Opinion
22-mc-80094-TSH
07-06-2022
DAVID B. ERICKSON, Movant, v. BUILDER ADVISOR GROUP LLC, Third Party.
CERTIFICATION OF FACTS AND REPORT & RECOMMENDATION RE: MOTION FOR ORDER TO SHOW CAUSE RE: DKT. NO. 9
THOMAS S. HIXSON United States Magistrate Judge
I. INTRODUCTION
This matter concerns a subpoena duces tecum served in connection with a case that is currently pending in the United States District Court for the Middle District of Georgia, American Southern Homes Holdings, LLC, et al. v. David B. Erickson, et al.; Case No. 4:21-cv-00095-CDL. After David Erickson brought a motion to compel third party Builder Advisor Group LLC (“BAG”) to comply with the subpoena, this Court ordered BAG to produce responsive documents by May 12, 2022. Erickson now moves the Court for an order to show cause why contempt sanctions under Federal Rule of Civil Procedure 45 should not issue against BAG for its continued failure to comply or otherwise respond to the subpoena. ECF No. 9. BAG has not opposed the motion. As not all parties have consented to magistrate judge jurisdiction pursuant to 28 U.S.C. § 636(c), the undersigned requests this case be reassigned to a district judge for disposition. Having considered Erickson's position, relevant legal authority, and the record in this case, the undersigned RECOMMENDS the Court GRANT the motion and ORDER BAG to show cause why it should not be held in contempt.
II. BACKGROUND
Erickson founded Grayhawk Homes, Inc., a homebuilder in Columbus, Georgia. In November 2019 he sold certain operating assets of Grayhawk Homes to American Southern Homes Holdings, LLC and its subsidiary, ASH-Grayhawk, LLC (collectively, “ASH”). Erickson later resigned as interim CEO and Director and disclosed his intent to reenter the homebuilding industry in areas outside of Columbus. Since then, he alleges ASH has sought to suppress his reentry into the industry, culminating in ASH's complaint against him in Georgia that includes causes of action for breach of a consulting agreement and breach of a non-compete agreement.
Tony Avila is the CEO of BAG, an investment banking firm that specializes in M&A advisory and capital raising solutions for residential real estate builders and developers. BAG is headquartered in Corte Madera, California. Erickson states that Avila is an investor and member of BAG and has knowledge regarding communications with ASH about Erickson's consulting activities that are central to the underlying action. Erickson alleges Avila communicated with both Erickson and ASH about multiple transactions and potential transactions, advising Erickson that ASH had no interest in pursuing them. According to Erickson, ASH now claims those attempted deals were violative of the consulting agreement and the non-compete agreement signed by Erickson.
On January 18, 2022, Erickson served a subpoena on BAG's registered agent requesting four categories of documents. Nelson Decl. Ex. C, ECF No. 1-4; id., Ex. D, ECF No. 1-5. After BAG failed to respond, counsel for Erickson called its headquarters on March 16 and spoke with Cara Newman, its Executive Administrator of Operations and Client Relations, who requested an emailed copy of the subpoena and stated she was responsible for responding to any subpoenas. Nelson Decl. ¶ 2, ECF No. 1-1. On March 18 Erickson's counsel emailed the subpoena to Newman and requested confirmation by March 21. Id. ¶ 3 & Ex. A, ECF No. 1-2. After receiving no response, Erickson's counsel sent another email to Newman and Avila to request BAG's compliance with the subpoena by March 30. Nelson Decl. ¶¶ 3-4 & Ex. B, ECF No. 1-3. Having received no response, Erickson filed a motion to compel in this District, requesting the Court compel BAG to produce all documents responsive to the subpoena and sanction it in the form of attorney fees and costs incurred in bringing the motion. ECF No. 1.
