United States v. Shearer

• Court: District Court, E.D. California
• Decided: April 9, 2024
• Docket: 2:12-cv-02334
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 UNITED STATES OF AMERICA, No. 2:12-cv-02334-DJC-DB 12 Plaintiff, 13 v. ORDER

14 L. RICHARD SHEARER, et al.,

15 Defendants. 16 17 Before the Court is Plaintiff’s Motion for Relief from Sanctions for failure to 18 comply with Rule 26. For the reasons discussed herein, the Court will GRANT IN PART 19 and DENY IN PART Plaintiff’s Motion. The Court finds that Plaintiff sufficiently 20 disclosed the witnesses and many of the documents it intends to rely on at trial, but 21 that it has failed to disclose at least some of the documents as to Defendant Stanley 22 Swenson. The Court will therefore impose evidentiary sanctions excluding the 23 undisclosed documents. 24 I. Background 25 The present action was initiated on September 11, 2012, following the 26 disposition of a criminal matter that determined that Defendant L. Richard Shearer 27 had engaged in a scheme to conceal income from the Internal Revenue Service (“IRS”) 28 through a series of sham trusts. (First Am. Compl. (“FAC”) (ECF No. 4) ¶ 1; see United 1 States v. Bullock, No. 2:00-cr-00345-KJM-4 (E.D. Cal.).) The purpose of the action is to 2 assess the federal tax liability of Defendants L. Richard Shearer and Diane Shearer, to 3 adjudicate the legal status of alleged trusts used by the Shearers, and to foreclose tax 4 liens against certain properties. (FAC ¶ 1.) Fact discovery in this case closed on 5 February 1, 2016, with the exception of a limited reopening of discovery for the 6 purpose of taking select depositions which then closed on May 16, 2023. (See Mot. to 7 Compel Order (ECF No. 151) at 2.) 8 In their Joint Pretrial Statement (ECF No. 157 at 17, 35) and during the March 9 20, 2024 status conference, Defendants asserted that they did not receive Rule 26 10 disclosures or the documents on which Plaintiff intends to rely at trial. The Court set a 11 hearing for April 4, 2024 to determine whether the Plaintiff had produced the 12 required discovery or otherwise complied with Rule 26. In anticipation of this hearing, 13 Plaintiff filed the present Motion (ECF No. 162), and a Reply (ECF No. 167) with 14 supporting documentation, which Defendants have opposed (ECF Nos. 163–65, 168). 15 At the hearing, Alexander Stevko and Chelsea Bissell appeared for Plaintiff, Joe Izen 16 appeared for Defendant Swenson, Matthew Gilmartin appeared for Defendant L. 17 Richard Shearer, and Diane Shearer appeared pro se. 18 II. Analysis 19 Rule 26 requires the disclosure of, among other things, individuals likely to 20 have discoverable information and documents the party may use to support its claims 21 or defenses. Ordinarily, it is appropriate for the district court to impose exclusionary 22 sanctions for the failure to comply with Rule 26. Fed. R. Civ. Pro. 37 (c)(1) (“If a party 23 fails to provide information or identify a witness as required by Rule 26(a) or (e), the 24 party is not allowed to use [the undisclosed] information or witness to supply evidence 25 . . . at a trial.”); 37(b)(2)(A)(i)–(vi). While exclusion of evidence under Rule 37(c) is an 26 “automatic” sanction, the failure to comply with Rule 26 may be excused if the party 27 produces the required information through its discovery responses such that the 28 failure to comply is harmless or substantially justified. See Fed. R. Civ. Pro. 37 (c)(1); 1 Merchant v. Corizon Health Inc., 993 F.3d 733, 740 (9th Cir. 2021). In determining 2 whether the failure to comply was harmless, the court should look to “(1) prejudice or 3 surprise to the party against whom the evidence is offered; (2) the ability of that party 4 to cure the prejudice; (3) the likelihood of disruption of trial; and (4) bad faith or 5 willfulness in not timely disclosing the evidence.” Liberty Ins. Corp. v. Brodeur, 41 6 F.4th 1185, 1192 (9th Cir. 2022).1 The Plaintiff has the burden of showing that the 7 harsh sanction of exclusion is not warranted. Merchant, 993 F.3d at 740. 