Opinion ID: 2833091
Heading Depth: 2
Heading Rank: 3

Heading: sanction against attorney csajaghy

Text: Because Rule 37(b)(2) expressly provides for the monetary sanction imposed on Mr. Csajaghy, there is no question regarding the district court’s legal authority to take that action. Mr. Csajaghy objects to the sanction on three other grounds: (1) the sanction was not warranted on the facts; (2) sanctioning counsel was inconsistent with the decision not to sanction Sun River; and (3) the procedure through which he was sanctioned violated due process. None of these objections has merit.
Mr. Csajaghy contends that his conduct was substantially justified and thus did not warrant the sanction, because he assumed Mr. Pennington had reviewed the D&O Policy and it was unusual for a “directors and officers” policy to cover securities claims against a corporation.11 The district court concluded that such excuses did not provide a substantial justification for his failure to even look at the policy, which was 11 Mr. Csajaghy also appears to argue—as a threshold mens rea condition on use of the Rule 37(b)(2) sanction distinct from the substantial-justification exception in Rule 37(b)(2)(C)—that he could not be sanctioned, because he did not knowingly fail to disclose the policy. He cites no authority imposing this strict condition on imposition of a Rule 37(b)(2) sanction for failure to comply with a discovery order (the cases he relies on involve other provisions). Indeed, such an easily negated prerequisite for this sanction would render its express substantial-justification exception largely irrelevant (as the circumstances of this case illustrate). Following the text of the rule and the case law applying it, as the district court did, we decide this case by reference to substantial justification for counsel’s nondisclosure. 15 readily available, before representing that there was no insurance potentially covering the securities claims against Sun River. We review that conclusion for an abuse of discretion, Doctor John’s v. Wahlen, 542 F.3d 787, 790 (10th Cir. 2008), which in this context has been described as “an arbitrary, capricious, whimsical, or manifestly unreasonable judgement,” Coletti v. Cudd Pressure Control, 165 F.3d 767, 777 (10th Cir. 1999) (internal quotation marks omitted). See generally Mathis v. Huff & Puff Trucking, Inc., 787 F.3d 1297, 1309 (10th Cir. 2015) (adding to the above specification of an abuse of discretion “a clear error of judgment” and “exceed[ing] the bounds of permissible choice”). Mr. Csajaghy’s asserted belief that Mr. Pennington had reviewed the D&O Policy was nothing more than an assumption—he never asked Mr. Pennington to review it or whether Mr. Pennington had reviewed it on his own initiative. Had Mr. Csajaghy inquired and been assured by Mr. Pennington that he had reviewed the policy and found no basis for coverage, Mr. Csajaghy might have been able to establish a substantial justification for not disclosing the policy to defendants. We only say “might,” however, because as attorney of record Mr. Csajaghy bore the responsibility under the rules for ensuring that the insurance disclosure was correct and complete. Whether that critical responsibility could properly, or at least excusably, be shifted onto an in-house attorney not likewise accountable to the court and opposing parties (an in-house attorney, we note, who admitted that he lacked experience with both directors and officers policies and policies involving securities 16 claims12) is a point on which we need not opine. But see BankAtlantic v. Blythe Eastman Paine Webber, Inc., 12 F.3d 1045, 1050 (11th Cir. 1994) (holding litigation counsel’s reliance on representations of in-house counsel insufficient to establish substantial justification for failure to produce discoverable materials from client’s files to which litigation counsel had full access). All we need hold here—and we confidently do so—is that the district court did not abuse its discretion in concluding that Mr. Csajaghy’s unfounded assumption about Mr. Pennington’s review of the D&O Policy was insufficient to establish a substantial justification for his failure to disclose the policy. “[T]rial counsel must exercise some degree of oversight to ensure that [a client’s employees, including in-house counsel] are acting competently, diligently and ethically in order to fulfill their responsibility to the Court [with respect to discovery].” Bratka v. Anheuser-Busch Co., Inc., 164 F.R.D. 448, 461 (S.D. Ohio 1995). “Counsel has an obligation to assure that the client complies with discovery obligations and court orders” and, thus, “[c]areful inquiry by counsel is mandated in order to determine the existence of discoverable documents and to assure their production.” Resolution Trust Corp. v. Williams, 162 F.R.D. 654, 658 (D. Kan. 1995) (emphasis added). See generally Fed. R. Civ. P. 26(g)(1)(A) (by signing disclosures required under Rule 26(a), counsel certifies that “to the best of 12 Mr. Pennington testified that he could not remember a single instance when he had actually looked at such a policy and that, other than being aware that D&O referred to directors and officers, he did not know what was meant by such a policy. See Aplt. App. at 647-48. He also testified that he had never had any experience with a securities case in which insurance was involved. Id. at 647. 