United States District Court, E.D. Virginia, Norfolk Division
[Copyrighted Material Omitted]
For FLAME S.A., Plaintiff: Steven Michael Stancliff, LEAD ATTORNEY, Crenshaw Ware & Martin PLC, Norfolk, VA; Lauren Brooke Wilgus, William Robert Bennett, III, PRO HAC VICE, Blank Rome LLP (NY-NA), New York, NY.
For FREIGHT BULK PTE. LTD., Defendant: Patrick Michael Brogan, LEAD ATTORNEY, Davey & Brogan PC, Norfolk, VA; George Michael Chalos, PRO HAC VICE, Chalos & Co, P. C., Oyster Bay, NY.
For Glory Wealth Shipping Pte Ltd., Consolidated Plaintiff: Michelle Theresa Hess, LEAD ATTORNEY, Holland & Knight LLP, New York, NY.
Robert G. Doumar, Senior United states District Judge.
This matter comes before the Court on Freight Bulk Pte Ltd's (" FBP" ) Appeal to
District Court of Memorandum Opinion and Order of Magistrate Judge Leonard. ECF No. 404. Because Judge Leonard's ruling survives both de novo and clearly erroneous or contrary to law review, the Court OVERRULES FBP's objections.
I. FBP'S OBJECTIONS
FBP seeks reversal of Judge Leonard's findings that FBP violated the Court's discovery Orders by failing to produce: " 1) documents pertaining to ICI, including corporate records; 2) employees [sic] work books; 3) in a timely fashion, Victor Baransky's responsive e-mails; 4) attachment to loan agreement between FBP and Sea traffic; and 5) in a timely fashion, attachments to responsive e-mails." ECF No. 404 at 1 (emphasis in original). FBP also objects to " Judge Leonard's 37(b)(2)(A)(i) findings that: 1) Freight Bulk Pte. Ltd and Vista Shipping, Inc. are alter egos of one another; 2) the loan from Sea Traffic Shipping Co. to Freight Bulk Pte. Ltd. for the purchase of the CAPE VIEWER was a sham transaction for the sole purpose of avoiding creditors." Id. at 1-2. FBP also " challenges an implied finding that Victor Baransky controls ICI." Id. at 2. Finally, FBP " also seeks reversal of Judge Leonard's Order for FBP and its Counsel to jointly and severally be responsible for reasonable attorneys' fees and expenses of Flame and Glory Wealth in pursuing their motions for sanctions." Id.
II. LEGAL STANDARD
FBP contends that this Court must make a de novo review of orders made by Magistrate Judges concerning dispositive matters. However, it never argues whether Judge Leonard's sanctions were dispositive or even contends that de novo review applies. Instead, FBP applies the non-dispositive standard, clearly erroneous or contrary to law, throughout its motion. ECF No. 404 at 3 (" such ruling is clearly erroneous" ) at 5 (" Judge Leonard's findings . . . are clearly erroneous" ) at 8 (" Judge Leonard's ruling . . . is clearly erroneous" ).
A. Federal Rule of Civil Procedure 72
Rule 72(a) of the Federal Rules of Civil Procedure permits a party to submit objections to a magistrate judge's ruling on non-dispositive matters such as discovery orders. Fed.R.Civ.P. 72(a); 28 U.S.C. § 636(b)(1)(A). The Court reviews a Magistrate Judge's discovery order under the " clearly erroneous or contrary to law" standard. 28 U.S.C. § 636(b)(1)(A); Malletier v. Haute Diggity Dog, LLC, 2007 WL 676222, at *1 (E.D. Va. Feb. 28, 2007). And sanctions ordered per Federal Rule of Civil Procedure 37, so long as they do not involve dismissal, " fall squarely within the jurisdiction of a magistrate judge." Fin. Markets Int'l. Inc. v. Booz Allen Hamilton, Inc., 2013 WL 5538341, at *1 (E.D. Va. Oct. 7, 2013). A court's " finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed."
Malletier, 2007 WL 676222, at *2 (citing United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948). The Fourth Circuit reviews a district judge's discovery decisions for abuse of discretion. Copen v. House, 45 F.3d 425, *2 (4th Cir. 1994).
On the other hand, a magistrate judge's order on dispositive motions are reviewed de novo. Fed.R.Civ.P. 72(b)(3). Although Magistrate Judges do not have inherent authority to sanction a party under Article III, Reddick v. White, 456 F.App'x 191, 193 (4th Cir. 2011), they do have the power to order sanctions under any other statute or Federal Rule of Criminal
or Civil Procedure. 28 U.S.C. § 636 (providing that the civil contempt authority vested in Magistrate Judges during civil trials presided over with the consent of the parties does not limit the power of Magistrate Judges from issuing sanctions under any other statute or rule). Magistrate Judge Leonard clearly ordered sanctions under Rule 37, see Mem. Op. & Order at 19-20, ECF No. 377, and the sanctions were made while the litigation was ongoing,
Reddick, 456 F.App'x at 193, and have not disposed of the case. However, the sanction designating Vista Shipping, Inc. (" Vista" ) and FBP as alter egos does have a dispositive effect on a portion of plaintiffs' claims. Manship v. Bros., 2012 WL 527349, at *2 n.1 (E.D. Va. Feb. 16, 2012) (discussing Rule 11 sanctions and their dispositive or non-dispositive nature based upon their effects on any claim or defense); but see Montanile v. Botticelli, 2009 WL 2378684 (E.D. Va. July 28, 2009) (deciding that a Rule 37 sanction's effect does not make such a sanction dispositive because the sanctioned party, the plaintiff, brought the case to court and was responsible for its conduct).
