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Produce Alliance, LLC v. Sheppard Produce, Inc.

United States District Court, Ninth Circuit

July 1, 2013



B. LYNN WINMILL, Chief District Judge.


The Court has before it a motion for entry of an order of contempt and sanctions filed by plaintiff Produce Alliance. The Court held a hearing and requested further briefing. That briefing was completed on June 5, 2013, and the motion is at issue. For the reasons described below, the Court will grant a default judgment, and award fees and costs, to Produce Alliance against the Sheppard defendants.


On May 23, 2011, plaintiff Produce Alliance filed this action under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. ยง 499e(c), claiming that the Sheppard defendants failed to pay for produce delivered by Produce Alliance, and that defendant D.L. Evans Bank received assets that it must disgorge. The "Sheppard defendants" consist of Sheppard Produce, Inc. d/b/a S&G Produce, Stanley R. Sheppard (individually), Stanley R. Sheppard in his capacity as the Personal Representative to the Estate of Marilyn C. Sheppard, and Sheppard Transportation, LLC.

During discovery, Produce Alliance alleged that the Sheppard defendants were either not responding or providing incomplete responses to Produce Alliance's discovery requests. Produce Alliance filed a motion for order to show cause, seeking an order that the Sheppard defendants show cause why they should not be held in contempt and sanctioned for their failure to provide discovery responses. The Court granted that motion, and held a show cause hearing on May 20, 2013, where the Court heard argument from counsel. At the conclusion of the hearing, the Court stated from the bench that the discovery abuse allegations were largely unrebutted, but that an issue remained as to the remedy. The Court requested further briefing, which was completed on June 5, 2013, and the matter is now at issue.


Federal Rule of Civil Procedure 37 authorizes the district court, in its discretion, to impose a wide range of sanctions when a party fails to comply with the rules of discovery or with court orders enforcing those rules. Pursuant to Rule 37(b)(2)(A), if a party fails to obey an order "to provide or permit discovery, " the Court may issue further "just orders, " including "rendering a default judgment against the disobedient party." In addition, Rule 37(b)(2)(C) authorizes the Court to order the disobedient party, the attorney advising that party, or both to pay the reasonable expenses, including attorneys' fees, caused by the failure, "unless the failure was substantially justified or other circumstances make an award of expenses unjust."

The Ninth Circuit has identified five factors that this Court must consider before declaring a default under Rule 37: "(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the other party; (4) the public policy favoring the disposition of cases on their merits; and (5) the availability of less drastic sanctions." Dreith v. Nu Image, Inc., 648 F.3d 779, 788 (9th Cir. 2011). In addition, in order to warrant a sanction of default, the party's violations of the court's orders must be due to wilfulness, bad faith, or fault of the party. Wyle v. R.J. Reynolds Industries, Inc., 709 F.2d 585 (9th Cir. 1983).

The loss or destruction of relevant documents may trigger sanctions under the doctrine of spoliation. Unigard Security Insurance Co. v. Lakewood, 982 F.2d 363 (9th Cir. 1992). If the destruction occurs before litigation is filed, the sanctions are governed by the inherent power of the Court to make evidentiary rulings in response to the destruction of relevant evidence. Id. If, however, the spoliation occurs after the case is filed, Rule 37(b)(2) governs the sanctions. Id.


Early in this case, on June 15, 2011, the Court entered a Consent Injunction and Agreed Order Establishing PACA Trust Claims Procedure ("PI Order"). See PI Order (Dkt. No. 25). It enjoined the Sheppard defendants from transferring or dissipating any assets, and required them to "provide Plaintiff with access to the business books and records of S&G Produce Company, including, without limitation, all invoices, credit memos, accounts receivable ledgers, insurance policies, inventory lists, accounts payable lists, customer lists and vendor invoices."

When Sheppard failed to respond adequately, the Court entered another Order setting forth another deadline for Sheppard to comply. Again, the response was incomplete.

For example, Produce Alliance asked for Sheppard's bank statements, canceled checks, and other financial documents for its bank accounts from 2009. Sheppard's response instructed Produce Alliance to subpoena these documents from the banks. Rule 34(a) authorizes Produce Alliance to request documents "within [Sheppard's] possession, custody or control." Even if Sheppard does not have possession of its canceled checks, they are certainly under its control; Sheppard could obtain them from its bank and produce them. If that is too burdensome, or if the records are actually not under its control, Sheppard could have explained that in its response and/or filed a ...

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