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KCI USA, Inc. v. Healthcare Essentials, Inc.

United States District Court, N.D. Ohio, Eastern Division

July 16, 2018

KCI USA, INC., Plaintiff,
v.
HEALTHCARE ESSENTIALS, INC., et al, Defendants.

          MEMORANDUM OF OPINION AND ORDER [RESOLVING ECF NO. 333]

          BENITA Y. PEARSON UNITED STATES DISTRICT JUDGE

         Pending is Plaintiffs Omnibus Motion for Sanctions Against Interested Party, Cavitch Familo & Durkin Co., LPA (the "Cavitch Firm"). ECF No. 333.

         Pursuant to Federal Rules of Civil Procedure 26(g)(3) and 37(b)(2)(C), 28 U.S.C. § 1927, and the Court's inherent authority, Plaintiff moves for sanctions against the Cavitch Firm and certain of its attorneys[1] for discovery abuses that occurred during the representation of Defendants Healthcare Essentials, Inc; Healthcare Essentials, LLC; Healthcare Essentials Medical Devices, LLC; RT Acquisition, Inc.; Ryan Tennebar, and Colin Tennebar (collectively, "Defendants"). The Cavitch Firm and counsel oppose the motion. ECFNo. 341. KCI has replied. ECF No. 346.

         The Court has been advised, having reviewed the record, the parties' briefs and the applicable law.[2] For the reasons set forth below, Plaintiffs motion (ECF No. 333) is granted.

         I. Background

         Plaintiff KCI USA, Inc. ("KCI") initiated this action on March 12, 2014, alleging that Defendants stole its wound-care vacuums ("VACs") and marketed them as their own. See ECF No. 1. Since the inception of this suit, KCFs efforts to litigate the merits of this case have been hindered by uncooperative behavior, dilatory tactics, and repeated discovery violations by Defendants and, to some degree, the Cavitch Firm and certain of its counsel. A brief chronology of the events that led the Court to this finding is instructive.

         On March 13, 2015, after having made several discovery requests, KCI moved for its first order requesting that the Court sanction Defendants "for a pattern of blatant and continuous discovery abuses." ECF No. 42 at PageID#: 207. Then, KCI had only Defendant Healthcare Essentials, Inc. (and possibly its counsel) in its sights, and complained that "Healthcare Essentials has refused, despite being compelled to do so by successive Orders of this Court and almost a year into the discovery process, to produce purchase records and KCI serial numbers for the VACs Defendant possess[ed]." Id. At that time, Plaintiff sought discovery pertaining to: how Defendant acquired KCI VACs; how many VACs remained in Defendants' possession; and, where the VACs were located. See ECF Nos. 42; 42-2 (KCFs February 16, 2015 letter to Court). The Cavitch Firm asserted that Defendant Healthcare Essentials had produced complete and accurate documents of invoices and inventory spreadsheets that identified all of KCFs VACs within its control or possession, or presently being leased by Defendant to its customers. ECF No. 49 at PageID#: 365 370. Based on the Cavitch Firm's representations certifying that Defendant had complied with KCFs discovery requests and produced documents regarding their KCI VAC inventory, KCFs motion for sanctions was denied.[3] See ECF No. 56.

         Unfortunately, KCFs counsel found it necessary to continue seeking intervention from the Court about outstanding discovery issues.[4] Consequently, on December 4, 2015, KCI moved for: (1) an order requiring Defendant Healthcare Essentials, Inc. to show cause for why it should not be held in contempt for continued violations of the Court's discovery Orders (ECF Nos. 40 and 56); and (2) an order sanctioning Defendant for willful violations of the Court's discovery Orders and for its continued pattern of discovery abuses. ECF No. 79. In that motion, KCI informed the Court that its third-party subpoenas to Defendant Healthcare Essentials' customers revealed information that Defendant had failed to produce items, including "previously undisclosed written contracts between Healthcare Essentials and various healthcare customers (for VACs), along with HEI's e-mails containing representations about KCI and the VACs, and even other communications which included misrepresentations by HEI and its counsel to current and former KCI customers (about KCI, this litigation, and VACs). (See, e.g., ECF 64-10)." Id. at PageID#:1168 69.

