Opinion
01 Civ. 9649 (JFK).
November 29, 2006
For Plaintiff Banco Central de Paraguay, Hughes, Hubbard Reed LLP, New York, New York, Of Counsel: Daniel H. Weiner, Esq.
For Principal Defendants, Cubitt Cubitt, Bad Axe, MI, Of Counsel: Dale H. Cubitt, Esq.
MEMORANDUM OPINION and ORDER
Plaintiff Banco Central de Paraguay ("Banco Central" or "Plaintiff") has submitted (1) a motion to dismiss without prejudice its claims for constructive trust and civil conspiracy ("remaining claims") against the Principal Defendants ("Principal Defendants" or "Defendants"); and (2) a motion (a) to compel Defendants to provide responses to Banco Central's requests for post-judgment discovery and (b) to impose sanctions on Principal Defendants for Banco Central's attorneys' fees and costs in moving to compel discovery. Also before the Court is (3) a motion from Nominal Defendant John Tulac ("Tulac") to dismiss with prejudice Banco Central's claims against Tulac and to dismiss with prejudice Tulac's counterclaim in interpleader.
For the reasons set forth below, the Court grants Banco Central's motion to dismiss its remaining claims without prejudice. The Court also orders the Principal Defendants to respond to Banco Central's interrogatories and to comply with Banco Central's request for the production of documents. Banco Central is directed to submit to the Court an account of attorneys' fees and costs incurred in making the motion to compel the defendants to comply with the demand for discovery, so that the Court may impose fees and costs, as appropriate, on the Principal Defendants by a future Order. The Court also dismisses with prejudice Banco Central's claims against Tulac and dismisses with prejudice Tulac's counterclaim in interpleader.
Background
This case involves the Principal Defendants' unlawful diversion of $16 million from two insolvent Paraguayan banks, Banco Union and Banco Oriental, to Citibank trust accounts maintained by the Principal Defendants and Tulac. The facts of this case received detailed treatment in the Court's prior Opinions, and familiarity is assumed. See, e.g., Banco Central del Paraguay v. Paraguayan Humanitarian Found., Inc., No. 01 Civ. 9649(JFK), 2005 WL 53271 (S.D.N.Y. Jan. 7, 2005).
On November 1, 2001, Banco Central, as assignee of the two insolvent Paraguayan banks, commenced this action to recover the $16 million. Banco Central asserted claims of conversion (Count I) and constructive trust (Count II) against all Principal Defendants and Tulac, as nominal defendant, and a conspiracy claim (Count III) against the Principal Defendants. On September 13, 2002, the Principal Defendants filed their answer, affirmative defenses, counterclaim, and a now-discontinued third-party complaint against Citibank. Tulac simultaneously filed his answer and interpleader counterclaim.
On January 7, 2005, the Court granted Banco Central's motion for summary judgment on the conversion claim as to the Principal Defendants, but not as to Tulac. On June 30, 2005, the Court denied Principal Defendants' motion for reconsideration. On October 31, 2005, the Principal Defendants' counterclaim was dismissed with prejudice and the Principal Defendants' third party complaint was dismissed without prejudice. The only claims that remain pending in this action are Banco Central's claims for conversion and constructive trust against Tulac; the remaining claims (for constructive trust and civil conspiracy) against the Principal Defendants; and Tulac's counterclaim in interpleader.
On January 6, 2006, the Court entered an Order of judgment against the Principal Defendants in the amount of $22,012,493.15 plus post-judgment interest. On May 4, 2006, Principal Defendants' motion to alter or amend the judgment, pursuant to Federal Rule 59(e), was denied. On July 11, 2006, the Court directed Banco Central to inform the Court, no later than July 21, 2006, whether it intended to pursue its remaining claims against Principal Defendants and Tulac.
The judgment comprised an award of $16 million plus $6,012,493.15 in pre-judgment interest. The Court also awarded post-judgment interest, to be calculated, in accordance with 28 U.S.C. § 1961, at the rate of 4.36% (the weekly average one-year constant maturity Treasury yield for the week ending December 30, 2005), compounded annually, from the date of entry of the judgment.
By letter to the Court, dated July 21, 2006, Banco Central stated that, pursuant to the judgment, it had recovered approximately $15 million from the Citibank accounts maintained by Principal Defendants and Tulac but that the remaining amount remained unpaid. Banco Central also stated that it did not intend to pursue the remaining claims against either Principal Defendants or Tulac.
