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Ablan v. Bank of America Corporation

United States District Court, N.D. Illinois, Eastern Division

November 24, 2014

JAMES J. ABLAN and BEACON REALTY CAPITAL, INC., an Illinois corporation, Plaintiffs,
BANK OF AMERICA CORPORATION, a Delaware corporation, and MERRILL LYNCH MORTGAGE LENDING, INC., a Delaware corporation, Defendants.


DANIEL G. MARTIN, Magistrate Judge.

For the reasons and to the extent stated below, Defendants' Motion for Sanctions for Evidence Spoliation [109] should be granted in part and denied in part.


In 2003, Plaintiffs entered into a Financial Representation Agreement ("FRA") with Tax Strategies Group, LLC ("TSG"). Plaintiffs contend that the FRA made Plaintiffs the "exclusive" broker for TSG in connection with arranging financing for real estate acquisitions and entitled them to receive a commission when TSG obtained such financing (the "CarMax I transaction"). Plaintiff James J. Ablan ("Ablan") acquired a minority membership interest in TSG at the same time the parties entered into the FRA. On June 1, 2006, TSG filed a lawsuit in state court (the "State Court Litigation") against Ablan alleging that he violated the FRA by interfering with TSG's efforts to obtain financing for the acquisition of a group of CarMax dealerships. Ablan filed a counterclaim against TSG and third party complaint against Wayne R. Hannah, the majority member of TSG alleging, among other things, that: (1) TSG violated the FRA in connection with the CarMax I transaction; (2) TSG and Hannah improperly excluded him from CarMax I and other transactions; and (3) Hannah and other TSG members engaged in misconduct that destroyed the value of Ablan's TSG membership interest. During the State Court Litigation, Ablan requested and received a wide variety of documents from TSG.

Plaintiffs filed this litigation against Defendants on July 1, 2011, while the State Court Litigation was still pending. Defendant Merrill Lynch Mortgage Lending, Inc. provided TSG with first mortgage loans for the CarMax I transaction and the subsequent acquisition of CarMax dealerships. On August 3, 2011, Plaintiffs, TSG and Hannah entered into two settlement agreements to resolve the State Court Litigation. On October 31, 2011, the state court approved the settlement agreements and dismissed the State Court Litigation.

In a letter dated April 9, 2014, Plaintiffs' counsel informed Defendants' counsel that "materials produced by TSG in discovery in the State Court Lawsuit had been disposed of...." (Doc. 118 at 2). Plaintiffs state that "[w]hile this case was pending, Plaintiffs' counsel also learned that Protek, a computer consulting firm that had been retained to assist Ablan in obtaining TSG's email communications, had retained images of TSG's storage drives." Id . Plaintiffs' counsel informed Defendants' counsel about the existence of the TSG storage drives that are in Protek's possession.

Defendants' current motion was originally a motion for evidence spoliation based upon Plaintiffs' representations that the documents they received from TSG in the State Court Litigation no longer existed. After Defendants filed their motion, "Plaintiffs located eight (8) CD-ROMs containing discovery produced to Ablan by TSG in the State Court Litigation." (Doc. 151 at 1-2). On June 26, 2014, over three months after discovery closed, Plaintiffs produced to Defendants the TSG documents contained on the eight (8) CD-ROMs. The CD-ROMs contain over 14, 000 pages of documents. Defendants are no longer seeking sanctions for spoliation. Plaintiffs argue that Defendants' request for sanctions is "render[ed] moot" by their discovery and production of the TSG documents on the eight (8) CD-ROMS in June 2014. (Doc. 118 at 5).

Defendants disagree, arguing that Plaintiffs' tardy production of these documents removes the motion from the spoliation realm and into a failure to timely supplement inquiry. Defendants seek sanctions based on Plaintiffs' failure to timely produce and supplement. Defendants point to two alleged discovery violations by Plaintiffs: (1) Plaintiffs' failure to timely produce 14, 000 pages of TSG documents contained on the eight (8) CD-ROMs in their possession and (2) Plaintiffs' failure to produce 350, 000 TSG documents in the possession of their vendor, Protek. Defendants contend that Plaintiffs should be sanctioned for their late production by: (1) requiring Plaintiffs to pay Defendants their attorneys' fees in bringing this motion; (2) requiring Plaintiffs to pay Defendants' expert costs associated with reviewing the recently located TSG documents; and (3) barring Plaintiffs from relying on or introducing any of the recently located TSG documents at summary judgment or trial.