8 Based on the evidence produced by the Plaintiff, it is clear that Plaintiff 9 sufficiently disclosed the witnesses at issue: Lonnie Crockett and Daniel Bullock. In 10 their responses to Defendants’ Interrogatories requesting “all witnesses with 11 knowledge of facts relevant to the claims of the United States,” Plaintiff lists both 12 Lonnie Crockett and Daniel Bullock. (Mot., Ex. 1 (ECF No. 162-2) at 5; Mot., Ex. 2 (ECF 13 No. 162-3) at 15–16.) The responses to each Defendant’s Interrogatories were sent to 14 all Defendants as evinced by both Fedex shipping receipts and signed proofs of 15 service attached the each. (Mot., Ex. 1 (ECF No. 162-2) at 22–23; Ex. 2 (ECF No. 162-3) 16 at 3–4, 23–24.) Plaintiff did not provide addresses or contact information for these 17 witnesses, but both are former trustees of the trust accounts at issue and their contact 18 information would have been known to the Defendants. (Joint Pretrial Statement at 19 14.) Moreover, each of these witnesses has been deposed in this matter. (Id.) 20 Therefore, Defendants cannot claim they are surprised or prejudiced by the 21 introduction of the witnesses as they were well aware of them and had ample 22 opportunity to depose or otherwise prepare for the introduction of the witnesses. 23 Similarly, there is sufficient evidence that documents Bates range IRS04410 to 24 IRS04992 were sent to all Defendants. Exhibits 4 and 6 to Plaintiff’s Motion contains 25 cover letters addressed to both Joe Izen, counsel for Defendant Swenson, and 26

27 1 While the Court should also consider lesser sanctions, it is the burden of the party facing sanctions to show that “a sanction other than exclusion is better suited to the circumstances.” Merchant, 993 F.3d at 28 741. Here the Plaintiff has failed to offer any lesser sanctions. 1 Matthew Gilmartin, counsel for the Shearers,2 FedEx shipping labels, and signed proof 2 of service which refer to production of these documents. (Mot., Ex. 4 (ECF No. 162-5); 3 Mot. Ex. 6 (ECF No. 162-6).) Because Plaintiff provided these documents through the 4 course of discovery, and well in advance of trial, there is no prejudice or surprise to 5 the Defendants if these documents are introduced into evidence. 6 However, there is insufficient evidence that Plaintiff produced certain other 7 documents on which it intends to rely to Defendant Swenson. The record shows that 8 documents Bates range IRS00001 to IRS04535 were only sent to the Shearers. A 9 cover letter addressed to Mr. Gilmartin, dated April 29, 2014, states that Bates range 10 IRS00001 to IRS04535 were sent in CD format to Mr. Gilmartin. In an April 30, 2014 11 email exchange between Mr. Gilmartin and Guy Jennings (the former US Attorney 12 overseeing this case), Mr. Gilmartin confirms receipt of the CDs and asks “[d]id you 13 send a copy to Joe Izen?” to which Mr. Jennings replies “[n]o copy from me to Izen. 14 Two identical copies to you. You can share your information if you chose.” (Mot., Ex. 6 15 (ECF No 162-7) at 2.) Mr. Gilmartin does not state that he did or intended to share the 16 documents. There is no similar cover letter, proof of service, or Fedex label 17 addressed to Mr. Izen from this time, and the exchange between Mr. Gilmartin and Mr. 18 Jennings suggests the documents were not sent to Mr. Izen. There is also no 19 evidence of a sharing agreement between the Defendants. While the Plaintiffs would 20 have this Court infer that the documents were provided by Mr. Gilmartin to Mr. Izen, 21 they have not satisfied their burden of establishing that fact with sufficient evidence. 22 Accordingly, the Court concludes that these documents were not provided to 23 Defendant Swenson. 24 Despite the failure to produce these documents, the Government sufficiently 25 disclosed certain documents within that Bates range during the course of depositions 26 which satisfies the Rule 26 requirements or makes the failure to disclose harmless. 27 2 Mr. Gilmartin was counsel for Diane Shearer at the time, though Ms. Shearer is now self-represented. 28 (ECF No. 123.) 1 Rule 26 is satisfied by a description of the category and location of the documents, not 2 necessarily by the production of documents. N. Am. Lubricants Co. v. Terry, No. CIV S- 3 11-1284 KJM, 2011 WL 5828232, at *5 (E.D. Cal. Nov. 18, 2011) (finding that the party 4 may meet is disclosure requirements “by providing copies or a []description . . . of all 5 documents”). By marking the documents as exhibits with counsel for Defendant 6 Swenson present, and providing a description of each document in the exhibit 7 indexes, Plaintiff disclosed each of these documents to him within the meaning of Rule 8 26. See Crescenta Valley Water Dist. v. Exxon Mobil Corp., No. CV 07–2630–JST 9 (ANX), 2013 WL 12095206, at *2 (C.D. Cal. June 24, 2013) (finding that party satisfied 10 its rule 26 obligation through deposition exhibits and testimony); U.S. Axminster, Inc. 11 v. Chamberlain, 176 F.R.D. 532, 534 (N.D. Miss. 1997) (finding that failure to produce 12 document was harmless where the party alerted the other side to the existence of the 13 document during deposition). Moreover, use of an exhibit in a deposition puts 14 opposing counsel on notice that those same exhibits may be used in trial. Defendant 15 Swenson is therefore not prejudiced by the introduction of these documents. 