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The Upper Deck Company; and the Upper Deck Company, Inc. v. Endurance American Specialty Insurance Company; and Does 1 Through 10

October 5, 2011

THE UPPER DECK COMPANY; AND THE UPPER DECK COMPANY, INC.
PLAINTIFFS,
v.
ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY; AND DOES 1 THROUGH 10, DEFENDANTS,



The opinion of the court was delivered by: Bernard G. Skomal United States Magistrate Judge

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR TERMINATING SANCTIONS AND RELATED CLAIMS.

On August 19, 2011, Defendant Endurance American Specialty Insurance Company ("Endurance") filed a motion for terminating sanctions and monetary sanctions, pursuant to Fed.R.Civ.P. 37, for discovery abuses against Plaintiffs The Upper Deck Company and The Upper Deck Company, Inc. (collectively, "Upper Deck") and Counter-defendant Richard McWilliam. (Doc. No. 82.) Upper Deck filed a response in opposition on September 2, 2011.*fn1 (Doc. No. 102.) Counter-defendant McWilliam did not file an opposition or join in Upper Deck's opposition. On September 23, 2011, Endurance filed a reply. (Doc. No. 119.)

On September 27, 2011, the Court, pursuant to its discretion under Civ.L.R. 7.1(d)(1), submitted Endurance's motion on the parties' papers and vacated the hearing. (Doc. No. 125.) The Court, for the reasons set forth below, denies in part and grants in part Defendant Endurance's motion for terminating sanctions.

Relevant Background

Upper Deck brought this action against Endurance for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief relating to Endurance insurance policies issued to Upper Deck. (Doc. No. 1.) Upper Deck claims that Endurance failed to fully defend and indemnify Upper Deck against losses incurred in an underlying lawsuit entitled Konami Digital Entertainment, et al v. Vintage Sport Cards, Inc., et al. (Id.) Endurance filed a counterclaim against Upper Deck, Upper Deck Authenticated, Ltd., Upper Deck International, LLC, Fleer, LLC, Stellina, LLC, Ascent Group, LLC, Hunt Auctions, LLC and Richard McWilliam. (Doc. No. 3.) Endurance claims that before the issuance of the two insurance policies, Upper Deck had already begun engaging in a willful scheme to infringe the copyright protections of Konami by counterfeiting the most rare and valuable Yu-Gi-Oh! trading cards and failed to disclose this scheme to Endurance. Endurance's counterclaims seek rescission of the insurance policies and a return of the defense payments it made before it discovered Upper Deck's alleged fraud. (Id.)

Currently before the Court is Endurance's motion for terminating sanctions. In its motion, Endurance requests the Court to issue an order striking Upper Deck's answer to Endurance's counterclaim, holding Upper Deck in default and dismissing its complaint against Endurance with prejudice, barring Upper Deck from denying that it engaged in a willful counterfeiting scheme prior to the inception of Endurance insurance policies, barring Upper Deck from denying that it knew at all relevant times that its conduct was unlawful and fraudulent but failed to disclose this scheme to Endurance, barring Upper Deck from denying that it failed to disclose this scheme to Endurance, barring Upper Deck from denying this information was material to Endurance, and barring Upper Deck from denying that Endurance would not have issued the policies had it known about Upper Deck's willful conduct. (Doc. No. 82-1 at 4-5.) Endurance also requests monetary sanctions in the amount of $22,445.00. (Id. at 5.) Endurance bases its requests for sanctions on what it considers "rampant discovery abuse since the inception of this case." (Id. at 4.)

As the following discovery history will show, the Court has heavily managed discovery between the parties in this action, as the parties have presented the Court with a litany of discovery disputes and have fought with each other every step of the way. A significant factor in discussing the history of discovery in this case is Plaintiffs' counsel's absence from the practice of law from March 28, 2011 to May 23, 2011 due to a family medical emergency. (Doc. No. 102-1, Anderson Decl. ¶3; see Doc. No. 33 at 2.) In its motion, Endurance focuses on several discovery-related events as evidence of discovery abuse supporting its request for various sanctions. Many of these events concern disputes that have been separately brought before the Court and ruled upon. The Court discusses the background of these events and the parties' positions below.

Rule 26(a)(1) Initial Disclosures

On June 16, 2010, the Court issued an order that the date of initial disclosure pursuant to Rule 26(a)(1)(A-D) shall occur before July 27, 2010. (Doc. No. 7 ¶3.) On July 21, 2010, the parties jointly moved to continue a scheduled Case Management Conference ("CMC") and requested that the parties exchange initial disclosures 14 days after the Case Management Conference. (Doc. No. 13.) Following a CMC on September 13, 2010, the Court entered a Case Management Conference Order Regulating Discovery and Other Pretrial Proceedings that directed the parties to exchange initial disclosures no later than 30 days after the Case Management Conference, October 13, 2010. (Doc. No. 16 ¶1.)

Endurance served its initial disclosures on October 13, 2010. (Doc. No. 82-2, Le Montree Decl. ¶5.) Upper Deck served its initial disclosures on October 22, 2010. (Id.) Endurance asserts that Upper Deck's initial disclosures were late and therefore violated Rule 26's disclosure requirements. Upper Deck did not address its service of initial disclosures in its opposition. During discovery, Endurance never contacted the Court regarding this issue.