Federal Rule of Civil Procedure 37(c)(1) provides that "[i]f a party fails to provide information... as required by Rule 26(a) or (e), the party is not allowed to use that information... to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed.R.Civ.P. 37(c)(1). Under Rule 26(e)(1)(A), a "party who has made a disclosure under Rule 26(a)-or who has responded to an interrogatory, request for production, or request for admission-must supplement or correct its disclosure or response in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing." Fed.R.Civ.P. 26(e)(1)(A). "Whether a failure to comply with Rule 26(a) or (e) is substantially justified, harmless, or warrants sanctions is left to the broad discretion of the district court." Dynegy Marketing and Trade v. Multiut Corp., 648 F.3d 506, 514 (7th Cir. 2011).

Plaintiffs do not argue that their production of the TSG documents after the close of discovery complied with Rule 26. Under Rule 34, Plaintiffs were required to produce responsive documents in their "possession, custody, or control." Rule 26(e) requires a party to timely supplement its discovery responses when a party learns that its response was incomplete or incorrect in some material respect. Plaintiffs initiated this litigation against Defendants while the State Court Litigation was pending and Plaintiffs possessed the documents produced by TSG during that lawsuit. Plaintiffs were then in possession of the eight (8) CD-ROMs containing TSG's documents for nearly three years before disclosing them to Defendants. By letter dated April 9, 2014 and after fact discovery closed on March 11, 2014, Plaintiffs' counsel informed defense counsel that counsel for Ablan destroyed nearly all of the documents he received from TSG in the State Court Litigation shortly after its conclusion in about November 2011. (Doc. 110-1 at 219-20). Plaintiffs' counsel further stated that Ablan retained a limited number of TSG's financial statements and tax returns which were produced to Defendants in this case. Id. at 2. On June 16, 2014, Defendants learned for the first time that Ablan had located eight (8) CD-ROMs containing documents produced by TSG in the State Court Litigation. (Doc. 118-1 at 8). Plaintiffs did not produce the TSG documents contained on the eight (8) CD-ROMs until June 26, 2014. Plaintiffs do not deny that the documents included in their June 26, 2014 production were responsive to Defendants' First Set of Requests for Production of Documents served on December 12, 2012. (Docs. 110-1 at 232-261, 118 at 2-3). The Court finds that Plaintiffs violated Rule 26(e) by failing to timely supplement their production in response to Defendants' First Set of Requests for Production of Documents. Thus, Rule 37 prohibits Plaintiffs from using any new information on the eight (8) CD-ROMS "unless the failure was substantially justified or is harmless." Fed.R.Civ.P. 37(c)(1).

Plaintiffs offer no justification for failing to timely produce the TSG documents they received during the State Court Litigation which were in their actual possession. Plaintiffs state that while preparing their response to Defendants' spoliation motion, "Plaintiffs' counsel requested Plaintiffs to again search their files to determine whether they retained any documents produced by TSG in the State Court Lawsuit." (Doc. 118 at 2). Plaintiffs continue: "After another thorough search, Ablan located eight (8) CD-ROMS's containing TSG's documents, one of which was a CD-ROM which contained emails that Protek had copied for Ablan from TSG's computer storage drives." Id. at 2-3. According to Plaintiffs, "[b]efore counsel's request, Ablan was unaware that he even had the CD-ROMs since they were not a part of TSG files that had been produced to Defendants." Id. at 3. There is no explanation in the record as to why Plaintiffs' initial search failed to uncover the eight (8) CD-ROMs of TSG documents.

The remaining question is whether the failure to timely produce the eight (8) CD-ROMs was harmless. The following factors guide the court's discretion in deciding whether the non-compliance with Rule 26 was harmless: (1) the prejudice or surprise to the party against whom the evidence is offered; (2) the ability of the party to cure the prejudice; (3) the likelihood of disruption of the trial; and (4) the bad faith or willfulness involved in not disclosing the evidence at an earlier date. Tribble v. Evangelides, 670 F.3d 753, 760 (7th Cir. 2010).

As to the first factor, Plaintiffs dispute any prejudice to Defendants from the late production of the eight (8) CD-ROMS, contending that those documents largely duplicated Plaintiffs' prior production, were already in Defendants' possession, or are irrelevant to the issues in this lawsuit. Plaintiffs point out that Defendants' summary judgment materials did not rely on a single document that was contained on the eight (8) CD-ROMs of TSG discovery material that was not produced by Plaintiffs prior to June 26, 2014. (Doc. 151 at 3). Defendants respond that Plaintiffs improperly conflate summary judgment evidence with trial evidence. If the case proceeds to ...

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