California District Court Dismisses Lawsuit As A Sanction For Repeated Discovery Violations

This case is unusual because the court dismissed a lawsuit with prejudice and revoked the pro hac vice admission of plaintiff’s counsel. Dismissal is the most extreme sanction, of course, but the Court provides a detailed discussion of the reasons for the dismissal.

The case appears to be a trade secrets/unfair competition case. The court summarized the lack of cooperation among the parties:

From the beginning, this case has been marked by a level of dysfunction and inability to work together that is unprecedented in the Court’s experience. See, e.g., Dkt. Nos. 96 & 98 (parties filed separate case management statements in contravention of Local Rule 16-9); Dkt. No. 101 (inability to conduct Rule 26(f) Meet and Confer); Dkt. No. 157 at 47-57 (Plaintiff’s counsel blocked emails from Defendants, choosing to accept only faxes, letters, and phone calls from opposing counsel, because receiving emails from Defendants was too “intrusive”); Dkt. No. 288 (Defendants requested a discovery referee because Plaintiff allegedly “refuses to discuss any items beyond Loop’s own agenda” during meet-and-confer meetings). Magistrate Judge Donna M. Ryu attempted to “impose a workable structure on the parties’ discovery dispute resolution process,” Dkt. No. 271 at 2, and the docket highlights the Court’s many, many attempts to advance this litigation in a productive way.[1] Over the course of the last two years, the Court has tried numerous approaches, such as ordering court-supervised discovery management conferences, Dkt. No. 136 at 2; ordering the parties to audio record meet and confer sessions, Dkt. No. 156 at 2; instituting standing meetings each week to encourage substantive and meaningful meet-and-confer sessions, Dkt. No. 271 at 2; and eventually requiring the parties to provide dial-in information and agendas for the weekly meet-and-confer teleconferences, so that the Court could monitor the parties’ conduct by joining the calls, Dkt. No. 415 at 2.

As described more fully below, Plaintiff’s insubordination, through its counsel Valeria C. Healy, was and continues to be particularly egregious, posing a significant obstacle to the progress of this case. The Court has given Plaintiff many chances to litigate in a professional and productive manner, and has been consistently confronted with counsel’s utter disregard for the Court’s authority and her persistent refusal to comply with the Court’s orders and the Federal Rules. The following section details the key discovery orders serving as the basis of this order.

The court listed many issues, including the refusal to produce documents and the refusal to answer interrogatories. However, the deposition misconduct is unusual and worth quoting at some length.

Witness coaching happens all the time in depositions. It is rare for a court to find that the lawyer exceeded the bounds of permissible conduct.

As early as December 2015, Judge Ryu gave specific warnings with respect to the issue of privilege during depositions: “there can be no instructions to not answer except for privilege. . . . And it has to be clearly privilege. Because if it’s not, again there will be sanctions.” Dkt. No. 335 at 46.

On January 25, 2016, Almawave first deposed Plaintiff’s co-founder and CEO Gianmauro Calafiore. Dkt. No. 884 at 1 (“Order 884”). After reviewing the deposition transcript, Judge Ryu issued an order regarding Healy’s conduct during the deposition. Dkt. No. 436 (“Order 436”).

[The deposition transcript] is replete with examples of inappropriate behavior by Plaintiff’s counsel, Valeria Calafiore Healy. Ms. Healy made speaking objections, instructed the deponent not to answer questions for reasons other than the invocation of privilege, and repeatedly objected without stating a basis for the objection. The deponent, Gianmauro Calafiore, was often argumentative and uncooperative in providing testimony, thereby delaying the deposition process. Ms. Healy and Mr. Calafiore’s obstructionist conduct repeatedly stymied Alma[w]ave USA’s attempts to obtain discovery through this key deposition.Id. at 1. Judge Ryu sanctioned the Plaintiff, ordering five additional hours of deposition and requiring Plaintiff to bear the cost. Id. The order again provided specific instructions:

In the future, Ms. Healy, and indeed, all attorneys defending depositions in this litigation (1) shall state the basis for an objection, and no more (e.g., “relevance,” “compound,” “asked and answered”); (2) shall not engage in speaking objections or otherwise attempt to coach deponents; and (3) shall not direct a deponent to refuse to answer a question unless the question seeks privileged information.Id. at 2. Judge Ryu further warned that “[g]iven Ms. Healy’s repeated inappropriate conduct in her defense of the Calafiore deposition, any further breach” would result in sanctions. Id.