On June 12, 2006, in aid of its efforts to collect the unpaid amount of the judgment, Banco Central served the Principal Defendants with interrogatories pursuant to Federal Rules 33 and 69(a), and a request for production of documents, pursuant to Rules 34 and 69(a). Under Rules 33 and 34, Principal Defendants' response to the discovery demand was due no later than July 17, 2006, but Principal Defendants failed to respond. On August 22, 2006, Banco Central sent a letter to Principal Defendants, requesting a response to the demands for post-judgment discovery and warning the defendants that their continued failure to respond would result in Plaintiff's seeking Court intervention. Principal Defendants did not respond.
At a conference on September 5, 2006, the Court set a briefing schedule for Banco Central to file the motions that are now before the Court. The Court heard oral argument on November 21, 2006.
Tulac was excused from appearing at oral argument.
(1) Motion to Dismiss
Legal StandardFederal Rule 41(a)(2) provides that, absent the defendant's consent, "an action shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms and conditions as the court deems proper." Dismissals pursuant to Rule 41(a)(2) are at the district court's discretion and only will be reviewed for an abuse of that discretion. D'Alto v. Dahon California, Inc., 100 F.3d 281, 283 (2d Cir. 1996). "Although voluntary dismissal without prejudice is not a matter of right, the presumption in this circuit is that a court should grant a dismissal pursuant to Rule 41(a)(2) absent a showing that defendants will suffer substantial prejudice as a result." Gap, Inc. v. Stone Int'l Trading, 169 F.R.D. 584, 588 (S.D.N.Y. 1997) (citations omitted); see also Wakefield v. Northern Telecom Inc., 769 F.2d 109, 114 (2d Cir. 1985); Thomas v. N.Y. State Dep't of Corr. Servs., No. 00 Civ. 7163, 2004 U.S. Dist. LEXIS 16573, at *2 (S.D.N.Y. Aug. 20, 2004) ("Though no factor is dispositive, `the presumption in this circuit is that a court should grant a [Rule 41(a)(2)] dismissal . . . absent a showing that defendants will suffer substantial prejudice as a result'"). "The United States Supreme Court recognized long ago that starting a litigation all over again does not constitute legal prejudice."D'Alto, 100 F.3d at 283 (citing Jones v. SEC, 298 U.S. 1, 19 (1936) ("The general rule is settled for the federal tribunals that a plaintiff possesses the unqualified right to dismiss his complaint . . . unless some plain legal prejudice will result to the defendant other than the mere prospect of a second litigation upon the subject matter.")); see also Icon Licensing Group, LLC v. Innovo Azteca Apparel, Inc., No. 04 Civ. 7888, 2005 U.S. Dist. LEXIS 7477, at *8-9 (S.D.N.Y. Apr. 26, 2005); Medina v. New York State Dep't of Corr. Servs., No. 03 Civ. 9249, 2004 U.S. Dist. LEXIS 21485, at *5 (S.D.N.Y. Oct. 26, 2004).
In Zagano v. Fordham Univ., 900 F.2d 12 (2d Cir. 1990), the Second Circuit set forth five factors that a court must consider in determining whether a defendant will suffer legal prejudice: "[1] the plaintiff's diligence in bringing the motion; [2] any `undue vexatiousness' on plaintiff's part; [3] the extent to which the suit has progressed, including the defendant's efforts and expense in preparation for trial; [4] the duplicative expense of relitigation; and [5] the adequacy of plaintiff's explanation for the need to dismiss." Id. at 14. "The focus of the analysis on [this motion] is prejudice to the defendant." BD v. DeBuono, 193 F.R.D. 117, 123 (S.D.N.Y. 2000).
