Dynamic Corp. v. Shan Enterprises, LLC

DEBORAH S. EYLER, Judge. In the Circuit Court for Montgomery County, Shan Enterprises, LLC (“Shan”), the appellee, sued Dynamic Corporation (“Dynamic”) for breach of contract. Dynamic in turn filed a countereomplaint for breach of the same contract. Before trial, the court issued a discovery sanction order precluding Dynamic from introducing into evidence, either in its defense or in the prosecution of its counterclaim, certain categories of documents.

The case was tried to the court for three days. The court returned a verdict in favor of Shan, awarding damages of $48,029. The court ruled against Dynamic on its counterclaim. After the court denied Dynamic’s timely post-trial motion to alter or amend, Dynamic noted this appeal.

FACTS AND PROCEEDINGS This case arises out of a dispute between a general contractor and one of the subcontractors on a renovation project for a high school in the District of Columbia (“Project”). Dynamic, the general contractor for the Project, entered into two subcontracts with Shan: one to renovate the school’s “Radio Lab,” for $82,500, and the other to renovate the school’s “IT Lab,” for $205,000. During the course of the work, Dynamic and Shan agreed to certain “change orders” that altered the scope of the work and the payments due. Disagreements about the scheduling of work and the timing of payments arose.

Dynamic complained that Shan had not completed work on the Radio and IT labs according to the specifications and time frames in the subcontracts; Shan responded that it had not been paid. Dynamic sent a “cure letter” to which Shan did not respond. Ultimately, Dynamic terminated the subcontracts on the ground that Shan had “failed to perform the work ... as per the drawings and specifications.” Dynamic demanded that Shan immediately refund all monies Dynamic had paid it and pay the “[a]dditional expense toward demolition and rework” ²¹⁴ to finish the work. Dynamic refused to pay any of Shan’s outstanding invoices.

On August 30, 2005, about a year after the demise of the parties’ business relationship, in the Circuit Court for Montgomery County, Shan sued Dynamic for breach of contract. That same day, the court issued a scheduling order setting a December 28, 2005 deadline for completion of discovery; a January 12, 2006 deadline for filing dispositive motions; and a March 3, 2006 pretrial conference date. (A trial date was not scheduled at that time.) Dynamic filed a timely answer and a counterclaim, alleging that Shan had breached both subcontracts by failing to perform and, as a consequence, Dynamic had had to terminate Shan from the Project and had incurred over $60,000 in costs to complete the work. On November 18, 2005, Shan propounded interrogatories and a request for production of documents (“RPD”).

When no responses were received by January 12, 2006, it filed a motion to compel. Dynamic did not file a response to that motion. However, on January 31, 2006, it mailed answers to interrogatories and a written response to the RPD to Shan. There is no dispute that Shan received the discovery responses.

On February 2, 2006, the court, not having an opposition to the motion to compel before it, issued an order directing Dynamic to “provide full and complete responses to [Shan’s] interrogatories and request for production of documents no later than February 17, 2006” (“February 2 Order”). On February 21, 2006, Dynamic filed a certificate stating that, on January 31, 2006, it had provided Shan with answers to interrogatories and a written response to the RPD. The discovery dispute that became dispositive in this case concerned Shan’s RPD, in which it sought production of 24 categories of documents. To five of the requests, Dynamic responded that it did not have any such documents.

To one request, Dynamic objected on the ground that it was “vague, ambiguous, and incoherent.” 1 To the remaining 18 requests, Dynamic responded that it would produce the requested doeu ²¹⁵ ments at its office in Hyattsville “at a mutually convenient time.” 2 On February 21, 2006, Shan’s lawyer wrote to Dynamic’s lawyer complaining that Dynamic’s response to its RPD was insufficient as it did not give “indication as to what, if any, particular documents are available, or what volume of documents is being referred to by Dynamic in its responses.” 3 When counsel for the parties appeared for the pretrial conference on March 3, 2006, however, they agreed that the documents would be produced at Dynamic’s office. After some debate over the date for the production, the parties agreed to March 16, 2006, at 1:00 p.m. They further agreed that Shan would designate the documents to be copied, that Dynamic would promptly copy the designated documents, and that Shan would pay the copying charges. At the pretrial conference, the case was scheduled for a May 8, 2006 trial date.

