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May 22, 2003


The opinion of the court was delivered by: John F. Grady, United States District Judge.


Before the court is a question as to whether the attorneys representing defendant in this diversity case should be sanctioned for misconduct pursuant to 28 U.S.C. § 1927 or Rule 16(f) of the Federal Rules of Civil Procedure.

Factual Background

The complaint was filed on December 28, 2001. It alleges that defendant Kellogg USA, Inc. misappropriated plaintiffs' intellectual property, consisting of a cereal box design (portraying basketballs) which plaintiff submitted to defendant pursuant to a confidentiality agreement. Defendant did not purchase the design from plaintiffs but did produce a cereal box that plaintiffs claim incorporates a major portion of their ideas and design. The complaint alleges claims of fraud, breach of contract and misappropriation of intellectual property.

On April 30, 2002, a conference was held in chambers pursuant to Rule 16 of the Federal Rules of Civil Procedure. As is our custom, the conference was held without a court reporter present, but, at the end of the conference, we dictated an order, in the presence of counsel, setting out the matters discussed at the conference. The order reflects that defense counsel stated that defendant had sold the cereal product for a period of only about four months and that its net profit had been approximately $150,000. Defendant denied that the design of its cereal box was in any way related to the design plaintiff had submitted.

The order suggested that the parties "should have in mind that the stakes here may not be very high, considering the modest profit realized by defendant in the sale of the cereal product," and that "[t]hey should conduct discovery as informally as possible in order to save unnecessary expense." (Order of April 30, 2002.) A further status conference was set for July 24, 2002.

At the July 24 conference, counsel had very little activity to report. We set a discovery schedule, closing fact discovery on October 31, 2002 and expert discovery on December 13, 2002.

On October 8, 2002, another Rule 16 conference was held in chambers. Present for the defendant were attorneys James D. Zalewa and Tamara Anne Miller, as well as counsel for plaintiffs. At the conclusion of the conference, we dictated the following order, which is quoted in its entirety because it is central to the sanctions question addressed in this opinion.

Status conference held. There has been little activity since the last status conference in July. No depositions have been taken and the fact discovery cutoff is October 31, 2002. The parties say they can meet this without any difficulty and therefore the cutoff date will stand. One modification is that the parties will be given additional time for expert discovery. Plaintiff shall file its Rule 26 expert report by November 21 and defendant may depose plaintiff's expert by December 20. Defendant shall name its expert by January 17 and plaintiff may depose that expert by February 14, 2003.
Trial is set for March 3, 2003 at 10:00 a.m. A final pretrial conference will be held on February 19, 2003 at 10:30 a.m.
Plaintiffs shall file a more specific response to defendant's interrogatory number 9, providing particulars as to its lost profits and its "costs, expenses and fees associated with this action" if what is intended is something other than the typical costs of litigation. This should be provided by October 18, 2002.
All document production shall be completed by October 18, 2002.
It is important to note that during the Rule 16 conferences we encourage counsel to offer any modifications or corrections to the order as we are in the process of dictating it, and it is almost always a cooperative effort. The purpose of the order is to provide the parties and the court with a road map for the future conduct of the litigation, and an accurate summary of the status of the case and the positions of the parties is obviously essential. Copies of the order are mailed to counsel as soon as it is typed, usually the day of the conference or, at the latest, the next day.

The critical part of the October 8 order for present purposes is the sentence "[t]he parties say they can meet this without any difficulty and therefore the cutoff date will stand."

The next development that came to our attention was plaintiffs' motion to extend discovery and to compel defendant's discovery responses, filed November 25, 2002. The gist of the motion was that plaintiffs had served interrogatories and requests for document production, but that defendant served objections asserting untimeliness and refusing on that ground to answer the interrogatories or provide the documents. Service of the discovery had been made on defense counsel on October 2, 2002 (six days before the October 8, 2002 Rule 16 conference). Defendant's objection pointed out that this did not leave sufficient time for defendant to respond by the October 31 cutoff date if it took the full 30 days to which it is entitled under the Rules. The parties disagree about whether the service was one or two days late, but the difference is immaterial.

In an effort to resolve the dispute without resort to a motion to compel, as required by our Local Rule 37.2, plaintiffs' counsel wrote a letter to attorney Tamara Miller dated November 15, 2002, recalling what had occurred at the October 8 conference with the court:

At the October 8, 2002 hearing, the Court inquired as to the need to extend discovery and was obviously inclined to do so. However, both plaintiffs and defendant advised the Court that discovery could be finished by the October 31, 2002 deadline which had been previously set by the Court. At no time did the defendant indicate to the Court or the plaintiffs that the defendant would not respond to plaintiffs' then pending discovery requests. This is true despite the fact that defendant was well aware that plaintiffs' discovery had been received on October 3, 2002. Any objection by Kellogg to the timing or service of plaintiffs' discovery should have been raised at that hearing so it could have been immediately addressed by the court and the plaintiffs.
The letter concluded by requesting responses to the discovery and stating that "[a[bsent that, plaintiffs will have no alternative but to file a motion to extend the discovery deadline and compel responses. Plaintiffs may also seek sanctions. We trust it will not come to that." (Plaintiffs' Motion to Extend Discovery and to Compel Defendant's Discovery Responses, EX. C, Letter of Frederick A. Tecce.)

Ms. Miller responded with a letter dated November 19, 2002. She pointed out that plaintiffs did not dispute that the service of the written discovery was untimely. She cited several cases, including Laborers' Pension Fund v. Blackmore Sewer Construction Inc., 298 F.3d 600, 605-06 (7th Cir. 2002), which held that service of requests for admission was untimely when made so that the responses were due after the discovery cut-off date. Ms. Miller's letter went on to say:

We disagree that we were under any obligation to inform Judge Grady during the October 8, 2002 hearing that we planned to object to Plaintiffs' written discovery as untimely. We told the judge we would be able to complete our discovery by the cut-off, which we did. It seems to us that Gar Giles [plaintiffs' attorney] had an obligation to make a motion for leave to serve discovery on Kellogg later than the deadline to do so, and/or file a motion to extend the discovery period if he planned to seek discovery after the cut-off.
The letter concluded by advising defense counsel that "we do not plan to provide substantive responses to Plaintiffs' untimely written discovery. Ms. Miller's co-counsel, James D. Zalewa, is shown as receiving a copy of the letter. (Plaintiffs' Motion to Extend Discovery and to Compel Defendant's Discovery Responses, Ex. D.)

The motion to compel was presented in open court on December 4, 2002, by Mr. Michael K. Lindsey, one of plaintiffs' attorneys. Ms. Miller appeared for the defendant. The ...

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