17 [his] knowledge, information, and belief formed after a reasonable inquiry,” a disclosure “is complete and correct as of the time it is made” (emphasis added)). Mr. Csajaghy cannot rely on his practical abdication of that very duty of oversight and inquiry as a substantial justification for the failure to make the disclosure required by Rule 26(a)(1)(A)(iv). Mr. Csajaghy’s second excuse is even less persuasive. Basically, he contends counsel need not bother to review the actual terms of an insurance policy (terms, we note, that were not buried in the fine print of some subsidiary provision, but included in the very title of the policy) before denying the existence of potential coverage, so long as he believes the existence of coverage would be very unlikely or unusual. Just plainly framing this contention betrays its infirmity. As this case illustrates, timely awareness of a party’s insurance coverage can be crucial to opposing parties, but the latter ordinarily do not have access to the operative policies to confirm for themselves whether there is potential coverage. Rule 26(a)(1)(A)(iv) therefore imposes an obligation to disclose to opposing parties “any insurance agreement under which an insurance business may be liable” with respect to claims asserted in the case. (Emphasis added). This obligation inherently includes an exercise of legal judgment regarding the possible availability of coverage under the specific terms of any insurance policies held by a party. That critical legal judgment was never exercised by Mr. Csajaghy—and his resultant representation that Sun River had no insurance to disclose effectively precluded the timely exercise of such legal judgment by opposing counsel as well. The district court did not abuse its discretion in holding 18 that this glaring and prejudicial omission was not substantially justified by Mr. Csajaghy’s intuition that the policy would not, upon actual review, be found to apply to defendants’ securities claims against Sun River. B. Sanctioning Counsel While Not Sanctioning Sun River The argument here, such as it is, runs as follows: it is inconsistent to hold that Sun River is not liable for the disclosure violation while at the same time holding that Mr. Pennington, Sun River’s employee (as in-house counsel), is liable, because Sun River should be subject to vicarious liability for Mr. Pennington’s conduct as his principal. The irony of this position is palpable: the district court decided not to hold Sun River liable because counsel bore the blame for the nondisclosure and hence should pay the sanction, and now counsel invoke that decision as the reason why they should not be sanctioned. Irony aside, the contention is meritless. To begin with, it is advanced in counsel’s brief almost exclusively with respect to Mr. Pennington (the attorney who had been an employee of Sun River). Although the argument concludes with a perfunctory reference to Mr. Csajaghy as well, counsel do not explain why any inconsistency in treating Sun River and its employee differently with respect to a sanction arising in part out of the employee’s conduct should affect the sanction imposed on Mr. Csajaghy as litigation counsel. Indeed, Rule 37(b)(2)(C) expressly provides the option to impose sanctions differentially (or conjunctively) on a party and its counsel, specifying that the “the disobedient party, the attorney advising that party, or both” may be sanctioned. In any event, this vicarious-employer-liability argument and the purported inconsistency it exposes 19 merely suggest that the district court could have also sanctioned Sun River after finding a sanction warranted against Mr. Pennington. Given that defendants did not seek to impute Mr. Pennington’s liability for the monetary sanction to Sun River in this fashion, there was no reason for the court to consider the point (Mr. Pennington and Mr. Csajaghy referred to this basis for imputing liability to Sun River, but they had no standing to seek a discovery sanction against their own client, nor would including Sun River in the sanction have necessarily relieved Mr. Csajaghy of his liability in any event). In sum, we see no overt inconsistency in the district court’s imposition of the monetary sanction on counsel but not on Sun River, and if any latent inconsistency were present, it would not provide a basis for reversing the sanction imposed on Mr. Csajaghy. C. Due Process We agree with the district court that, although the initial order imposing the sanction on Mr. Csajaghy was procedurally defective, the subsequent proceedings on counsel’s motion for reconsideration cured the deficiency. Advance notice that the court is considering sanctions and an opportunity to respond in opposition is, of course, required. See Dabney, 73 F.3d at 268. But “[a]n opportunity to be heard does not require an oral or evidentiary hearing on the issue; the opportunity to fully brief the issue is sufficient to satisfy due process requirements.” Id. As explained in the background section above, Mr. Csajaghy (and Mr. Pennington) had a full opportunity to brief his various objections to imposition of the monetary sanction in 20 conjunction with the motion for reconsideration.13 Indeed, he also had been afforded the occasion to testify and present evidence relating to the circumstances surrounding the nondisclosure underlying the sanction.14 “‘Cases have consistently held that a violation of procedural due process may be waived or cured.’” G.J.B. & Assocs., Inc. v. Singleton, 913 F.2d 824, 832 (10th Cir. 1990) (quoting United States Postal Serv. v. Nat’l Ass’n of Letter Carriers, 847 F.2d 775, 778 (11th Cir. 1988)). In G.J.B. & Associates we held that proceedings on a motion to vacate sanctions were “sufficient to cure the defect, if any, in the process [a sanctioned attorney] previously received” in connection with the initial imposition of the sanctions. Id. The same is true of the motion for reconsideration here.