As agreed, on March 16, at 1:00 p.m., Shan’s lawyer appeared at Dynamic’s office; he brought Shan’s president with him. Dynamic’s documents were laid out on a table, as they were kept by Dynamic in the usual course of its business. Counsel for Dynamic in the litigation was not present for most of the inspection, but in-house counsel and two of Dynamic’s employees, Jacob Abraham and Tinah Ibironke, were present to assist, and did so. For example, at one point during the document inspection, Shan’s lawyer asked Mr. Abraham to show him “all of the documents you have related to Micon.” 4 ²¹⁶ Mr. Abraham then pointed out the relevant notebooks and stacks of documents.

After spending about four hours reviewing documents, Shan’s lawyer made handwritten notations on “yellow sticky” post-it notes. Three notes that read “All” or “Entire Notebook” were attached to particular notebooks or piles of documents. Other notes were left, but were not used as markers. One read: All documents, without limitation, related to Orbe Integrations, LLC.

Including, But Not Limited To: 1) payroll, 2) contracts, 3) payments, 4) correspondence. Another read, “All invoices.” Finally, another note read, “All Correspondence Between DCPS and Dynamic.” 5 Before leaving, Shan’s lawyer told one of Dynamic’s representatives that he would be sending a letter memorializing which documents he wanted copied. Shan’s lawyer did not send such a letter. Instead, on March 27, 2006, he wrote to Dynamic’s lawyer, asking why Dynamic had not yet copied the documents he had requested and threatening to file a motion for sanctions if copies were not immediately provided.

Dynamic’s lawyer responded that her client’s representatives had been waiting to receive the promised letter before making copies. On March 29, 2006, Shan’s lawyer responded in writing, attaching a list (“March 29 List”) of all the documents he wanted copied and demanding that the copies be delivered to his office in two days, by March 31. Like the post-it notes, the March 29 List referred to some documents specifically (e.g., “entire ‘chronology of events’ notebook dated 4/29/2005”) and to others by category (e.g., “[a]ny and all documents related to Orbe Integrations, LLC....”). The categories of documents in the March 29 List were not the same as the categories of documents in Shan’s RPD, however; nor were ²¹⁷ they the same as those written on the post-it notes that (according to Dynamic’s representatives) Shan’s lawyer left on the document production table on March 16.

When Dynamic did not deliver any copies by March 31, Shan filed a motion for sanctions with a motion to shorten time for response, which was granted before Dynamic received it. Dynamic filed an opposition to the motion for sanctions, stating that all of the documents that had been designated for copying by specific instruction (such as “entire notebook”) were in the process of being copied and would be delivered to Shan’s counsel’s office no later than April 13, 2006. (In fact, they were delivered the day before that.) Dynamic explained that, because Shan’s lawyer had not clearly identified which other documents he wanted to have copied, no other documents had been copied. Shan filed a reply.

On May 3, 2006, the court held a hearing on the motion for sanctions. It granted the motion and issued an order prohibiting Dynamic from introducing certain documents into evidence at trial. We shall discuss the court’s ruling in greater detail below. The case went to trial on May 8, 2006.

On appeal, Dynamic poses two questions for review, 6 ****II.which we have combined into one: I. Did the circuit court err or abuse its discretion in sanctioning Dynamic for failing to produce documents in discovery? For the reasons we shall explain, we hold that the circuit court erred in ruling that Dynamic committed a discovery ²¹⁸ violation and therefore it abused its discretion in imposing a discovery sanction upon Dynamic, to Dynamic’s prejudice. Accordingly, we shall reverse the judgments and remand the case to the circuit court for further proceedings. DISCUSSION (a) Before delving into the legal issues in this case, we shall recount in some detail the assertions Shan offered in support of its motion for sanctions and Dynamic’s responses in opposition.