Thus the Court has to review those dispositive sanctions de novo and those non-dispositive sanctions under a clearly erroneous or contrary to law standard. Both standards, however, lead to the same conclusion, and Magistrate Judge Leonard's entire Memorandum Opinion and Order withstands FBP's objections under either level of scrutiny. Indeed, meeting the higher de novo standard necessarily means that Judge Leonard's Opinion and Order meets the lower clearly erroneous or contrary to law standard. See Giganti v. Gen-X Strategies. Inc., 222 F.R.D. 299, 304 n.9 (E.D. Va. 2004). To be thorough, the Court applies both standards.
The Court takes up each contention in turn. As it does, it notes that FBP has cited only three legal authorities in its entire motion. Two citations came in the form of the standard of review to apply, but were not explained, as noted above, and the third citation is simply a reference to the Vitol case, which provides the alter ego factors necessary in an action like this. Vitol, S.A. v. Primerose Shipping Co. Ltd., 708 F.3d 527, 533 (4th Cir. 2013). This dearth of legal authority makes FBP's motion more akin to an essay than a legal brief and provides the Court with little guidance on the issues before it. FBP's arguments amount to little more than factual attacks on Judge Leonard's findings. Nevertheless, the Court determines whether Judge Leonard's factual findings and legal conclusions were correct under both of the two standards above.
A. FBP Did Violate the Court's Discovery Order In Relation to the Production of ICI Documents
FBP contends that neither FBP
nor Viktor Baranskiy has or controls any documents of Industrial Carriers, Inc. (" ICI" ) with the exception of self-described " commissions calculation," which FBP argues is not even ICI's because Mr. Baranskiy created it. FBP also argues that a transfer from ICI in June 2008 of $39 million to an " undisclosed recipient at Nordea Bank in Denmark" was " almost for certain" " legitimate margin call payments by ICI to an international (Danish) blue-chip fuel company called OW Bunker." ECF No. 404 at 3. Next, FBP argues that Viktor Baranskiy's nominal shareholder position within ICI and his age of twenty-two necessarily mean that he could not have any ICI documents in his possession or control. Id. FBP also now certifies that it does not possess any ICI documents. Id. at 4. Finally, FBP contends that Judge Leonard impliedly held that Mr. Baranskiy controls ICI and did so in error. Id. FBP therefore contends that Judge Leonard's " findings about ICI's documentation and control, unfortunately, are clearly erroneous." Id. FBP cites no legal authority for the arguments it makes, and the Court does not agree with FBP's contentions.
First, the Court will not entertain arguments made by counsel that are known " almost for certain." FBP argues that the transfer from ICI in June to a recipient in Nordea Bank, Denmark was " almost for certain" a transfer to OW Bunker for legitimate services. FBP states that it has no " non-judicial way of obtaining positive proof that such transfers indeed were legitimate business transactions." Id. at 3. FBP had a judicial avenue to do so--the subpoena--but was denied a subpoena by Judge Leonard because the request was made after discovery concluded. ECF No. 399. FBP's attorney's mistake is no excuse and cannot transfer the onus or burden of proof onto Magistrate Judge Leonard's shoulders.
Second, substantial facts in the record support Judge Leonard's findings, notwithstanding Mr. Baranskiy's nominal shareholder status, his age, or the recent certification that the ICI records in question are not in his, Vista's, or FBP's possession. As Judge Leonard correctly observed, " by signing discovery requests, parties certify that after reasonable inquiry they believe that their responses to discovery requests are complete and correct as of the time made and that those responses and or objections are warranted by existing law." Mem. Op. & Order at 19-20, ECF No. 377 (citing Fed.R.Civ.P. 26(g)(1) and In re Outside Wall Tire Litigation, 2011 WL 5357913, at *2 n.1 (E.D. Va. Nov. 7, 2011)). FBP did not so certify regarding documents with respect to ICI but argued that it did not have possession of those documents. And even now its certification again claims that neither FBP, nor Vista, nor Mr. Baranskiy possesses the ICI documents. ECF No. 404 at 4; Decl. of Viktor Baranskiy, ECF No. 404. Again this certification fails to meet Rule 26's mandate or Judge Leonard's findings, which were that FBP has not certified that such documents do not exist, not that they were outside of FBP's possession. Mem. Op. & Order at 7. These objections therefore are meritless because they do not address Judge Leonard's rulings. To the extent that FBP is certifying that these documents do not exist, its certification comes too late, and, in Glory Wealth's estimation, is belied by the discovery here. Opp'n at 5, ECF No. 418.
