BLD REALTY INC. v. PERFECT PRICE INC., ET AL

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: June 7, 2024
• Docket: 22-00034
• Status: Unknown

Opinion

IN THE UNITED STATES BANKRUPTCY COURT 1 FOR THE DISTRICT OF PUERTO RICO 2

3 IN RE: CASE NO. 22-00802(MCF)

4 BLD REALTY INC. __________________________________ 5

6 BLD REALTY INC. ADVERSARY CASE NO. 22-00034(MCF) Plaintiff 7 Vs. 8 PERFECT PRICE INC., ET AL 9 Defendants 10 OPINION AND ORDER 11 Perfect Price Inc., Perfecto Rivera Izquierdo, Latin Investment Corp., Ramon Clas 12 Vazquez, Michale Pabon Rivera, and Productos La Perfecta Corp. (“Defendants”) have failed to 13 comply with this court’s discovery orders. Having considered the motion for sanctions, 14 Defendants’ response, and all other related documents, we conclude that monetary sanctions are 15 appropriate for the reasons set forth below. 16 Relevant Procedural History 17 BLD Realty Inc. (“Plaintiff”) filed the present adversary procedure against Defendants on 18 May 25, 2022. The case is for violation of the automatic stay, damages for tortious interference, 19 and the piercing corporate veils, among others. Docket No. 1. After various procedural issues, 20 the Initial Scheduling Conference (“ISC”) was held on April 18, 2023. In the ISC, the parties 21 were granted 135 days to conclude discovery, that is until August 31, 2023. Docket No 81. 22 On Augst 10, 2023, Plaintiff filed a motion to compel discovery. Docket No. 103. In the 23 motion, the Plaintiff asserted: i) that on April 5, 2023, submitted to Defendants a First Set of 24 Interrogatories, Request for Admissions, and Production of Documents; ii) that on June 16, 2023, 25 Defendants submitted a partial answer; and iii) that despite conferring with Defendants’ attorney 26 and exhausting all remedies and viable alternatives, Defendants have not provided complete 27 answers. Plaintiff requested the following remedies: i) to compel Defendants to produce the 1 documents requested; ii) to order Defendants to answer properly the interrogatories and request 2 for admissions; and iii) to sanction Defendants for their actions. 3 On September 15, 2023, after an extension of time granted by this court, Defendants filed 4 their opposition to Plaintiff’s motion to compel discovery. Docket No. 113. In the same, 5 Defendants asserted that they “oppose the motion to compel discovery because the information 6 requested falls beyond the limits of Federal Rules of Civil Procedure 26(b)(1), inasmuch as the 7 information requested is irrelevant and not proportional to the needs of the case, and not 8 discoverable in Puerto Rico by virtue of various decisions of the Puerto Rico Supreme Court.”1 9 Plaintiff filed its response to Defendants’ opposition to the motion to compel discovery 10 on September 29, 2023. Docket No. 123. In the same, Plaintiff asserted that one of the causes of 11 action is a collection action of a judgment confirmed by the Supreme Court of Puerto Rico that 12 Perfect Price and Perfecto Rivera have declined to pay, and that other causes of action relate to 13 interference, conspiration, and collusion between Perfect Price, Perfecto Rivera, and all other 14 Defendants against Plaintiff. Plaintiff asserted that the information requested from the 15 Defendants, mainly their financial information, is essential to Plaintiff’s discovery and resolution 16 of the pending causes of action.2 17 After reviewing Plaintiff’s motion to compel discovery, Defendants’ opposition, and 18 Plaintiff’s response to the opposition, the court, on October 6, 2023, granted the motion to compel 19 discovery and ordered Defendants “to fully answer interrogatories and request for admissions and 20 to produce all documents that are responsive to Plaintiff's request for production of documents.” 21 Docket No. 126. Consequently, the parties were granted until January 31, 2024, to conclude 22 discovery. At said time, no sanctions were imposed on the Defendants. 23