         KCIs motion was heard at a January 25, 2016 Status Conference before Magistrate Judge Baughman.[5] See ECF Nos. 96 and 97. During the Status Conference, Magistrate Judge Baughman discussed, in depth, the Cavitch Firm's failure to comply with Court's Order (ECF No. 56) directing Defendants to:

[I]dentify the [VACs] possessed by Healthcare Essentials and set up a chain of custody for each of those units from the time of distribution by KCI until those units came into the possession of Healthcare and then a chain of custody for each of the units from the time of the possession by Healthcare Essentials to the present and any documentation in possession of any party regarding the units in dispute.

ECF No. 111 atPageID#: 1850.

         When Magistrate Judge Baughman asked whether a chain of custody as to the VAC units in Defendants' possession had been developed, Cavitch Firm Attorney, Komlavi Atsou, answered in the affirmative. Id. at PageID#: 1851. After further questioning, he expounded that for each of the units "[w]e bought it, we produced it, we have receipts for them, and we distributed it to our customers that are using it, your Honor." Id. at PageID#: 1851 52. When asked whether the Cavitch Firm had been disclosing and updating their VAC list and initial disclosures, Atsou again answered in the affirmative, stating that "[w]e produced the units that we have, the complete list." Id. atPageID#: 1852 53. Lastly, regarding the serial numbers of the thirty-five VACs produced by Defendants, the Court asked Atsou: "[D]o you have anything you haven't produced yet?" Atsou responded, "No, your Honor. We have produced everything to them." Id. atPageID#: 1867 68. Despite Atsou's assurances that the above-mentioned discovery had been produced to KCI, Magistrate Judge Baughman, warned the Cavitch Firm of the significance of compliance:

Well, here is the deal. They are signing under Rule 11 that they have given you everything that exists that they know of. . . and you are finding that there is other stuff that you may be able to find that you think they would have, but they don't. So they are going to have to answer for that. So it is put up or shut up."

Id. at PageID#: 1882.

         Now, the Cavitch Firm contends that it was not until its March 30, 2016 review of documents on Defendants' Jurinov Hard Drive (herein "Defendants' hard drive") that "troubling" information with respect to Defendants' litigation-related conduct was revealed. See ECF No. 341 atPageID#: 6178 79. Subsequently, on April 8, 2016, Cavitch Firm Attorneys Eric J. Weiss, Michael R. Rasor, John Lisy IV, and Atsou, moved to withdraw as counsel for Defendants, and filed an exparte memorandum in support of their motion.[6] ECF Nos. 135 and 136. In granting the motion to withdraw, the Court put the Cavitch Firm on notice that, "should the Court find cause for doing so, it may be called upon to clarify, explain, or justify its prior actions as counsel in this case." ECF No. 143 at PageID#: 2339 40.

         As a result of the continued discovery-related disputes between the parties, KCI filed a Motion to Show Cause and Request for Discovery Hearing arising out of Defendants' spoliation of evidence. ECF No. 269. On November 9, 2017, the Court held a hearing on Plaintiffs Motion to Show Cause. See November 9, 2017 Minutes of Proceedings. At the Show Cause Hearing, KCI presented evidence of Defendants and the Cavitch Firm's discovery misconduct including, violations of multiple Court Orders, misrepresentations made to the Court and KCI regarding the prior document discovery productions, fabrication of documents produced in discovery, and spoliation of evidence. See ECF No. 331.

         Following the Show Cause Hearing, KCI filed its Omnibus Motion for Sanctions against the Cavitch Firm. ECF No. 333. KCI alleges that the Cavitch Firm repeatedly violated discovery-related provisions of Rules 26 and 37 of the Federal Rules of Procedure, as well as various Court Orders, by its:

(1) misrepresentations made to the Court and KCI during in-person hearings regarding Defendants' prior document discovery productions;
(2) direct assistance in the creation of fabricated and inaccurate "evidence" produced to KCI in response to Orders from the Court requiring production;
(3) actual knowledge of additional false and misleading documents produced in discovery prior to its withdrawal as counsel;
(4) withdrawing from counsel in this case without disclosing any of its improprieties and without correcting prior, false document productions and false ...

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