Shan argued that the court’s February 2 Order directed Dynamic to produce the documents sought in Shan’s RPD; that, at the March 16 document production, “[m]any documents were marked for copying, with the agreement that [Dynamic] would copy them at [Shan’s] expense and promptly deliver them to [Shan]” (emphasis in original); but that, as of March 29, Shan had not received any copied documents from Dynamic, and had not learned when the copies would be provided. Shan maintained that Dynamic’s failure to deliver document copies was a violation of the February 2 Order, for which, under Rule 2-433(b), the court was authorized to impose any of the sanctions in Rule 2-433(a). Shan complained: As a result of [Dynamic’s] failure to participate in discovery and failure to comply with this Court’s February 2, 2006 Order, [Shan] has suffered irreparable prejudice in that it has been unable to prepare at all for the trial of this matter which is scheduled to begin in only four weeks. Shan asked the court to grant relief pursuant to Rules 2-433(b) and (c), including precluding Dynamic from introducing evidence in defense of its claim. 7 ²¹⁹ In opposition, Dynamic asserted that it had produced the documents responsive to Shan’s RPD on March 16, 2006, as agreed; that the documents were produced as they were kept in the usual course of business; that Dynamic’s in-house counsel and Mr. Abraham and Ms. Ibironke had been present for the document production; that Shan’s lawyer had marked “more than a thousand pages” by placing post-it notes stating “all” or “entire notebook” on certain binders; and that he also had “left other notes that did not designate which documents were to be copied” but instead sought general categories of documents.

Dynamic attached copies of the post-it notes to its opposition. It further asserted that, before leaving the document production, Shan’s lawyer “instructed Mr. Abraham and Ms. Ibironke that he would send a letter listing the documents he wanted so that everyone “would be on the same page’ and that they should copy the documents on receipt of his list.” In affidavits submitted with Dynamic’s opposition, Mr. Abraham and Ms. Ibironke attested to the truth of those assertions. Dynamic’s opposition went on to say that it had been waiting to receive Shan’s counsel’s promised letter before having the documents copied; that the letter did not arrive; and that, instead, Shan’s lawyer wrote to Dynamic’s lawyer “berating” her for not having furnished copies of documents, saying that it was never his intention that Dynamic wait to receive his letter before having copies made, and attaching a list of documents, ie., the March 29 List, to its letter. The letter went on to threaten that, if the categories of documents in the March 29 List were not produced within two days, Shan would move for sanctions. ²²⁰ Dynamic further asserted that the documents marked with post-it notes designating “all” or “entire notebook” were in the process of being copied, despite Shan’s counsel’s initial instruction to wait for his letter.

Dynamic maintained that it had fully complied with the February 2 Order and Rule 2-422. In its reply to Dynamic’s opposition, Shan represented that, because the documents produced by Dynamic were voluminous, counsel for Shan “carefully marked stacks of documents and notebooks related to individual subcontractors and other entities for copying by [Dynamic]” and that, even though Shan’s lawyer had said he would send a letter listing the documents to be copied, it was understood by all present that the documents that had been marked with post-it notes were to be copied immediately; and that, by not doing so, Dynamic simply had failed to respond to discovery. Shan urged the court to impose the most serious discovery sanction upon Dynamic for its discovery failure. At the hearing on the motion for sanctions, counsel for Shan began his argument by characterizing the motion as one that “amounts to what is pretty much a request for dispositive relief.” He complained that, even though the post-it notes he wrote on March 16 had specified the particular documents he wanted copied, all of those documents had not been copied, even by the time of the hearing.

Counsel for Dynamic responded that the documents that had been marked “all” or “entire notebook” had been copied and provided, as Dynamic could tell which documents were being requested. The post-it notes that were not attached to any notebook or particular pile of documents, and that described a category of documents, such as “All documents, without limitation, related to Orbe Integrations, LLC,” did not specify documents to be copied, however. Rather, they restated categories of documents. Likewise, the March 29 List enumerated categories of documents and did not specify documents to be copied.