24 1 Defendants cited two cases to support their position. In the case of GE Credit & Leasing Corp v. Concessionaires, Inc., 118 P.R. Dec. 32, 18 PR Offic. Trans. 38 (1986), the Supreme Court of Puerto Rico determined that the plaintiff 25 did not show that defendant’s financial status was in controversy nor that it was relevant to the issue at hand. In the case of Arturo M. Alfonso Brú v. Trane Export, Inc., 155 D.P.R. 158 , 2001 PRSC 129 (2001), the Supreme Court of 26 Puerto Rico determined that the financial information requested was relevant to the controversy of the case for which it reversed the Puerto Rico Appellate Court that had limited the discovery of financial information. 27 2 Plaintiff contended that “the record of the case shows innumerable attempts of these Defendants to hinder discovery of the true facts in the controversy, such a multiple Motions to Dismiss and Summary Judgements (sic) Objections to 1 In relation to this court order granting Plaintiff’s motion to compel discovery, on October 2 20, 2023, Defendants filed a motion for reconsideration reaffirming their position that the 3 financial information was irrelevant and not discoverable in Puerto Rico prior to judgment. 4 Docket No. 133. Plaintiff filed its opposition to the motion for reconsideration six days later. 5 Docket No. 135. 6 On November 1, 2023, this court issued an order denying the motion for reconsideration. 7 Docket No. 136. On the same date, Plaintiff filed a motion requesting sanctions for Defendants’ 8 failure to comply with this court order regarding discovery. Docket No.137. Plaintiff argues that 9 the Defendants provided it with letters authorizing third parties to supply the information 10 requested in discovery. Plaintiff content that an authorization letter is not a production of 11 document under the Federal Rules of Civil Procedure. Defendants assert in their response that 12 the information requested was not in their possession but under their control for which they were 13 providing the authorization letters. Docket No. 142. 14 On November 30, 2023, the court issued an order denying Plaintiff’s motion for sanctions. 15 Docket No. 144. Plaintiff then filed a motion for reconsideration and Defendants opposed. 16 Dockets No. 147 and 148. Plaintiff filed a Sur-reply. Docket No. 150. 17 The court denied Plaintiff’s motion for reconsideration; thus, no sanction was imposed on 18 Defendants. Docket No. 154. However, on even date, this court, giving Defendants a second 19 chance, ordered Defendants to comply within 21 days with the order issued on October 6, 2023, 20 regarding Plaintiff’s request for production of documents. The court specified that Defendants 21 had to “produce responsive documents within their possession, custody, or control; which 22 includes the obligation to produce documents in the possession of third parties that Defendants 23 have the right of control over those documents.” The court further warned Defendants that failure 24 to comply with this court order could result in the imposition of sanctions as provided in Rules 25 26 and 37 of the Federal Rules of Civil Procedure. Docket No. 155. 26 On March 1, 2024, Defendants filed a motion in compliance with court order. Docket No. 27 158. In the same, Defendants sustained that they have complied with this court order by providing 1 Plaintiff with authorizations for Plaintiff to obtain directly from the custodian of the records bank 2 accounts and tax returns. In support to their position, Defendants refer to this court order denying 3 Plaintiff’s request for sanctions. 4 On March 4, 2024, Plaintiff filed a second motion to compel discovery and in the same 5 request, for the third time, for sanctions to be imposed on the Defendants. Docket No. 159. 6 Plaintiff asserted, in summary, that Defendants’ actions, by insisting that they had comply with 7 the court’s order referring to the authorization letters while this court ordered the production of 8 documents that were in possession of third parties and that Defendants had the right of control 9 over those documents, are a mockery to the court and the Plaintiff. Plaintiff requested, pursuant 10 Fed. R. Bank. P. 7037(b)(2)(A), that Defendants’ pleadings be stricken and for the entering of a 11 default judgment against Defendants. Defendants filed their opposition to the second motion to 12 compel discovery on March 15, 2024, asserting that Plaintiff’s motion is “predicated on the 13 erroneous assumption” that the Defendants have failed to comply with the court’s order. Docket 14 No. 161. On March 22, 2024, Plaintiff filed a sur-reply and Defendants filed an opposition to 15 the sur-reply on April 5, 2024, with similar arguments to their previous filed documents. Dockets 16 No. 163 and 168. 17 Legal Analysis and Discussion 18

