Case: 11-20557 Document: 00511894808 Page: 1 Date Filed: 06/21/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 21, 2012
No. 11-20557 Lyle W. Cayce
Clerk
SMITH & FULLER, P.A.; HUGH N. SMITH,
Appellants
v.
COOPER TIRE & RUBBER COMPANY, A Delaware Corporation,
Defendant-Appellee
Appeal from the United States District Court
for the Southern District of Texas
Before REAVLEY, PRADO, and OWEN, Circuit Judges.
REAVLEY, Circuit Judge:
The law firm of Smith & Fuller, P.A. and Attorney Hugh N. Smith appeal
from the district court’s award of sanctions in favor of the Appellee because the
Appellants violated the court’s protective order. The district court imposed the
sanctions pursuant to FED. R. CIV. P. 37(b). Appellants contend that the district
court lacked authority to impose sanctions and that the fees and expenses sought
by the appellee were unreasonable. We AFFIRM.
I. Factual Background
In the underlying action in this case, Appellants Smith & Fuller, P.A. and
Hugh N. Smith represented the Trenado family in a products liability suit
against Appellee Cooper Tire & Rubber Company. That case resulted in a jury
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verdict in favor of Cooper in September 2010. Prior to trial, the district court
entered an Amended Protective Order of Confidentiality pursuant to FED. R. CIV.
P. 26(c) to protect Cooper’s trade secrets and confidential information produced
during discovery. The Protective Order strictly limited access of protected
information to “authorized persons, solely in the performance of their duties in
connection with the trial preparation of this case.” Smith and his law firm do
not dispute that they violated this Protective Order.
In August 2010, Smith and his firm inadvertently disseminated Cooper’s
trade secrets and confidential information to a number of personal injury
lawyers during a conference sponsored by Attorneys Information Exchange
Group, Inc. about obtaining discovery from Cooper.1 The release of the
confidential information occurred when someone from Smith’s firm mistakenly
copied it onto compact discs that were then distributed to the attorneys
attending the conference. Cooper discovered the violation when its counsel in
this case received documents from a plaintiff’s attorney in an unrelated suit
against Cooper. Many of those documents were marked with Trenado Bates
numbers and had been deemed confidential.
On September 2, 2010, the district court entered an order on Cooper’s
Motion to Enforce Protective Order, which stated that “[i]t is clear that the
court’s Protective Order has been violated.” The court ordered Smith and his
firm to take immediate action to enforce the Protective Order and to correct the
violation. The court reserved its ruling on Cooper’s motion for sanctions.
1
Smith had previously agreed that his firm would serve as a “clearing house [sic] for
the accumulated information [concerning accidents involving Cooper tires manufactured at
Cooper’s Texarkana and Arkansas plants] and to make that information available to
contributing attorneys.”
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Following trial, the district court held that Smith and his firm did not
willfully violate the Protective Order. It determined, however, that sanctions
should be imposed for several reasons. The court recognized that Cooper had
sought a strongly worded protective order and had vigorously moved for its
enforcement. Smith understood the importance of complying with the order
inasmuch as Cooper’s production of confidential documents was made in reliance
upon the protections given by the court; yet, Smith allowed dissemination of the
protected information to personal injury lawyers who sue Cooper and other tire
manufacturers. As a result, Cooper incurred attorneys’ fees and expenses in its
effort to identify the violation and to enforce the Protective Order. The court
also noted that Smith had previously violated a similar protective order.2 The
district court held that sanctions were appropriate in order to deter future
violations of protective orders and to reflect the seriousness of such orders.
Pursuant to FED. R. CIV. P. 37(b)(2)(C), the court ordered Appellants to
reimburse Cooper for the attorneys’ fees and expenses connected to Appellants’
violation of the Protective Order. The court ordered Cooper to submit affidavits
setting forth the services for which it sought reimbursement, including time
expended, reasonable hourly rates sought, and proof of expenses incurred. After
reviewing Cooper’s submission, the court ordered Appellants to pay Cooper
$29,667.71 in fees and expenses. Appellants now appeal.
