New Products Corp. v. Wright (In re Modern Plastics Corp.)

Case Type:
Case Status:
No. 17-2256 (6th Circuit, Apr 26,2018) Not Published
The Circuit Court held that awards were justified pursuant to Rules 45(d)(1) as sanctions, and pursuant to Rule 45(d)(2) cost-shifting. The subpoenas imposed an undue burden and expense that Demorest failed to mitigate, given the number of categories (151) and the 10-year temporal reach of the requests. The Court held that "bad faith" was not a prerequisite to imposing sanctions. Respondents' voluntary compliance did not jeopardize reimbursement, as documents were not produced until after entry of the protective order. Contempt was an appropriate way to enforce a sanction for misconduct.
Procedural context:
After the Bankruptcy Court ordered NPC and Demorest to pay $166,187.50 to Respondents, it denied NPC's and Demorest's motions for reconsideration and for a stay. When payment was not forthcoming, a motion for contempt was filed and an order finding contempt was entered on November 2, 2015. NPC and Demorest appealed the reimbursement award and the contempt award, which the District Court affirmed. This appeal followed.
New Products Corporation (NPC) filed an adversary proceeding against the Chapter 7 Trustee and his surety for breach of fiduciary duty with respect to one of the Debtor's assets, property on which sat a former manufacturing facility in Benton Harbor, Michigan (Property). NPC's counsel, Mark Demorest, successively served five non-parties (collectively Respondents) with subpoenas duces tecum pursuant to Fed. R. Civ. P. 45 and Fed. R. Bankr. P. 9016. Those subpoena'd included Debtor's prepetition lender and NPC's predecessor in interest (collectively BOA), Dickinson Wright (DW) and two of its attorneys (BOA's attorneys), and two entities which had been prospective purchasers of the Property (collectively Harbor Shore Entities, who were also clients of DW). From August 28, 2014 and September 15, 2014, counsel for Respondents, Christina McDonald, worked to comply with the first three subpoenas, which demanded 36 broad categories of documents dating back to January 2005, by September 15th, along with a privilege log for any omissions. Demorest served the 4th subpoena on September 19th, requesting documents in 58 broad categories also dating back to January 2005. McDonald made requests to Demorest for extensions of time, to narrow the scope of production, and to agree to a stipulated protective order, a draft of which McDonald sent to Demorest on October 2nd. McDonald repeatedly reminded Demorest of the steps being taken to comply with the subpoenas, warning him of the unduly large time and expense of reviewing and producing over 20,000 documents. Other than agreeing to a partial, brief extension of time in early September, Demorest failed to respond to any of McDonald's multiple admonitions and requests to limit the production, and failed to comment on the proposed order. Instead, on October 13th, Demorest served the last subpoena, requesting documents in 57 broad categories, also dating back to January 2005. Demorest remained silent until January 6, 2015 - the day after McDonald informed him that the production had proceeded and had been completed, at a cost of over $150,000. Demorest objected that the cost was unreasonable and asserting that Respondents were not entitled to any reimbursement. Respondents moved for a Protective Order and NPC moved to compel. The Bankruptcy Court conducted a hearing in April 2015 and issued its decision in July 2015, ordering NPC and Demorest to pay the attorney fees and expenses incurred by Respondents pursuant to Rule 45 "as a means of enforcing counsel's duty to mitigate the burden of discovery on non-parties." After review and some reductions, the Bankruptcy Court awarded $166,187.50 to Respondents.
GUY, SUTTON, and COOK, Circuit Judges.

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