19 A. Production of Documents Pursuant Rule 34 20 Rule 7034 of the Federal Rules of Bankruptcy Procedure provides that Rule 34 of the Federal Rule of Civil Procedure applies in adversary proceedings. Fed R. Civ. P. 34(a) governs 21 the production of documents in civil matters. Pursuant to Rule 34(a), a party must produce 22 documents in response to a request for production where those documents are "in the responding 23 party's possession, custody, or control[.]" Costa v. Kerzner Int'l Resorts, Inc., 277 F.R.D. 468, 470 24 (S.D. Fla. 2011) (making reference to Fed R. Civ. P. 34(a)). The Federal Rules of Civil Procedure 25 require production of documents "which are under the possession, custody or control of the party 26 upon whom the request is served." Ice Corporation v. Hamilton Sundstrand Corp., 245 F.R.D. 513, 516 & n. 10 (D. Kan. 2007) 27 Whether documents are in a parties’ control under Rule 34 is broadly construed. "Courts 1 have universally held that documents are deemed to be within the possession, custody or control 2 if the party has actual possession, custody or control or has the legal right to obtain the documents 3 on demand." Ice Corporation, 245 F.R.D. at 516-17 (citations and footnotes omitted, emphasis in 4 original). Legal ownership or actual physical possession is not required; documents are under a 5 party's "control" when that party has the right, authority or ability to obtain those documents upon 6 demand. Green v. Fulton, 157 F.R.D. 136, 142 (D. Me. 1994). Thus, actual possession of the requested documents is not required. A party may be ordered to produce a document in the 7 possession of a non-party entity if that party has a legal right to obtain the document or has control 8 over the entity who is in possession of the document. Soto v. City of Concord, 162 F.R.D. 603, 9 620 (N.D. Cal. 1995) (making reference to Buckley v. Vidal, 50 F.R.D. 271, 274 (S.D.N.Y. 1970)). 10 See Best Western Int’l, Inc. v. Bhagirath, No. 12-0121, 2013 U.S. Dist. LEXIS 69032, 2013 WL 11 2147208, at 3 (M.D. La. May 14, 2013) (defendants were required to obtain and provide all 12 documents, including but not limited to bank statements and accounting records, that they had a legal right or practical ability to obtain from a non-party). 13 14 In the present case there is no controversy as to whether Defendants have control over the 15 documents requested by Plaintiff. Defendants, in their motion in compliance with court’s order and in response to motion requesting sanctions filed on November 15, 2023, admit having control 16 over the requested documents sought by Plaintiff. Docket No. 142, pages 3-4. On February 9, 17 2024, this court clearly ordered Defendants to produce the documents in the possession of third 18 parties that Defendants have the right of control over those documents. Defendants did not comply 19 with this court order. 20 B. Sanctions 21 Rule 37(b) provides for a range of sanctions for failure to obey discovery orders. Once it 22 is determined that a party failed to comply with a discovery order, the court may impose “just 23 orders” or sanctions including: 24 (i) directing that the matters embraced in the order or other designated 25 facts be taken as established for purposes of the action, as the prevailing party claims; 26 (ii) prohibiting the disobedient party from supporting or opposing 27 designated claims or defenses, or from introducing designated matters in evidence; (iii) striking pleadings in whole or in part; 1 (iv) staying further proceedings until the order is obeyed; 2 (v) dismissing the action or proceeding in whole or in part; (vi) rendering a default judgment against the disobedient party; or 3 (vii) treating as contempt of court the failure to obey any order except an order to submit to a physical or mental examination. 