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Durham Commercial Capital Corp. v. Select Portfolio Servicing, Inc.

United States District Court, M.D. Florida, Jacksonville Division

April 28, 2017

Durham Commercial Capital Corp., Plaintiff,
Select Portfolio Servicing, Inc., Defendant.


          Patricia D. Barksdale United States Magistrate Judge

         Before the Court is Select Portfolio Servicing, Inc.'s (SPS's) motion for sanctions under Federal Rule of Civil Procedure 37(c)(1). Doc. 158. Durham Commercial Capital Corp. opposes the motion. Doc. 168. SPS asks the Court to prevent Durham from using recently disclosed documents at trial, strike the complaint, or limit Durham to presenting evidence “in accordance with the express dollar amount and payment date range” in the complaint and initial disclosures. Doc. 158 at 12-19. The Court heard argument on the motion on April 17. Doc. 171.

         Background [1]

         Durham filed the complaint in July 2014. Doc. 1. In the sole claim against SPS, it alleges SPS knowingly and wrongfully paid the law firm Connolly, Geaney, Ablitt, & Willard, P.C. (“CGAW”), instead of it on certain accounts receivable Durham had purchased from CGAW.[2] Doc. 1 ¶¶ 21-33.

         In December 2014, Durham served initial disclosures identifying documents it may rely on: (1) the factoring agreement between Durham and CGAW; (2) the notice of assignment Durham had sent SPS; (3) a July 2014 letter from Durham's counsel to SPS; (4) checks from SPS to CGAW (or its predecessor) and Durham; (5) invoices from CGAW to SPS; (6) correspondence between CGAW and Durham regarding a draft amendment to the factoring agreement; (7) Durham's business records of amounts SPS paid to Durham; and (8) records of amounts SPS paid to CGAW “over [the] Notice of Assignment.” Doc. 144-1 at 2-3. Under a section titled “Computation of damages, ” Durham stated:

Between December 4, 2013[, ] and April 21, 2014, [SPS] wrongfully paid to [CGAW], rather than paying Durham, monies to satisfy certain Accounts purchased by Durham, totaling $1, 104, 086.23 (the “Wrongfully Paid Accounts”). [SPS] owes Durham and Durham has suffered damages in the sum of $1, 104, 086.23 on the Wrongfully Paid Accounts exclusive of prejudgment interest.

Doc. 144-1 at 3.

         During discovery, SPS served interrogatories and requests for production seeking a list of accounts CGAW had assigned to Durham, evidence relating to accounts Durham had purchased from CGAW, evidence relating to accounts CGAW had repurchased from Durham, and evidence supporting Durham's damages calculation. Doc. 158 at 4-6. To most, Durham responded the evidence sought was irrelevant; to requests for evidence supporting its damages calculations, it responded,

Durham's damages really require[ ] no technical calculation per se. The damages or harm suffered by Durham is merely based on total amount of payments that [SPS] made for invoices issued by [CGAW] that were paid in violation of the Notice of Assignment Agreement between [SPS] and Durham. … The backup information sought would be the [CGAW] bank account statements evidencing deposits made.

Doc. 158 at 4-6. In July 2016, SPS's counsel informally asked Durham to withdraw its objection and produce responsive material. Durham did not produce additional documents, and SPS filed no motion to compel their production.

         In October 2016, in ruling on the parties' summary-judgment motions, the Court concluded Durham had to present evidence of assignment of specific accounts through purchase from CGAW. Doc. 119 at 38-39 & n.28. In late January 2017, following Durham's motion seeking clarification, the Court reiterated that Durham's claim as pled was based on accounts it had purchased from CGAW. Doc. 143 at 3-5.

         In early February 2017, Durham served amended initial disclosures identifying the same categories of documents it had identified in the original disclosures but amending the section titled “Computation of damages” to read:

The damages or harm suffered by Durham is the total amount of payments that [SPS] made to [CGAW] in violation of the Notice of Assignment issued by Durham to [SPS], for invoices issued by [CGAW] to [SPS] … (the “Misdirected Payments”), which total approximately more than $1, 200, 000.00. [SPS] owes Durham and Durham has suffered damages in the sum of approximately $1, 200, 000.00, exclusive of prejudgment interest.