Rule 26(a)(2) Expert Report Disclosures

Pursuant to Court order, each expert witness designated by a party was to prepare a written report and provide it to all other parties no later than June 6, 2011. (Doc. No. 21 ¶1.) Upper Deck served its expert report on June 15, 2011. (Doc. No. 82-2, Le Montree Decl. ¶7; Doc. No. 82-5, Ex. 3.) On June 22, 2010, the parties jointly contacted the Court regarding a dispute concerning Plaintiff's expert report. (Doc. No. 37.) The Court held a hearing on the matter on June 24, 2011 and issued an order following the hearing. (Doc. Nos. 38 & 39.) In the order, the Court noted the parties agreed that "Defendant will inform the Court on July 12, 2011 whether it wants to pursue a motion for sanctions against Plaintiffs for the expert report that was produced after the deadline of June 6, 2011." (Doc. No. 39 ¶3.) After a status conference on July 12, 2011, Endurance indicated it would not pursue a motion for sanctions to strike the expert report and indicated it wanted Plaintiffs' expert's opinions and testimony strictly limited to the scope of his report. (See Doc. No. 42 ¶4.) Endurance did not further pursue a motion for sanctions as it was discussed that the relief Endurance sought was more appropriate for a motion in limine or objection at trial if Upper Deck's expert strays from his opinions in the report. In its current motion, Endurance does not seek to strike the expert report for late disclosure. Upper Deck does not address its tardy expert report disclosure in its opposition.

Requests for Admission

Endurance served requests for admission ("RFA"s) on Upper Deck on March 25, 2011. (Doc. No. 82-2, Le Montree Decl. ¶8; Doc. No. 82-6 Ex. 4.) Pursuant to Fed.R.Civ.P. 36(a)(3), a party must respond to an RFA within 30 days after being served, unless a shorter or longer time is stipulated to under Rule 29 or ordered by the court. Upper Deck served its objections and responses to the RFAs on May 27, 2011, more than 30 days after being served. (Doc. No. 82-2, Le Montree Decl. ¶9.) Thereafter, the parties contacted the Court regarding a discovery dispute over whether the RFAs would be deemed admitted due to the late responses by Upper Deck. (Doc. No. 37.)

The Court held a hearing on the matter on June 24, 2011 and issued an order following the hearing. (Doc. Nos. 38 & 39.) During the hearing, the Court indicated that it would be inclined to excuse Upper Deck's late responses in light of counsel's personal family medical situation that caused him to be out of the office from March 28 to May 23, 2011. The order reflecting the hearing states that the parties agreed that, "Plaintiffs will produce amended responses to the Requests for Admission no later than July 1, 2011. If Defendant is not satisfied with the amended responses, the parties are to jointly contact Judge Skomal on July 6, 2011." (Doc. No. 39 ¶1.) After receiving Upper Deck's amended responses, Endurance was not satisfied with the responses and contacted the Court regarding the ongoing dispute. In light of the dispute, the Court directed Endurance to lodge with the Court the disputed RFAs, the responses thereto, and an explanation of its issues with the amended responses. (Doc. No. 47 ¶3; Doc. No. 59 ¶7.)

Following another discovery hearing on July 28, 2011, the Court directed the parties to meet and confer and submit a joint status report on the status of each disputed RFA reflecting the parties' and the Court's discussion during the hearing. (Doc. No. 61 ¶4.) After receiving only a submission by Endurance that did not reflect the agreed upon changes to the RFAs discussed at the hearing, the Court issued an order regarding the disputed RFAs and what had been agreed upon at the July 28 hearing. (Doc. No. 65.) In this order, the Court also noted that as all of the RFAs were admitted, denied, or being re-written, all of Upper Deck's objections were either moot or overruled. (Id. at 2.) On August 5, 2011, the Court held a further discovery hearing and again discussed issues with the RFAs. Following the hearing, the Court ordered Upper Deck to produce amended responses, not including RFA Nos. 17 and 18, no later than August 8, 2011. (Doc. No. 69 ¶4.) The Court also stated that it was reviewing Nos. 17 and 18 due to a dispute over how Endurance re-wrote the requests. (Id.) On August 8, 2011, the Court issued an order finding that as re-written Nos. 17 and 18 were completely new RFAs, denying Endurance's request to replace Nos. 17 and 18 with the completely new RFAs, and permitting Endurance to re-write Nos. 17 and 18 as initially permitted by the Court. (Doc. No. 71 at 1-2.)

Endurance complains that the amended responses Upper Deck served on August 8, 2011 were unverified and still incorporated Court-stricken objections. (Doc. No. 82-2, Le Montree Decl. ¶12; Doc. No. 82-9 Ex. 7.) Upper Deck submits that it served verified amended responses on August 8, 2011. (Doc. No. 102 at 6; Doc. No. 102-1, Anderson Decl. ¶12.) Upper Deck argues it was Endurance who violated a court order ...


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