On April 28, 2022, the Court granted Erickson's motion to compel, finding the subpoena requested documents that are relevant to his defense of the Georgia lawsuit. ECF No. 7; Erickson v. Builder Advisor Grp. LLC, 2022 WL 1265823, at *2 (N.D. Cal. Apr. 28, 2022). The Court denied Erickson's request for sanctions, finding it would be inappropriate to hold BAG in contempt without first ordering compliance with the subpoena. Erickson, 2022 WL 1265823, at *3 (citing Gordy v. Granlund, 2019 WL 3753184, at *2 (N.D. Cal. Aug. 8, 2019)). As part of its order, the Court warned BAG that “[f]ailure to comply with this order may result in the imposition of sanctions under Rule 45.” Id.
Erickson filed the present motion on June 10, 2022. He seeks both coercive sanctions, in the form of a per diem sanction as the Court deems proper to coerce BAG's compliance, and compensatory sanctions, in the form of attorneys' fees and costs.
III. LEGAL STANDARD
A. Contempt
Under Federal Rule of Civil Procedure 45(g), “[t]he court for the district where compliance is required . . . may hold in contempt a person who, having been served, fails without adequate excuse to obey the subpoena or an order related to it.” Civil contempt is intended “to coerce [a non-party] into compliance with the court's order” or “to compensate the complainant for losses sustained” from the noncompliance. Shell Offshore Inc. v. Greenpeace, Inc., 815 F.3d 623, 629 (9th Cir. 2016) (quoting United States v. United Mine Workers of Am., 330 U.S. 258, 303-04 (1947)). “The district court has wide latitude in deciding whether there has been contemptuous defiance of one of its orders.” Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, 778 (9th Cir. 1983).
To establish civil contempt, the moving party must show by clear and convincing evidence that BAG violated a specific order of the court. See FTC v. Affordable Media, 179 F.3d 1228, 1239 (9th Cir. 1999). The burden then shifts to the alleged contemnor to demonstrate why they were unable to comply. Reno Air Racing Ass'n v. Mccord, 452 F.3d 1126, 1130 (9th Cir. 2006). In the Ninth Circuit, the rule with regard to contempt is whether the alleged contemnor performed “all reasonable steps within his/her power to ensure compliance” with the court's orders. Stone v. City and Cty. of San Francisco, 968 F.2d 850, 856 (9th Cir. 1992); Martinez v. City of Pittsburg, 2012 WL 699462, at *3 (N.D. Cal. Mar. 1, 2012) (The alleged contemnor must show it “took every reasonable step to comply with the subpoena and . . . articulate reasons why compliance was not possible.”) (citing Donovan v. Mazzola, 716 F.2d 1226, 1240 (9th Cir. 1983)). Intent is irrelevant to a finding of civil contempt, and therefore, good faith is not a defense. Stone, 968 F.2d at 856. However, inability to comply with the court order is a complete defense to civil contempt. Affordable Media, 179 F.3d at 1239. If an alleged contemnor's actions were taken in good faith or based on a reasonable interpretation, they should not be held in contempt. See Stone, 968 F.2d at 856-57.
B. Magistrate Judge Authority
Absent consent by the parties, the authority of magistrate judges over civil contempt proceedings is limited. See 28 U.S.C. § 636(e); Bingman v. Ward, 100 F.3d 653, 656-57 (9th Cir. 1996). A magistrate judge may investigate whether further contempt proceedings are warranted and, if the magistrate judge so finds, certify such facts to a district judge. 28 U.S.C. § 636(e)(6); see also Alcalde v. NAC Real Estate Invs. & Assignments, Inc., 580 F.Supp.2d 969, 971 (C.D. Cal. 2008). Specifically, upon finding an act constituting a civil contempt:
the magistrate judge shall forthwith certify the facts to a district judge and may serve or cause to be served, upon any person whose behavior is brought into question under this paragraph, an order requiring such person to appear before a district judge upon a day certain to show cause why that person should not be adjudged in contempt by reason of the facts so certified. The district judge shall thereupon hear the evidence as to the act or conduct complained of and, if it is such as to warrant punishment, punish such person in the same manner and to the same extent as for a contempt committed before a district judge.28 U.S.C. § 636(e)(6)(B)(iii). Under this process, the magistrate judge functions to certify the facts and not to issue an order of contempt. Bingman, 100 F.3d at 656-57.