16 During the hearing, Plaintiff asserted that its responses to Defendants’ Requests 17 for Production, which the evidence shows were served on all Defendants, similarly 18 satisfy the disclosure requirement. However, the Government’s description of the 19 documents it produced in response to the requests are not sufficient to meet Rule 26’s 20 disclosure requirement. In Dhaliwal v. Singh, cited by Plaintiff, the descriptions 21 referencing broad categories of documents including "[l]oan documents" 22 "[a]ccounting records" "[f]inancial records" and correspondence “that pertain to 23 payments, the loan, investment, operations of the Defendant and other matters” were 24 too vague to provide proper notice to the other party about which documents would 25 be relied on. No. 1:13-CV-00484-LJO, 2014 WL 2957310, at *8 (E.D. Cal. June 30, 26 2014). Plaintiff’s responses here were, on the whole, similarly broad and vague. In 27 many instances Plaintiff simple stated “[t]he documents will be produced” in response 28 to requests for, for example, “documents tending to prove that the Shearer’s (sic) were 1 financially insolvent.” (Mot., Ex. 1 at 13.) Such a response does not put the other party 2 on notice of what those documents are or what they may contain. If the Government 3 believes that particular documents were sufficiently disclosed by particular responses 4 it may make that argument in a motion in limine, keeping in mind its burden to show 5 lack of prejudice. Otherwise, the responses do not fulfill the Rule 26 obligation. 6 As to any documents not otherwise disclosed, Defendant Swenson would be 7 prejudiced by their introduction with one exception: Defendant Swenson is not 8 prejudiced by the introduction of documents which he or the Trusts provided to the 9 Government or clearly possessed based on information on the face of the document. 10 As the Trustee, Defendant Swenson should have knowledge of and access to that 11 class of documents such that he cannot claim surprise or prejudice. Any other 12 documents not within Defendant Swenson’s knowledge or control would, however, 13 result in prejudice if they were admitted at trial. 14 Although the Court had previously ordered Plaintiff to reproduce all discovery 15 to all Defendants during the March 20, 2024 status conference, given the short period 16 of time before the May 7, 2024 trial date, the late production is unable to remedy the 17 prejudice. The Court would need to continue the trial date to give Defendant 18 Swenson enough time to review the recently provided documents, and would 19 potentially be compelled to reopen discovery depending on how the undisclosed 20 documents impact his defenses. Because this case is nearly 12 years old and the 21 Court has extended discovery and continued trial dates numerous times, the Court 22 finds that continuance would significantly prejudice Defendants and disrupt trial. The 23 failure to disclose these documents is not harmless and the Court will therefore 24 impose the exclusionary sanctions contemplated by Rule 37. This outcome, while 25 harsh, is dictated by the failure to comply with the rules and the prejudice that has 26 resulted. See Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1106 (9th 27 Cir. 2001). 28 //// 1 CONCLUSION 2 For the above reasons, IT |S HEREBY ORDERED that Plaintiff's Motion for Relief 3 || from Sanctions (ECF No. 162) is GRANTED IN PART and DENIED IN PART as follows: 4 1. Plaintiff may introduce witnesses Lonnie Crockett and Daniel Bullock; 5 2. Plaintiff may introduce documentary evidence corresponding with Bates range 6 IRSO04410 to IRS04992; 7 3. Plaintiff may introduce those documents entered as exhibits during depositions 8 in which counsel for all Defendants was present, and documents which 9 Defendant Swenson provided to the Government or documents for which it is 10 clear on their face that Defendant Swenson had in his possession; and 11 4. Allother documentary evidence corresponding with Bates range IRSO0001 to 12 IRS04535 is excluded as to Defendant Swenson? unless the Plaintiff can make 13 an individualized showing that the document was sufficiently disclosed in its 14 responses to the Defendants’ Requests for Production. 15 16 IT IS SO ORDERED. 17 | Dated: _April 9, 2024 “Dinel J CoO □□□□ Hon. Daniel alabretta 18 UNITED STATES DISTRICT JUDGE 19 20 21 22 | □□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□□ 23 24 25 26 27 | 3 Although Plaintiffs may theoretically use this evidence as to the Shearers, it appears there are no remaining claims against the Shearers which do not implicate the trusts such that, as a practical matter, 28 | the evidence is likely inadmissible at trial.