2
Smith was sanctioned for willfully violating a protective order in another case against
Cooper by providing confidential material to an attorney in Arizona. See McDonald v. Cooper
Tire & Rubber Co., No. 801CV1306T27TGW, 2005 WL 3372855, at *1 (M.D. Fla. Dec. 12, 2005)
(unpublished).
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II. Standard of Review
A district court’s imposition of sanctions pursuant to Rule 37(b) is
reviewed for an abuse of discretion. O’Neill v. AGWI Lines, 74 F.3d 93, 95 (5th
Cir. 1996). “The district court’s underlying findings of fact are reviewed for clear
error and its underlying conclusions of law reviewed de novo.” Am. Airlines, Inc.
v. Allied Pilots Ass’n, 228 F.3d 574, 578 (5th Cir. 2000).
III. Discussion
A. Application of Rule 37(b)(2) Sanctions to the Violation of a Rule 26(c)
Protective Order
As noted above, the district court provided several reasons for its
determination that sanctions were proper. The Appellants contend that the
violation of the Protective Order was inadvertent and that the court erred by
imposing sanctions. They further argue that the district court’s remedial powers
were limited to the “Inadvertent Disclosure” provision of the Protective Order.
“FED. R. CIV. P. 37(b) empowers the courts to impose sanctions for failures
to obey discovery orders. In addition to a broad range of sanctions, including
contempt, FED. R. CIV. P. 37(b)(2) authorizes the court to impose a concurrent
sanction of reasonable expenses, including attorney’s fees, caused by the failure
to obey a discovery order.” Falstaff Brewing Corp. v. Miller Brewing Co., 702
F.2d 770, 784 (9th Cir. 1983). The district court “has broad discretion under
Rule 37(b) to fashion remedies suited to the misconduct.” Pressey v. Patterson,
898 F.2d 1018, 1021 (5th Cir. 1990). This discretion, however, is limited.
“[U]sually, . . . a finding of bad faith or willful misconduct [is required] to support
the severest remedies under Rule 37(b)—striking pleadings or dismissal of a
case.” Id. at 1021. Lesser sanctions do not require a finding of willfulness. See
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Chilcutt v. United States, 4 F.3d 1313, 1323 n.23 (5th Cir. 1993) (stating that
district courts “have authority to grant a broad spectrum of sanctions” under
Rule 37(b), and “neither this Court nor the Supreme Court has ever determined
that the lack of willful, contumacious, or prolonged misconduct prohibits all
sanctions”). Having found no willful misconduct, the district court here imposed
one of the least severe sanctions under its authority. See id. at 1320 n.17.
Appellants cite the Eleventh Circuit’s decision in Lipscher v. LRP Publ'ns,
Inc., 266 F.3d 1305 (11th Cir. 2001), to argue that the district court lacks
authority to impose Rule 37(b) sanctions for violation of FED. R. CIV. P. 26(c)
protective orders. The Lipscher court reasoned that Rule 37(b)(2) does not
mention Rule 26(c) protective orders and that the rule applies only when “a
party ‘fails to obey an order to provide or permit discovery . . . .’” Id. at 1323
(quoting Rule 37(b)(2)). The court held that “a Rule 26(c) protective order is not
‘an order to provide or permit discovery,’ and therefore, such orders do not fall
within the scope of Rule 37(b)(2).” Id. (citations omitted).
The Eleventh Circuit’s narrow application of Rule 37(b) has been
questioned by several courts.3 Indeed, the effect of the Rule was broadened
when it was amended in 1970.4 The Advisory Committee Notes to the
3
See Valdez-Castillo v. Busch Entm’t Corp., No. 06-20772-CIV, 2008 WL 4999175, at
*5–6 (S.D. Fla. Nov. 20, 2008) (unpublished); Whitehead v. Gateway Chevrolet, Oldsmobile, No.
03 C 5684, 2004 WL 1459478, at *3 (N.D. Ill. Jun. 29, 2004) (unpublished) (refusing to follow
Lipscher and holding that imposing Rule 37(b) sanctions of attorneys’ fees may be awarded for
violation of a protective order).