IV. DISCUSSION
The undersigned already determined that Erickson's subpoena to BAG was valid and properly served, and also determined that BAG failed to show any reason the discovery should not be permitted. Further, Rule 45 requires that all objections must be served “before the earlier of the time specified for compliance or 14 days after the subpoena is served.” Fed.R.Civ.P. 45(d)(2)(B). Thus, BAG's “[f]ailure to serve timely objections waives all grounds for objection.” Poturich v. Allstate Ins. Co., 2015 WL 12766048, at *2 (C.D. Cal. Aug. 11, 2015) (quoting McCoy v. Sw. Airlines Co., 211 F.R.D. 381, 385 (C.D. Cal. 2002)). BAG also failed to comply with the Court's April 28 order granting Erickson's motion to compel. Given this record, the undersigned finds Erickson has shown by clear and convincing evidence that BAG violated a specific order of the court. See In re Dual-Deck Video Cassette Recorder Antitrust Litig., 10 F.3d 693, 695 (9th Cir. 1993) (“Civil contempt . . . consists of a party's disobedience to a specific and definite court order by failure to take all reasonable steps within the party's power to comply.”). Thus, the undersigned certifies that BAG has (1) failed to respond to Erickson's subpoena, (2) failed to comply with the Court's April 28 order granting Erickson's motion to compel, and (3) failed to respond to the present motion for contempt sanctions. Further, BAG has made no attempt to provide an explanation for its nonappearances and noncompliance with court orders. As such, the undersigned finds BAG has committed an act of civil contempt and therefore recommends the Court order BAG to appear before it to show cause why it should not be adjudged in contempt by reason of these facts.
If BAG fails to respond to the show cause order and demonstrate why it was unable to comply, the next question is the appropriate remedy. First, if the Court holds BAG in contempt, the undersigned recommends Erickson be awarded his costs and attorney's fees incurred as a result of BAG's failure to respond. See Dallas Buyers Club, 2016 WL 6208268, at *3; LHF Prods., 2016 WL 6208269, at *2-3 (“[A] court's inherent power to impose sanctions includes the imposition of attorney fees against a nonparty.”) (citing Corder v. Howard Johnson & Co., 53 F.3d 225, 232 (9th Cir. 1994) (“[A] court may impose attorney's fees to sanction a non-party whose actions or omissions cause the parties to incur additional expenses.”)).
Second, the appropriate sanction must be designed for the purpose of compelling compliance. In addition, if a court holds a party in contempt, any such “order must be accompanied by a ‘purge' condition, meaning, it must give the contemnor an opportunity to comply with the order before payment of a fine or other sanction becomes due.” Martinez, 2012 WL 699462, at *3 (citations omitted). To this end, if BAG fails to respond to the show cause order, the undersigned recommends as follows. The undersigned recommends the Court direct Erickson to serve a copy of the Court's order on BAG and to thereafter file proof of service. BAG should be given 14 days from the date it is served in which to fully comply with the subpoenas or to show by clear and convincing evidence why compliance is impossible. See United States v. Rylander, 460 U.S. 752, 757 (1983). (“In a civil contempt proceeding . . . a [contemnor] may assert a present inability to comply with the order in question.... While the court is bound by the enforcement order, it will not be blind to evidence that compliance is factually impossible. Where compliance is impossible, neither the moving party nor the court has any reason to proceed with the civil contempt action. It is settled, however, that in raising this defense, the [contemnor] has a burden of production.”). This grace period will provide BAG with an opportunity to purge itself of contempt.