Analysis
The Court notes at the outset that Principal Defendants have made virtually no attempt, in their memorandum in opposition to Banco Central's motion to dismiss ("Def. Mem. Opp. Dism.") or at oral argument, to address the Zagano factors and make the requisite showing that dismissal would result in substantial legal prejudice. Instead, the defendants argue that Banco Central's remaining claims should not be dismissed because a trial of those claims would allow Principal Defendants to "show the false and fraudulent conduct" of Banco Central in this case. (Def. Mem. Opp. Dism., 5.) The defendants insist that "the case should continue as defense of Counts II and III will enlighten the Court and give the Court the opportunity to make the proper decision when all the facts are before the Court." (Id. at 8.) Specifically, according to Principal Defendants, a trial of the remaining claims will "vindicate the Principal Defendants and allow this Court to reverse its own Count I Judgment" on the conversion claim. (Id. at 5-6.) The defendants also insist, as they have insisted on several prior occasions, that Paraguay, rather than the Southern District, provides proper jurisdiction for this action. The defendants claim that an allegedly pending contract dispute between one of the insolvent banks and one of the Principal Defendants will reveal, among other things, that Banco Central wrongfully withheld discovery material from the defendants in this case. In essence, the defendants claim that dismissal will result in legal prejudice because only a resolution of the Paraguayan action or an actual trial of the remaining claims will allow this Court to "discover that [Banco Central] is the real party in interest without authority and its allegations to a considerable extent are false, misrepresent the real facts and that this case was brought for [Banco Central's] political purposes without regard to the [insolvent banks] that they control by appointment of liquidators to do what it requests and its whim." (Id. at 9.) Principal Defendants further argue that dismissing the remaining claims and forcing the defendants to appeal the grant of summary judgment would "lead to a long precipitous extension of this litigation on appeal and could result in justice not being done for either the Principal Defendants" or the insolvent Paraguayan banks for which Banco Central has acted as assignee. (Id.)
The Court fails to see how any of the above-mentioned arguments relate to the legal prejudice that a defendant must show in order to defeat a motion for voluntary dismissal under Rule 41(a)(2). Principal Defendants' brief addresses only three of the fiveZagano factors, and these only cursorily. Despite a few sporadic assertions that dismissal simply will result in "legal prejudice," the defendants, as they have frequently done in this case, "merely make conclusory `pound the table' statements with no evidentiary support whatsoever." Banco Cent. de Para. v. Para. Humanitarian Found., Inc., No. 01 Civ. 9649, 2005 U.S. Dist. LEXIS 293 (S.D.N.Y. Jan. 7, 2005).
Considering each of the Zagano factors in turn, the Court finds that those factors weigh in favor of dismissal of Banco Central's remaining claims without prejudice.
[1] Diligence
Banco Central contends that it achieved its goal of recovering most of the diverted funds from the Principal Defendants only recently and that it should not be faulted for waiting to withdraw the remaining claims until after that recovery occurred. Principal Defendants argue that Banco Central could have moved sooner to dismiss its remaining claims. However, even if Banco Central could have filed the instant motion at an earlier date, the defendants have not shown that they suffered prejudice as a result of Banco Central's delay. In order for the plaintiff's delay to militate against a grant of dismissal, the plaintiff must show that it expended resources or otherwise detrimentally relied on a reasonable expectation that the plaintiff would pursue its remaining claims. See, e.g., Pacific Electric Wire, No. 03 Civ. 9623, 2005 WL 578916 (S.D.N.Y. Mar. 11, 2005) (Keenan, J.). In Pacific Electric, this Court found an absence of diligence and denied plaintiff's Rule 41(a) motion, because the plaintiff, after settling with one defendant, assured the Court and the remaining defendants that it intended to pursue its remaining claims. Id. at *5. The remaining defendants thereafter continued to expend resources in additional discovery and trial preparation before the plaintiff, after obtaining the fruits of the settlement, finally moved to dismiss its claims. Id. The Court found that the remaining defendants had suffered prejudice as a result of the plaintiff's dilatory action. Id.
Here, by contrast, Banco Central has never led the Principal Defendants to believe that it would prosecute the remaining claims. Shortly after the Court denied Principal Defendants' Rule 59 motion to amend or alter the grant of summary judgment, the Court directed Banco Central to state whether it intended to prosecute its claims. Banco Central stated by letter on July 21, 2006, and again during a conference on September 5, 2006, that it wished to dismiss the claims. Thereafter, Plaintiff timely filed the instant motion. See, e.g., Parameswaran v. Mysorekar, No. 05 Civ. 3162, 2006 U.S. Dist. LEXIS 68307, at *11 (E.D.N.Y. Sept. 22, 2006) (finding that the diligence factor weighed in favor of plaintiff where "plaintiff diligently informed the Court, in writing, and at a conference, of his desire to withdraw this action").