Doc. 146-1 at 3-4. Durham filed a motion to amend the complaint to clarify it sought to recover payments SPS had made to CGAW both on accounts Durham had purchased and on accounts in which it had a security interest. Doc. 145. The Court conducted a hearing on that and other motions. Doc. 148 (minutes), Doc. 150 (transcript). Durham withdrew its motion to amend the complaint, and its counsel stated it was ready and willing to go to trial on the claim as pled. Doc. 150 at 37-40.

         On March 7, 2017, Durham produced 2060 pages of previously unproduced documents, many of which were redacted and marked “Irrelevant.” Doc. 158 at 2. On March 15, it replaced that production with unredacted documents. Doc. 158 at 2. The production included (1) a 147-page spreadsheet purportedly showing “every single invoice purchased by Durham from CGAW, every payment Durham received from SPS[, ] and all accounts Durham purchased from CGAW that Durham did not receive payment from SPS [on], ” seeDoc. 168 at 17; (2) “rebate statements” showing rebates Durham provided back to CGAW based on the difference between the less-than-face-value amount Durham had advanced to purchase particular accounts and the amount it eventually collected on those accounts; and (3) “account purchase addenda” identifying invoices CGAW had sought to sell to Durham and the amounts it would be advanced for such proposed sales.

         SPS's motion for sanctions followed. Doc. 158.

         Motion, Response, & Oral Argument

         SPS argues Durham should not be allowed to rely on the recently produced documents. Doc. 158 at 2. It observes discovery closed more than a year earlier, and it cannot conduct discovery on the documents or seek leave to file an amended answer. Doc. 158 at 2. It argues the documents should have been identified in Durham's initial disclosures and were responsive to requests for production and interrogatories. Doc. 158 at 4-6, 12-13. It asserts Durham never indicated it had any documents showing account purchases despite opportunities to do so in its initial and renewed summary-judgment motions and trial brief; in the joint pretrial statement; in response to SPS's renewed summary-judgment motion and motion for judgment on the pleadings; or at the February 2017 hearing. Doc. 158 at 7-11. It argues Durham was on notice at least as of October 2016 (when the Court entered the summary-judgment order) that it needed to show proof of purchase but waited another 142 days to produce documents. Doc. 158 at 15. It argues Durham's failure to produce the documents sooner is not harmless because Durham had never indicated its intent to rely on them, and the production harms SPS “in its defense of this matter and in its own preparation for trial.” Doc. 158 at 16-17. It argues that, even if the Court allows Durham to use some of the documents, it should be limited to the damages and time period alleged in the complaint and initial disclosures. Doc. 158 at 17-19.

         Durham responds it properly objected to the identified discovery requests, and SPS never moved to compel better responses. Doc. 168 at 8-9. It responds SPS's failure to move to compel suggests “SPS concurred that discovery pertaining to purchased accounts was outside the scope of discovery.” Doc. 168 at 9. It responds the “harsh” sanctions authorized under Rule 37 are unwarranted because SPS waited “until the eve of trial” to address Durham's perceived failure to offer evidence supporting damages; its failure to provide the documents sooner was substantially justified because it “had previously believed, and SPS made no argument otherwise, that based on the legal issues actually litigated by the parties the [d]ocuments were not relevant”; it only learned after the Court's January order that the documents relating to account purchases would relate to its claim as pled; its failure to supplement its responses and disclosures was harmless “because SPS has had ample notice throughout the case of the basis for and amount of damages Durham is seeking …[, ] and the damages do not require any complex calculations”; since the beginning of the case, SPS has known Durham claims entitlement to payment on all accounts SPS paid to CGAW after receiving the notice of assignment; the documents do not reflect a new category of damages; and it had offered its president for an additional corporate-representative deposition, but SPS declined. Doc. 168 at 9-18. It seeks sanctions for having to respond to the motion, arguing the motion is “unjustified” and “merely a disguised attempt by SPS to eviscerate the operation of Rule 15(b), and prevent Durham from receiving a fair trial.” Doc. 168 at 19-20.

         At the April 17 hearing, SPS's counsel observed she had emailed Durham's counsel in July 2016 to ask about Durham's discovery objections, and Durham's counsel responded that discovery had closed and it had no obligation to produce anything. She argued Durham's assertion that the required proof to support its claim was unclear until the January order is “absurd.” She argued if the Court excludes the newly produced documents, the case is over unless the Court permits Durham to amend the complaint at trial by introducing evidence supporting an alternative theory of recovery. She argued if the Court permits Durham to use the evidence and reopens discovery, SPS would move to amend the answer and for summary judgment because she believes the newly produced ...

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