On August 25, 2016, Judge Ryu issued an order regarding Healy’s continued conduct during the deposition of Calafiore, as well as Loop AI’s other executives Bart Peintner and Patrick Ehlen. Dkt. No. 884. Leading up to this order, Judge Ryu had already twice directed Plaintiff to produce Peintner and Ehlen for depositions as they “appeared to be percipient witnesses.” See Dkt. No. 465 (March 10, 2016); Dkt. No. 526 (March 25, 2016). Judge Ryu’s March 25 order included specific dates, ordering that Ehlen and Peintner appear on March 29 and March 30, and that Calafiore and any of Plaintiff’s 30(b)(6) witnesses appear either on March 31 or April 1. Dkt. No. 526. This Court denied Plaintiff’s motion for relief from Judge Ryu’s nondispositive order regarding the deposition dates. Dkt. No. 533. Plaintiff nonetheless failed to follow Judge Ryu’s orders. See Dkt. No. 555 (Almawave’s letter brief indicating that “Loop and its witnesses refused to appear for deposition as ordered”). On April 4, 2016, Judge Ryu again ordered Plaintiff to make witnesses Calafiore, Ehlen, and Plaintiff’s corporate representative available. Dkt. No. 564.

Order 884 is based on Judge Ryu’s review of the deposition transcripts of these witnesses. Judge Ryu found that “[i]n direct contravention of the court’s February 29, 2016 order, Healy instructed witnesses to refuse to answer questions on grounds other than privilege.” Order 884 at 4 (noting, for example, that Healy “instructed Plaintiff’s 30(b)(6) designee (Calafiore) not to answer certain questions, unilaterally deciding that the questions were outside the scope of the noticed Rule 30(b)(6) topics”); id. at 5 (“[W]hen Almawave asked Ehlen, `Can you tell us how your particular algorithms work?’, Healy instructed him not to answer on the basis of relevance, again unilaterally taking the topic off the table.”). Judge Ryu cited Healy’s “numerous improper speaking objections, in direct contravention of this court’s order that counsel confine objections to a statement of their basis, (e.g., `compound,’ or `asked and answered’), and not engage in speaking objections or otherwise attempt to coach the witness.” Id. at 5. Order 884 found “Healy’s coaching was so effective that the witnesses occasionally repeated her objections, sometimes verbatim, to the examining attorney,” and that “[o]n other occasions, Healy actually attempted to answer the question for the witness.” Id. at 6-7.Order 884 held that Healy improperly asserted attorney-client privilege to prevent witnesses from answering, noting that Healy “inexplicably refused to allow the witnesses to respond to questions about their own discussions with other Loop employees or third parties,” and “refused to allow Plaintiff’s witnesses to answer questions about their document collection and production in this litigation” on the basis of attorney-client privilege. Id. at 7-8. Judge Ryu concluded that Healy’s conduct, “including instructions not to answer questions and speaking objections and coaching, was both improper and in direct violation of the court’s February 29, 2016 order regarding the conduct of depositions” and “[a]ccordingly, it is sanctionable.” Id. at 9. Judge Ryu deferred to this Court as to what sanction should be imposed. Id.

In sum, this case will draw coverage in the media and in legal publications which discuss discovery shenanigans.

Source: LOOP AI LABS INC. v. Gatti, Dist. Court, ND California 2017 – Google Scholar

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