4
The 1970 Advisory Committee Notes state in relevant part: “The scope of Rule 37(b)(2)
is broadened by extending it to include any order ‘to provide or permit discovery,’ including
orders issued under Rules 37(a) and 35. Various rules authorize orders for discovery--e.g.,
Rule 35(b)(1), Rule 26(c) as revised, Rule 37(d). Rule 37(b)(2) should provide comprehensively
for enforcement of all these orders.” (Emphasis added) (Internal citation omitted).
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amendments have been oft cited by courts when imposing Rule 37 sanctions.
See, e.g., Westinghouse Elec. Corp. v. Newman & Holtzinger, P.C., 992 F.2d 932,
934–35 (9th Cir. 1993); Poliquin v. Garden Way, Inc., 154 F.R.D. 29, 31 (D. Me.
1994). There is thus significant authority in support of the imposition of Rule
37(b) sanctions for violation of Rule 26(c) protective orders. See Falstaff Brewing
Corp., 702 F.2d at 784 (holding that Rule 37(b)(2) authorizes the court to impose
sanctions for disobeying a discovery order); United States v. Nat’l Med. Enters.,
Inc., 792 F.2d 906, 911 (9th Cir. 1986) (upholding the court’s grant of sanctions
under Rule 37(b) for violation of a protective order); Poliquin, 154 F.R.D. at
31–33 (imposing sanctions of attorney’s fees and costs pursuant to Rule 37(b) for
violations of a protective order).
Even under Lipscher’s narrow reading of Rule 37(b), however, the district
court here concluded that its Protective Order in this case was an “order to
provide or permit discovery” as the phrase is used in Rule 37(b)(2). We agree.
The Protective Order in this case: “govern[ed] confidential material produced or
disclosed by these Defendants or Plaintiff[s] in response to formal or informal
discovery conducted in this matter” (¶ 3); allowed each party to designate as
confidential material “all or any portions of documents, things and information
it produces formally or informally to the other parties to this litigation” (¶ 4);
addressed the “inadvertent [or] unintentional . . . production of any confidential
material” (¶¶ 5, 13); included procedures for objecting to the designation of
material produced as confidential (¶ 6); limited access to confidential material
(¶ 7); contained a provision to address confidential materials when “any
subpoenas, requests for production, or any other forms of discovery . . . are
served on any party to this Protective Order” (¶ 10); and included provisions
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regulating the storage, use in depositions, and the return of confidential material
(¶¶ 9, 12, 15).
In our view, by prescribing the method and terms of the discovery of
confidential material, the Protective Order was granted “to provide or permit
discovery” of confidential documents within the meaning of Rule 37(b). See FED.
R. CIV. P. 37(b)(2)(A). Indeed, no one disputes that Cooper produced thousands
of pages of trade secrets or confidential information in reliance on the Protective
Order. Thus, there is no basis to vacate the district court’s determination.5
Appellants’ argument that the district court could not impose sanctions
because the Protective Order addressed the “Inadvertent Disclosure” of
documents is unavailing, as this provision of the order did not restrict the
district court. Pursuant to Rule 37(b), the court is authorized to impose
sanctions against parties or counsel, “‘including attorney’s fees,’ caused by the
failure to comply with discovery orders.” Roadway Express, Inc. v. Piper, 447
U.S. 752, 763, 100 S. Ct. 2455, 2462–63 (1980). The district court provided
specific and well-reasoned grounds to impose sanctions as it determined that any
lesser penalty would not have been an adequate future deterrent. Appellants
concede that they violated the court’s Protective Order, and it was well within
the court’s discretion to use sanctions as a tool to deter future abuse of discovery.
See Adolph Coors Co. v. Movement Against Racism and the Klan, 777 F.2d 1538,
1542 (11th Cir. 1985) (observing that “a primary purpose of Rule 37 sanctions
is to deter future abuse of discovery”) (citing Nat’l Hockey League v. Metro.
Hockey Club, Inc., 427 U.S. 639, 643, 96 S. Ct. 2778, 2781 (1976)); see also
5
Appellants also rely on Tiberi v. CIGNA Insurance Company, 40 F.3d 110 (5th Cir.
1994), to contend that Rule 37(b) sanctions are inapplicable to Rule 26. Appellants’ reliance
on Tiberi is misplaced as that case concerned FED. R. CIV. P. 37(a)(4). Id. at 111.
