McFadden v. Meeker Housing Authority

          ORDER DENYING PLAINTIFFS' MOTION FOR DEFAULT JUDGMENT AS A SANCTION, SUA SPONTE GRANTING ALTERNATIVE SANCTIONS, AND ORDER TO SHOW CAUSE WHY STEPHEN J. BAITY SHOULD NOT BE ORDERED TO PAY ATTORNEYS' FEES AND COSTS

          William J. Martinez United States District Judge

         Plaintiff Megan McFadden (“McFadden”) previously resided in the federally subsidized Karen Court apartment complex in Meeker, Colorado. Plaintiffs Lonnie and A.J. White (“the Whites”) are current residents of Karen Court. All Plaintiffs claim that Defendants discriminated against them in violation of the Rehabilitation Act of 1973 (“Rehabilitation Act”), 29 U.S.C. §§ 794 et seq., and the Fair Housing Act (“FHA”), 42 U.S.C. §§ 3601 et seq., based on Defendants' policy (or former policy) concerning disability-assistance pets. McFadden, who moved from Karen Court around the time this lawsuit commenced, also brings a claim under Colorado state law for wrongful withholding of her security deposit.

         Before the Court is Plaintiffs' Motion for Entry of Judgment and Dismissal Due to Defendants' Litigation Misconduct (“Motion”). (ECF No. 288.) The basis of this motion is Defendants' alleged non-diligence in, and abuse of, the discovery process. For the reasons explained below, the Court denies Plaintiffs' requested remedy to strike Defendants' affirmative defenses and counterclaims and to enter default judgment against Defendants. The Court sua sponte instead excludes certain false testimony, and will order Defendants' former counsel, Mr. Stephen L. Baity, ^[1] to show cause why he should not be held personally responsible for attorneys' fees and costs Plaintiffs would not have incurred but for his non-diligence.

         I. LEGAL STANDARD

         Although Plaintiffs assert that Defendants' alleged discovery violations merit default judgment against them, Plaintiffs do not invoke Federal Rule of Civil Procedure 37(b)(2)(A)(vi), which permits “default judgment against the disobedient party” where the party has “fail[ed] to obey an order to provide or permit discovery.” Plaintiffs instead seek entry of default judgment under the Court's inherent authority to assess sanctions. (ECF No. 288 at 3.) See also Goodyear Tire & Rubber Co. v. Haeger, 137 S.Ct. 1178, 1186 (2017) (“Federal courts possess certain inherent powers, not conferred by rule or statute, to manage their own affairs so as to achieve the orderly and expeditious disposition of cases. That authority includes the ability to fashion an appropriate sanction for conduct which abuses the judicial process.” (internal quotation marks and citations omitted)).

         For guiding standards, Plaintiffs nonetheless cite to cases analyzing Rule 37(b)(2)(A) sanctions. (See ECF No. 288 at 3 (citing Stichting Mayflower Mountain Fonds v. City of Park City, Utah, 441 Fed.Appx. 568 (10th Cir. 2011); Lee v. Max Int'l, LLC, 638 F.3d 1318 (10th Cir. 2011); Ehrenhaus v. Reynolds, 965 F.2d 916, 920 (10th Cir. 1992)).) Defendants do the same, although asserting that they have not violated any discovery orders. (See ECF No. 294 at 3-4.) Because the parties appear to agree that the Court should apply a Rule 37(b)(2)(A) analysis, the Court will do so, reserving for another day the question of whether and under what conditions a Court's inherent authority to sanction extends to dismissal or default judgment.

         The standard for imposing default judgment as a discovery sanction is strict:

[D]ismissal represents an extreme sanction appropriate only in cases of willful misconduct. In many cases, a lesser sanction will deter the errant party from further misconduct. Because dismissal with prejudice defeats altogether a litigant's right to access to the courts, it should be used as a weapon of last, rather than first, resort.