Most important, Principal Defendants have not shown that they expended resources in preparing for trial of the remaining claims in the interim between the grant of summary judgment on the conversion claim and Banco Central's notification that it wished to dismiss the remaining claims. Thus, absent a showing that Banco Central's delay in seeking to dismiss the remaining claims caused prejudice to the Principal Defendants, this factor weighs in favor of Banco Central. [2] Undue Vexatiousness
There is no indication of "undue vexatiousness" on Banco Central's part. "Undue vexatiousness" requires a finding of "ill-motive." Jewelers Vigilance Comm., Inc. V. Vitale Inc., No. 90 Civ. 1476, 1997 WL 582823, at *3 (S.D.N.Y. Sept. 19, 1997). Courts find ill-motive where, for example, the plaintiff "never had any intention of providing discovery in th[e] case but nonetheless permitted the case to proceed, thereby seeking the advantage of filing its charges without having to support them."S.E.C. v. Oakford Corp., 181 F.R.D. 269, 271 (S.D.N.Y. 1998); or where the plaintiff filed duplicative actions relating to the same injury, Mondejar v. Dow Chemical Co., No. 97 Civ. 62, 1998 WL 812577, at *3 (E.D.N.Y. Apr. 29, 1998); or where the plaintiff assured the court it would proceed with its claims but then "go[es] back on their word" and seeks dismissal, see Pacific Electric, 2005 WL 578916, at *5. Here, the only "evidence" of ill motive that the defendants can produce is the following: "Plaintiff has an ill motive in that it wishes to get this case over with so that it can force Principal Defendants to appeal." (Def. Mem. Opp. Dism., 9.). Banco Central's wish to dismiss its claims, now that judgment has been rendered in its favor and its objective in filing suit has been accomplished, simply does not constitute ill motive. Thus, this factor weighs in favor of Banco Central. [3] Extent of Suit's Progression; Expense of Defendant's Preparation
Neither party adequately addresses this factor. Banco Central simply notes that courts have granted dismissals in cases that have been pending for several years; and Principal Defendants make no mention of the suit's duration or any expense they have incurred. The parties' scant treatment of this factor is surprising because, as Judge Swain recently observed, "Courts in the Second Circuit have placed particular importance on this factor, noting that the primary purpose of a Zagano analysis is to `determin[e] whether a case has proceeded so far that dismissing it in order for the plaintiff to start a separate action would prejudice the defendant.'" Comunidad Autonoma Del Pais Vasco v. Am. Bureau of Shipping, Inc., No. 04 Civ. 671, 2006 U.S. Dist. LEXIS 55822, at *9 (S.D.N.Y. Aug. 4, 2006) (quotingD'Alto v. Dahon California. Inc., 100 F.3d at 283).
Discovery in this case is closed, and the suit has progressed past the summary judgment stage. Normally, these facts weigh against granting voluntary dismissal. "Courts have determined that completion of substantial discovery is sufficient" to find that this factor is prejudicial to a defendant. Id. at *10. However, the advanced state of litigation is not by itself determinative, and "`dismissals have been granted on the eve of trial and even after trial has commenced.'" Eastman Mach. Co. v. Diamond Needle Corp., No. 99 Civ. 0450, 2000 U.S. Dist. LEXIS 18766, at *7 (W.D.N.Y. Dec. 15, 2000) (quoting Louis v. Bache Group, Inc., 92 F.R.D. 459, 461 (S.D.N.Y. 1981)).
Despite the advanced stage of litigation that this case has reached, the defendants still must show that they have expended resources in defending the claims that the plaintiff now seeks to dismiss. See, e.g., United States Underwriters Ins. Co. v. United Pacific Assocs., No. 05 Civ. 1012, 2006 U.S. Dist. LEXIS 49617 (E.D.N.Y. July 19, 2006); Deere Co. v. MTD Holdings Inc., No. 00 Civ. 5936, 2004 U.S. Dist. LEXIS 11707, at *6 (S.D.N.Y. June 23, 2004) (finding prejudice where, in preparation for trial of the claims that plaintiff sought to dismiss, "there have been numerous depositions taken (sixty-two according to MTD), thousands of documents have been produced by both parties, numerous motions have been filed and disposed of and MTD has incurred more that $6 million dollars in legal fees"); Smith v. Empire of Am. Realty Credit Corp., No. 94 Civ. 0786, 1999 U.S. Dist. LEXIS 1444, at *6 (W.D.N.Y. Jan. 11, 1999) (finding no prejudice where "the defendants have not to date committed great effort or expense in anticipation of a trial" and "next to nothing has taken place in more than a year").