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Batson v. Neal Spelce Assocs., Inc., 765 F.2d 511, 514 (5th Cir. 1985) (holding
that under Rule 37(b)(2), a “dismissal is proper only in situations where the
deterrent value of Rule 37 cannot be substantially achieved by the use of less
drastic sanctions” (emphasis added)); Bluitt v. Arco Chem. Co., 777 F.2d 188, 190
(5th Cir. 1985) (same).
B. Reasonableness of Attorneys’ Fees and Expenses
Appellants make several arguments contesting the amount of the
attorneys’ fees awarded to Cooper. A party can be held responsible only for the
reasonable attorneys’ fees and expenses caused by the party’s misconduct. See
Tollett v. City of Kemah, 285 F.3d 357, 368 (5th Cir. 2002) (citing Chapman &
Cole & CCP, Ltd. v. Itel Container Int’l B.V., 865 F.2d 676, 687 (5th Cir. 1989)).
This court uses the “lodestar” method to calculate attorneys’ fees, which is
applied by multiplying the number of hours reasonably expended by an
appropriate hourly rate in the community for the work at issue. Id. at 367.
There is a “strong presumption that the lodestar award is the reasonable fee[.]”
Heidtman v. County of El Paso, 171 F.3d 1038, 1044 (5th Cir. 1999).
The record shows that in response to the district court’s order, Cooper
timely filed affidavits from Attorney T. Christopher Trent, its lead counsel in
this case, and from Attorney Nicole K. Schwieterman, whose law firm served as
Cooper’s national discovery counsel, to establish its attorneys’ fees and expenses
associated with identifying the Appellants’ violation of the Protective Order and
enforcing that order. The affidavits and supporting evidence showed the time
spent by Cooper attorneys investigating the violation, drafting various motions
to enforce the Protective Order, preparing replies to the Appellants’ responses,
coordinating and conferring with Cooper, and attending court hearings. The
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affidavits also documented the hourly rates of the attorneys and paralegals who
worked on this matter. The affidavits of counsel may alone be sufficient proof
for purposes of Rule 37 to establish the amount of fees to be awarded. See
Tollett, 285 F.3d at 367 (citing Shipes v. Trinity Indus., 987 F.2d 311, 323–24
(5th Cir. 1993)).
To the extent that the Appellants argue that Cooper relied on multiple
firms and generated unreasonable fees to investigate the violation of the
Protective Order, we are unpersuaded. The district court considered various
investigative actions, motion preparations, and hourly rates to conclude that
Cooper’s claimed expenses were reasonable. Our review of the record shows no
abuse of discretion by the district court. This is particularly true since Cooper
did not learn of the violation until the eve of trial in the underlying action when
its lead counsel was engaged in trial preparation, thereby causing a need for
additional involvement by Cooper’s national discovery counsel.
Appellants further argue that the district court erroneously allowed
Cooper to submit a “necessary affidavit of a third-party” to establish the
reasonableness of its fees after the expiration of the fifteen-day time period
established by the court. The district court has broad discretion to control its
own docket and permit the filing of pleadings. See Enlow v. Tishomingo Cnty.,
Miss., 962 F.2d 501, 507 & n.16 (5th Cir. 1992). Appellants complain that they
were unable to respond to the third-party affidavit. However, Appellants not
only fail to explain how they would or could have responded to the affidavit, but
they also fail to show any prejudice from its submission because the third-party
affidavit was neither required nor necessary. As noted above, here the timely
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affidavits of Cooper’s counsel sufficiently established the fees to be awarded. See
Tollett, 285 F.3d at 367.
IV. Conclusion
The extra time and effort exerted on this matter could have been avoided
had the Appellants been more careful in the handling of Cooper’s confidential
materials. The Protective Order was granted specifically to protect Cooper’s
trade secrets and confidential information from incidents such as this. Although
Appellants contend that they made great efforts to correct the violation,
guarding against the dissemination of its confidential materials is vital to
Cooper’s business. And, in light of the Appellants’ prior violation of a protective
order, Cooper’s proactive steps in this matter were reasonable.
AFFIRMED.
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