Moreover, both the post-it notes and the March 29 List described categories of documents to be copied that were not categories requested in Shan’s RPD. Counsel ²²¹ for Dynamic argued that, in effect, these notes and the March 29 List were a new RPD, filed months after the close of discovery. 8 The hearing devolved into an argument between counsel over what was written on, and meant by, various post-it notes Shan’s lawyer left in the document production room. Shan’s lawyer represented that he had written detailed instructions on the post-it notes that mirrored the March 29 List he later sent, and that he could call the Shan representative who was present to testify that that was the case. (Shan had not furnished an affidavit by that person, or anyone else, in support of its motion for sanctions or in reply to Dynamic’s opposition to the motion.) Counsel for Dynamic responded that the post-it notes left by counsel for Shan were the precise notes that she copied and attached to Dynamic’s opposition to the motion for sanctions, and did not correspond to either Shan’s RPD or the March 29 List, and that she already had furnished affidavits by Mr. Abraham and Ms. Ibironke to support that factual assertion.

Counsel for Shan replied that his client’s representative was present and could testify. No testimony was taken, however. The hearing continued, ad museum. Counsel for Dynamic argued, as above, that the only instructions for copying were the post-it notes; that her understanding of the law was that, given that Shan made its document requests in general categories, Dynamic was entitled to produce the documents for inspection as they were kept in the ordinary course of business, and did so; and that, with respect to the issue of copying, Dynamic had given Shan copies of documents that ²²² could be identified on the post-it notes as having been requested for copying, but did not go through the documents to determine whether any or some of them would fall into the general document categories described in the other post-it notes.

Counsel for Shan again represented that, during the document production, he had asked the Dynamic representatives to copy the categories of documents later memorialized in his March 29 List and that they had agreed to do so, but then had failed to do so. Counsel for Dynamic repeated that the Dynamic representatives had attested to the contrary in their affidavits. Without making any express factual findings, the court granted Shan’s motion for sanctions. Then, addressing one by one each category of document on the March 29 List, it ruled that Dynamic would be precluded from introducing any documents in its defense or in its counterclaim of those categories of documents.

(For example, the March 29 List requested “all documents related to Tiemost, LLC,” and the court ruled that Dynamic could not introduce any such documents.) (b) The procedure for discovery in civil cases is governed by subtitle 400 of Chapter 2 of the Maryland Rules. One discovery tool available to parties, by Rule 2-422, is a request for production of documents. That rule, entitled “Discovery of documents and property,” states, in relevant part: (a) Scope. Any party may serve one or more requests to any other party (1) as to items that are in the possession, custody, or control of the party upon whom the request is served, to produce and permit the party making the request, or someone acting on the party’s behalf, to inspect and copy any designated documents....

(b) Request. A request shall set forth the items to be inspected, either by individual item or by category, and shall describe each item and category with reasonable particularity. The request shall specify a reasonable time, place, and manner of making the inspection and performing the related acts. ²²³ (c) Response. The party to whom a request is directed shall serve a written response within 30 days after service of the request....

The response shall state, with respect to each item, or category, that inspection and related activities will be permitted as requested, unless the request is refused, in which event the reasons for refusal shall be stated. If the refusal relates to part of an item or category, the part shall be specified. (d) Production. A party who produces documents for inspection shall produce them as they are kept in the usual course of business or shall organize and label them to correspond with the categories in the request.

(Emphasis added.) As originally adopted in 1984, Rule 2-422 was patterned after former Rule 419 and the 1980 version of Rule 34 of the Federal Rules of Civil Procedure. In Pleasant v. Pleasant, 97 Md.App. 711, 732 , 632 A.2d 202 (1993), this Court held that, when there is no appellate decision in Maryland to assist in interpretation and application of Rule 2-422, we may look to the corresponding portion of Federal Rule 34 for guidance. Rule 2-432 is entitled “Motions for failure to provide discovery.” Subsection (a) allows a party to move for immediate sanctions under Rule 2-433(a) for certain failures of discovery, including “if a party fails to serve a response ... to a request for production of documents under Rule 2-422, after proper service.” Subsection (b) of Rule 2-432 allows a “discovering party,” upon reasonable notice to the other parties and persons affected, to move for an order compelling discovery if, among other things, “a party fails to comply with a request for production or inspection under Rule 2-422.” Sanctions are governed by Rule 2-433. Subsection (a) of that rule allows the court, upon motion, to