4 Suarez v. Liquid Blue, Inc., 2024 U.S. Dist. LEXIS 83169 (S.D.N.Y. May 7, 2024), 5 (referring to Fed. R. Civ. P. 37(b)(2)(A)). 6 "Instead of or in addition to the orders above," Rule 37(b) provides that "the court must 7 order the disobedient party, the attorney advising that party, or both to pay the reasonable 8 expenses, including attorney's fees, caused by the failure, unless the failure was substantially 9 justified or other circumstances make an award of expenses unjust’.” Id. (citing Fed. R. Civ. P. 10 37(b)(2)(C)). "Sanctions may be granted against a party under Rule 37(b)(2) if there is 11 noncompliance with an order, 'notwithstanding a lack of wilfulness [sic] or bad faith, although 12 such factors are relevant . . . to the sanction to be imposed for the failure.'" Id. (citing Henry v. 13 Miller, 2019 U.S.Dist. LEXIS 154424, 2019 WL 5865643, at *2 (S.D.N.Y. Sept. 9, 2019)). 14 Under the court’s broad discretion to order sanctions under this Rule, numerous factors 15 are relevant to the exercise of this discretion, "including: (1) the willfulness of the non-compliant 16 party or the reason for the noncompliance; (2) the efficacy of lesser sanctions; (3) the prejudice 17 to the other party; (4) the duration of the period of noncompliance, and (5) whether the non- 18 compliant party had been warned of the consequences of his non-compliance." Handwerker v. 19 AT&T Corp., 211 F.R.D. 203, 208 (S.D.N.Y. 2002). "In addition, an award of sanctions under 20 Rule 37 should effectuate its three purposes: (1) ensuring the disobedient party does not benefit 21 from non-compliance; (2) obtaining compliance with discovery orders; and (3) providing a 22 general deterrent in the particular case and litigation in general." Id. 23 Defendants have failed to comply with court discovery orders in this action. On October 24 6, 2023, the court ordered Defendants to produce all documents that were responsive to Plaintiff's 25 request for production of documents. Then, on February 9, 2024, this court ordered Defendants, 26 again, to produce responsive documents within their possession, custody, or control. This second 27 time, the court even specified that Defendants had to produce documents in the possession of 1 || third parties that Defendants have the right of control over those documents. Defendants have 2 || failed to comply with this court’s orders. 3 The court finds that at this moment monetary sanctions are appropriate. Defendants were 4 ||warned about the consequences of not complying with this court’s order. Defendants’ 5 || noncompliance has been an issue in this action for nearly seven months, delaying the proceedings 6 || and causing Plaintiff to incur in additional costs pursuing discovery disputes. Plaintiff is entitled 7 || to attorneys’ fees and costs incurred in connection with its efforts to obtain the discovery to which 8 || it is entitled. 9 Defendants shall pay Plaintiff's reasonable attorneys’ fees and costs incurred to obtain the 10 || discovery to which Plaintiff is entitled. Plaintiff is directed to file a fee application, supported by 11 || declarations or affidavits substantiating its application, consistent with this opinion and order by 12 || June 21, 2024. Defendants may respond to that application by July 8, 2024, and Plaintiff may 13 || submit a reply by July 22, 2024. No sur-replies are allowed. 14 Plaintiff's second motion to compel discovery on Docket No. 159 is granted. Defendants 15 || shall comply with this court orders and produce the requested documents within fourteen (14) 16 days. Should Defendants continue to fail to comply with the court's discovery orders, further 17 || sanctions may be warranted. 18 IT IS SO ORDERED. 19 In San Juan, Puerto Rico, this 7 day of June, 2024. 20 .

MILDRED CABAN FLORES 22 United States Bankruptcy Judge 23 24 25 26 27

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