If BAG fails to purge itself of contempt prior to the expiration of the grace period, the undersigned recommends the Court impose a fine on BAG in the amount of $200 a day payable to the Clerk of Court for the Northern District of California until it complies with the subpoenas. See, e.g., Fox v. Manhattan Mech. Servs., LLC, 2021 WL 3603623, at *4 (N.D. Ill. Aug. 13, 2021) (imposing a fine of $200 per day until compliance is obtained); Pettengill v. Cameron, 2018 WL 4039333, at *2 (W.D. Wis. Aug. 23, 2018) (same); Tracfone Wireless, Inc. v. LaMarsh, 307 F.R.D. 173, 176 (W.D. Pa. 2015) (same); United States v. Iacona, 2020 WL 6161171, at *2 (S.D. Ill. Oct. 21, 2020) (imposing a fine of $250 per day until compliance is obtained); see also High Tech Nat'l, LLC v. Stead, 2020 WL 3605286, at *4 (E.D. Pa. July 2, 2020) (noting that such fines are payable to the Clerk of Court), motion for relief from judgment denied, 2020 WL 5076796 (E.D. Pa. Aug. 27, 2020). The undersigned also recommends the Court order Erickson to immediately inform the Court if BAG brings itself into compliance and to file weekly status reports for the first 28 days after the fines are imposed. See High Tech Nat'l, 2020 WL 3605286, at *4. Thereafter, the undersigned recommends the Court permit Erickson to petition the Court for an extension of the daily fine or other appropriate relief. Id.
The undersigned is hopeful that BAG will purge itself of contempt and that the above sanctions will not be necessary. Nonetheless, it is imperative that BAG comply with the Court's April 28 order and Erickson's subpoena unless it can meet its burden of proof to show that compliance is impossible.
V. CONCLUSION
Pursuant to 28 U.S.C. § 636(e)(6)(B)(iii), the undersigned certifies the facts above and finds Builder Advisor Group LLC has committed an act constituting civil contempt. Accordingly, the undersigned RECOMMENDS the Court ORDER BAG to show cause why it should not be held in contempt for its failure to comply with the Rule 45 subpoena and the Court's April 28 order. Thereafter, if BAG fails to demonstrate why it was unable to comply, the undersigned FURTHER RECOMMENDS the Court order as follows:
1) Erickson shall provide an itemization of costs and attorney fees related to the issuance and service of the Rule 45 subpoena, as well as the costs related to the motion to compel and motion for a contempt finding. In support of his itemization, Erickson must include: (a) evidence supporting the request for hours worked, including a detailed breakdown and identification of the subject matter of each person's time expenditures, accompanied by actual billing records and/or time sheets; (b) documentation justifying the requested billing rates, such as a curriculum vitae or resume; (c) evidence that the requested rates are in line with those prevailing in the community, including rate determinations in other cases of similarly complex litigation; and (d) evidence that the requested hours are reasonable, including citations to other cases of similar litigation (preferably from this District).
2) Erickson shall serve a copy of the Court's order on BAG and file proof of service thereafter. As a “purge” condition, BAG shall have 14 days from the date it is served in which to fully comply with the subpoena or to show by clear and convincing evidence why compliance is impossible.
3) If BAG fails to purge itself of contempt prior to the expiration of the grace period, the Court shall impose a fine on BAG in the amount of $200 a day payable to the Clerk of Court for the Northern District of California until BAG complies with the subpoena.
4) Erickson shall immediately inform the Court if BAG brings itself into compliance and he shall file weekly status reports for the first 28 days after the fines are imposed. Thereafter, Erickson may petition the Court for an extension of the daily fine or other appropriate relief.
Erickson shall serve a copy of this report and recommendation upon BAG and file proof of service thereafter. Pursuant to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b)(2), a party may serve and file any objections within 14 days after being served. Failure to file objections within the specified time may waive the right to appeal the district court's order.
IT IS SO RECOMMENDED.