LAURA POWERS, NICHOLE PALMER, and JASON PALMER, on behalf of themselves and all others similarly situated, Plaintiffs,
CREDIT MANAGEMENT SERVICES, INC., DANA K. FRIES, JESSICA L.
PISKORSKI, BRADY W. KEITH, MICHAEL J. MORLEDGE, and TESSA HERMANSON, Defendants.
THOMAS D. THALKEN, Magistrate Judge.
This matter is before the undersigned magistrate judge on the defendants' response (Filing No. 113) to the court's order to show cause (Filing No. 106). On March 20, 2013, the undersigned magistrate judge entered an order requiring the defendants to show cause why sanctions under Fed.R.Civ.P. 37(a)(5)(A), should not be imposed due to the defendants' use of information, which was previously withheld during discovery, in opposition of the plaintiffs' motion for class certification. See Filing No. 106. On April 2, 2013, the defendants filed a brief responding to the show cause order. See Filing No. 113 - Brief. The plaintiffs filed a response in opposition to the defendants' brief. See Filing No. 118 - Response. The defendants filed a reply. See Filing No. 121 - Reply.
The plaintiffs, Laura Powers (Powers), Nichole Palmer, and Jason Palmer, received collection complaints and discovery requests from the defendant, Credit Management Services, Inc. (CMS). Dana K. Fries, Tessa Hermanson, Jessica L. V. Piskorski, and Brady W. Keith are in-house attorneys for CMS. See Filing No. 17 - Amended Complaint § 6. Micheal J. Morledge is the owner of CMS. Id. § 7. Powers filed the instant action on December 18, 2011. See Filing No. 1 - Complaint. On January 23, 2012, the plaintiffs filed an amended complaint alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. and Nebraska's Consumer Protection Act, Neb. Rev. Stat. §§ 59-1601 to 59-1623. See Filing No. 17 - Amended Complaint. The plaintiffs seek actual and statutory damages for the plaintiffs and each putative class member, costs, reasonable attorneys' fees, and declaratory and injunctive relief. Id. at 14-15.
During discovery, the plaintiffs requested the defendants' net-worth information. See Filing No. 96 - Motion to Compel p. 1-2. The defendants objected stating the plaintiffs' request for net-worth information "seeks confidential information... [and] in any event, unless there is class certification [the defendants' net-worth information] is premature." Id. at 2. However, even though the defendants objected to the plaintiffs' request for net-worth information, the defendants designated Sherri Bergholz (Bergholz) to testify as to CMS's net worth. Id. at 2-3. At Bergholz's deposition, she testified as to CMS's net-worth only according to information an accountant provided her. Id. at 3-4. Bergholz testified she did not know CMS's assets or liabilities. Id. Subsequently, in opposition to the plaintiffs' motion for class certification, the defendants provided David J. Faimon's (Faimon) affidavit and report summarizing the defendants' net-worth. See Filing Nos. 89-6 - Aff.t; 91 - Net-worth Report. The defendants also provided supplemental responses to the plaintiffs' discovery requests. See Filing No. 98-3 - Supplemental Responses. The defendants' supplemental responses to the plaintiffs' requests for admission, production of documents, and interrogatories generally referred to Faimon's affidavit and report. Id.
On February 25, 2013, the plaintiffs filed a motion to compel the defendants to supplement the defendants' net-worth information. See Filing No. 96 - Motion to Compel. On March 20, 2013, this court granted the plaintiffs' motion. See Filing No. 106 - Order. This court gave the defendants an opportunity to show cause why sanctions should not be imposed. Id.
In response to the order to show cause, the defendants argue it was unnecessary to conduct detailed discovery regarding the defendants' net-worth prior to class certification when net-worth is not relevant to certification as determined in prior cases in this district. See Filing No. 113 - Brief p. 2, 8 (citing Harris v. D. Scott Carruthers & Assoc., 270 F.R.D. 446, 454-56 (D. Neb. 2010) (concluding defendants' negative net-worth does not defeat finding class certification is appropriate)). The defendants argue their net-worth, even if negative, is not a basis to deny class certification. Id. Therefore, the defendants objected to production of financial information as premature. Id. However, the defendants state they relented and disclosed basic net-worth information after the plaintiffs alleged the defendants were hiding information regarding the defendants' finances or being untruthful in their opposition to the defendants' motion for summary judgment and in support of the plaintiffs' motion for class certification. Id. at 4-5. The defendants state Faimon began assembling the net-worth information in January 2013 and was unable to complete a draft until just prior to the defendants' deadline to respond to the motion for class certification. Id. at 5-6.
The defendants state after presenting Faimon's report, the defendants, at the plaintiffs' request, made Faimon and the defendants available for depositions. Id. at 6. The defendants state they are willing to produce the defendants' tax returns. Id. at 7. Additionally, the defendants offered to pay court reporter costs for supplementary depositions concerning the defendants net-worth. Id. at 8. Lastly, the defendants offered to pay Faimon's costs for preparing and appearing for a deposition. Id.
The plaintiffs argue the court should impose sanctions because the defendants stonewalled the plaintiffs in obtaining any net-worth information; however, at the last minute, the defendants filed Faimon's unverified affidavit and report summarizing the defendants' net-worth. See Filing No. 118 - Response p. 5. The plaintiffs argue the defendants' objection that the net-worth information was confidential was disingenuous and in bad faith because a confidentiality agreement was in effect. Id. at 4-5. The plaintiffs argue the defendants tax returns expose Bergholz's testimony and Faimon's report as falsely "low balling" the defendants' net worth. Id. at 9-11. For these reasons, the plaintiffs request sanctions against the defendants for their failure to produce discovery. Id.
Additionally, after the court entered the order on the plaintiffs' compel motion, the plaintiffs sent a letter to the defendants on March 29, 2013, listing materials needed on the issue of net-worth. See Filing No. Filing No. 119-2 - March 29, 2013, Letter. The plaintiffs requested audited financial statements, tax returns, and various other financial related statements. Id. The plaintiffs also requested the defendants to bear the costs of retaking a deposition of the defendants' Rule 30(b)(6) witness. Id. Lastly, the plaintiffs requested the defendants reimburse the plaintiffs $2130, which represents the costs the plaintiffs incurred in filing the motion to compel. Id. The plaintiffs state they received some net-worth information but have not received wage and audited financial statements. See Filing No. 118 - Response p. 2. The plaintiffs represent the defendants refuse to pay the plaintiffs' fees. Id.
The defendants represent they provided documents in response to the plaintiffs' March 29, 2013, letter and additional requests with the exception of audited statements because such statements do not exist. See Filing No. 121 - Reply p. 2. The defendants state they did not refuse to pay any monetary sanction, but instead suggested a resolution mutually acceptable to both parties during an April 16, 2013, phone call. Id. The defendants state they produced financial information over and above what the defendants considered relevant net-worth information and agreed to pay court reporter fees. Id. at 3. The defendants state they are willing to file the produced financial records under seal to provide the court with further evidence of the defendants' cooperation. Id. at 5.
The Federal Rules of Civil Procedure provide:
If the motion [to compel discovery] is granted-or if the disclosure or requested discovery is provided after the motion was filed-the court must, after giving an opportunity to be heard, require the party or deponent whose conduct necessitated the motion, the party or attorney advising that conduct, or both to pay the ...