Third, Judge Leonard's implied finding that Mr. Baranskiy controls ICI had substantial support in the record. But before he made that finding, it is important to note that his earlier discovery orders did not rest on a finding that Viktor Baranskiy controls ICI. Instead, Judge Leonard has made clear throughout this case that " FBP was required to produce all responsive documents that concerned any of the named Defendants, i.e. ICI, Vista, FBP, Viktor Baransky and Sergei Baranksy." Mem. Op & Order at 9 n.7. Although Judge Leonard wrote that he " does not accept [the] representation [that FBP controls every entity involved in this lawsuit with the sole exception of ICI], the Court need not determine whether Judge Leonard meant actual control over its operations, which the tenor of his opinion implies. Instead, FBP merely needs control over the documents to be compelled to produce them. As this Court wrote before:
A party may be compelled to produce items in its " possession, custody, or control." Fed.R.Civ.P. 34(a)(1). Nonparties may be compelled to produce documents under Rule 45. Id. at (c). It is well established that a district court may order the production of documents in the possession of a related nonparty entity under Rule 34(a) if those documents are under the custody or control of a party to the litigation. Steele Software Sys., Corp. v. DataQuick Info. Sys., Inc., 237 F.R.D. 561, 564 (D. Md. 2006) (citing cases). " Control does not require that the party have legal ownership or actual physical possession of the documents at issue, but rather 'the right, authority or practical ability to obtain the documents from a nonparty to the action.'" E.I. DuPont de Nemours & Co. v. Kolon Indus., Inc., 286 F.R.D. 288, 292 (E.D. Va. 2012) (citing Bush v. Ruth's Chris Steak House, Inc., 286 F.R.D. 1, 5-6 (D.D.C. 2010)).
Op. & Order at 2, ECF No. 192. Although ICI is a named party in this suit, ICI, like Vista, has yet to make an appearance. The analysis therefore applies with equal force, and for related non-parties, like parent, sister, or subsidiary corporations, courts examine (1) the corporate structure of the party/non-party, (2) the non-party's connection to the transaction at issue in the litigation, (3) the degree that the non-party will benefit from the outcome of the case; (4) whether the related entities exchange documents in the ordinary course of business; (5) whether the nonparty has participated in the litigation; (6) common relationships between a party and its related non-party entity; (7) the ownership of the non-party; (8) the overlap of directors, officers, and employees; (9) the financial relationship between the entities; (10) the relationship of the parent corporation to the underlying litigation; and (11) agreements among the entities that may reflect the parties' legal rights or authority to obtain certain documents. E.I. DuPont de Nemours & Co. v. Kolon Indus., Inc., 286 F.R.D. 288, 292 (E.D. Va. 2012) (citing Steele Software Sys., Corp. v. DataQuick Info. Sys., Inc.,
237 F.R.D. 561, 564 (D. Md. 2006)).
Here, many of the directors of Vista were formerly of ICI and are alleged to control FBP. Mr. Baranskiy was a shareholder of ICI and is the beneficial owner of Vista, Sea Traffic, and FBP, among other companies. ICI defaulted on its obligations, and the allegations here are that ICI transferred its monies to Vista to avoid those creditors. Vista provided money to Sea Traffic, which in turn provided the funds for FBP to purchase the MN CAPE VIEWER. ICI has a strong interest in this case and would benefit greatly by a favorable finding that FBP is not its alter ego. Thus, all but factors one, four, five, and eleven weigh in favor of a finding that FBP has control over the requested discovery documents at issue.
To reiterate, this Court does not make a finding of control over ICI; rather it makes a finding of control of ICI's documents, which FBP maintains it does not possess but not that they do not exist or are outside of FBP's control. Thus to the extent that Judge Leonard found that Mr. Baranskiy controls the documents pertaining to ICI and did not produce them, this Court agrees.
In sum, after a de novo review, the Court concludes that Judge Leonard's findings are correct. The Court also determines that those findings are not clearly erroneous or contrary to law. The Court therefore OVERRULES FBP's objections.
B. FBP Violated the Court's Discovery Order In Relation to the Production of Employee Workbooks
Magistrate Judge Leonard found that FBP violated his discovery orders by not producing employee workbooks. FBP objects on the grounds that the workbooks are the property of " employees, or maybe even of Ukraine, but definitely not of FBP or its sister companies." ECF No. 404 at 6. FBP characterizes the workbooks as personal property of the individual that are in the possession of an individuals' employer only during the period of employment. Id. FBP contends that it cannot produce these without the approval of the employees or " maybe even ...