in legal proceedings.
Request Number 4 sought information regarding the relationship between three affiliated corporations—Belcher New York, Belcher New Jersey, and Belcher New England—during the period from December 1981 to March 1982, specifically highlighting their shared officers and employees and control by Belcher Oil Company and The Coastal Corporation. Belcher's response was a one-word denial, which was not supplemented. In opposition to sanctions under Rule 37(c), Belcher argued the request contained "loaded" terms like "dominated" and "controlled," but the district court found this argument unconvincing, stating Belcher did not demonstrate how these terms were inaccurate or misleading. Shea. Gould acknowledged the affiliations but contested the proof of domination and control, claiming the district court's decision not to allow punitive damages based on Coastal's earnings rendered the admission of little importance.
It was determined that the fourth statement was essentially the same as Request Number 4, and sanctions should be grounded in actual requests for admission. Belcher's outright denial of Request Number 4 was deemed non-compliant with Rule 36(a), which mandates that denials must address the substance of the request, necessitating at least partial admission of the shared officers and ownership by Coastal. Consequently, Belcher's denial was unjustified, and the court decided not to address the appropriateness of the terms "dominated" or "controlled."
Regarding Section 1927 sanctions, Judge McLaughlin awarded Apex attorney's fees and costs for efforts to compel document production and supplemental responses, which Shea. Gould contested as outside the statute's scope. However, the court maintained that Section 1927 allows for sanctions against attorneys who unreasonably and vexatiously multiply proceedings, irrespective of the party's status in the case, emphasizing its purpose to limit courtroom process abuse.
In *Roadway Express*, plaintiffs' counsel disregarded discovery requests and court orders, leading to the dismissal of the action and the imposition of costs and attorney's fees on counsel under multiple statutes, including Section 1927. The Fifth Circuit affirmed this decision, emphasizing that sanctions were appropriate due to the vexatious conduct of the lawsuit. The Supreme Court upheld the Fifth Circuit's ruling, reinforcing the validity of Section 1927 sanctions for discovery abuses.
The document notes that regardless of whether specific remedies were available under federal rules, Shea Gould's actions violated Local Rule 6(a), which mandates good faith attempts to resolve discovery disputes before seeking judicial intervention. The district court found that the failure to confer in good faith constituted unreasonable and vexatious multiplication of proceedings, justifying sanctions under Section 1927.
The district court identified a pattern of bad faith by defense counsel, who forced Apex to incur costs for motions that were later complied with after the fact. Defense counsel had repeatedly refused reasonable requests for admissions, document production, and expert identification, prompting Apex's counsel to attempt informal resolution as required by local rules. The district court found that the refusal to confer in good faith amounted to bad faith conduct under Section 1927.
District courts are granted significant discretion in imposing Section 1927 sanctions to enforce local rules regarding discovery disputes. The imposition of such sanctions is reviewed for abuse of discretion, and Judge McLaughlin's decision was upheld as appropriate given the circumstances.
Defense counsel's inconsistent positions on requests for admission led Apex to prepare a motion, only to later discover that supplemental responses would be submitted regarding some requests. Although there was an agreement on the redefinition of Belcher, he later objected to it in response to Apex's motion. This situation compelled Apex to file a motion to compel, which became unnecessary once documents were voluntarily produced. Additionally, Belcher's fluctuating stance on the retention and identity of an expert resulted in unnecessary costs for Apex. These circumstances support Judge McLaughlin's finding that defense counsel violated Local Rule 6(a), which unreasonably and vexatiously multiplied the proceedings. The advocacy tactics employed were seen as a means to impose unnecessary burdens on Apex, justifying compensation for the resulting expenditures. The court reversed sanctions against Shea and Gould concerning their admissions responses, except for one remanded item, while affirming the Section 1927 sanctions.