Ehrenhaus, 965 F.2d at 920 (internal quotation marks and citations omitted). “If a judge intends to order a dismissal or default judgment because of discovery violations, the judge should do so only if the judge is impressed to do so by evidence which is clear and convincing.” Gates Rubber Co. v. Bando Chem. Indus., Ltd., 167 F.R.D. 90, 108 (D. Colo. 1996).

         The Tenth Circuit has prescribed the following factors to consider: (1) the degree of actual prejudice to the affected party; (2) the amount of interference with the judicial process; (3) the culpability of the litigant; (4) whether the court warned the culpable party in advance that dismissal of the action would be a likely sanction for noncompliance; and (5) the efficacy of lesser sanctions. Ehrenhaus, 965 F.2d at 921. The Court will refer to these as the “Ehrenhaus factors.” “These factors do not constitute a rigid test; rather, they represent criteria for the district court to consider prior to imposing dismissal as a sanction.” Id. “Only when the aggravating factors outweigh the judicial system's strong predisposition to resolve cases on their merits is dismissal an appropriate sanction.” Id. (internal quotation marks omitted).

         II. ANALYSIS

         A. Summary of Accusations and Responses

         Before applying the Ehrenhaus factors, the Court will first summarize Plaintiffs' accusations of discovery misconduct and Defendants' responses. The Court will designate each accusation according to the outline numbering employed in the parties' briefs (e.g., A-1, D-2, etc.). Most of Plaintiffs' accusations stemmed from a forensic search of the Meeker Housing Authority's sole computer, which Defendants agreed to permit as a compromise to resolve a discovery dispute.

         A-1. Plaintiffs propounded discovery requests for documents, including documents found on digital devices, in any way touching upon Defendants' pet policies. Plaintiffs received far fewer documents than they expected, and the forensic search uncovered more, namely, Internet search histories conducted in June and July 2016 regarding pet policies, and a template of a compliant pet policy obtained in August 2016. (ECF No. 288 at 4-5.) The Court agrees with Plaintiffs that these are documents Defendants should have produced themselves before the forensic search.

         Defendants counter that “Plaintiffs are not prejudiced” because they obtained the documents “by the discovery methodology they proposed and which was agreed to. . . . They have the documents they contend support their claims and they obtained them using the methodology they wanted.” (ECF No. 294 at 5.) This no-prejudice argument is a running theme in Defendants' response to nearly all of Plaintiff's accusations, so the Court will not repeat it under each heading, below. The Court addresses it instead in Part II.C.1.b, below.

         Defendants further assert that the uncovered documents are irrelevant, or at least that Plaintiffs exaggerate their significance. (Id. at 5-6.)

         A-2. Plaintiffs claim that forensic imaging and public records requests uncovered a March 2017 compliance agreement that Meeker Housing Authority entered into with the U.S. Department of Housing and Urban Development regarding pet policies, thus supposedly confirming that the pet policies at issue in this lawsuit were unlawful. (ECF No. 288 at 5-6.) Defendants respond that this document is irrelevant to their knowledge at the time the pet policies were promulgated, and it is inadmissible under Federal Rule of Evidence 407 as a subsequent remedial measure. (ECF No. 294 at 6.)

         A-3. Through discovery, Plaintiffs requested documents relevant to their claim that Defendants have retaliated against Plaintiffs for asserting their rights under the Fair Housing Act. Mr. Baity represented to the Court that Defendants searched for and produced the single document responsive to that request. But forensic imaging uncovered 99 responsive e-mails. (ECF No. 288 at 6-7.) Defendants respond that Plaintiffs misconstrue or exaggerate the significance of what they have found. (ECF No. 294 at 7-9.)

         B. Plaintiffs claim that depositions of certain Defendants show that they did not know or did not care about their duty to preserve and produce documents. (ECF No. 288 at 7-9.) Defendants respond that Plaintiffs have taken the deposition testimony out of context. (ECF No. 294 at 9-11.)

         C. Accusation “C” ...