As noted above, Principal Defendants have made no attempt to show that they have spent significant resources in discovery and preparing for trial on the remaining claims. The only activity that has occurred in this case since the Court granted summary judgment on Plaintiff's conversion claim in January 2005 has consisted of Principal Defendants' attempts to challenge that grant of summary judgment. Therefore, regarding the remaining claims at issue, the defendants have not shown that they have been prejudiced by the extent of the suit's progression or by significant expense in preparing to litigate those claims. This factor also weighs in favor of Banco Centrale.
[4] Duplicative Expense of Re-Litigation
There is little risk of re-litigation of the remaining claims. The Court's Order of judgment in the amount of $16 million plus pre-judgment and post-judgment interest essentially redressed the defendants' unlawful diversion of funds from the insolvent banks. The judgment provides Banco Central with virtually the full measure of relief that Banco Central sought in its complaint. In other words, Banco Central has achieved the goal of its lawsuit. Unless the grant of summary judgment on the conversion claim is reversed, there is little likelihood that Banco Central will bring suit for the remaining claims at any future date or in another forum. In fact, at oral argument, counsel for Banco Centrale represented that Plaintiff would litigate the remaining claims only in the event that the Second Circuit reverses this Court grant of summary judgment. As Plaintiff states in its brief, dismissal without prejudice is necessary to protect Banco Central's remaining claims in the event that such a reversal occurs. Thus, there is little chance of Principal Defendants' having to suffer the costs of re-litigation as a result of dismissal.
Moreover, even if Banco Central were to re-litigate the remaining claims in a future action, whatever work that defendants have done in preparing for trial can easily be used in a subsequent, similar action. See Hinfin Realty Corp. v. Pittston Co., 206 F.R.D. 350, 356 (E.D.N.Y. 2002) (finding no prejudice where defendant "can use some of the material discovered and the legal work already done, if the case is renewed in the future"). As noted above, the heart of Banco Central's suit was the allegation that the defendants unlawfully diverted funds from the Paraguayan banks. The claims for constructive trust and civil conspiracy involve nearly identical facts as formed the basis for Banco Central's conversion claim. Presumably, the work that the Principal Defendants did in litigating the conversion claim could be used if Banco Central re-litigates the claims for constructive trust and civil conspiracy.
In addition, Principal Defendants have not addressed the issue of the expense that they might incur as a result of duplicative litigation. Defendants simply say that allowing Banco Central to dismiss would result in "long precipitous extension of this litigation." (Def. Mem. Opp. Dism., 11.). This assertion, standing alone, is not sufficient for the Court to find that dismissal of the remaining claims would probably cause the defendants to suffer the prejudicial result of duplicative expense in re-litigation. This factor therefore weighs in favor of Banco Centrale.
[5] Adequacy of Explanation
Banco Central offers a reasonable explanation for why it wishes to have its remaining claims voluntarily dismissed without prejudice. Banco Central has obtained a judgment in its favor for the unlawfully diverted funds. It has recovered a substantial portion of those funds. As discussed above, the remaining claims do not seek materially different relief. Should the Second Circuit reverse the Court's grant of summary judgment, Banco Central wishes to be able to go to trial on all three of the claims asserted in its complaint. This is eminently reasonable. A plaintiff's wish to voluntarily dismiss its claims because the objective of the suit has been obtained constitutes an adequate explanation. See, e.g., Saatchi Gallery v. Gorney, No. 98 Civ. 4542, 1999 U.S. Dist. LEXIS 607, at *4-5 (S.D.N.Y. Jan. 25, 1999) (finding plaintiff's explanation adequate, where plaintiff sought withdrawal because it had achieved objective of suit); Gap, Inc., 169 F.R.D. at 588 (same). This is not a case, for example, where the plaintiff seeks dismissal of its claims in order to "avoid the prospect of an adverse decision on a dispositive motion." Galasso v. Eisman, Zucker, Klein Ruttenberg, 310 F. Supp. 2d 569, 572 (S.D.N.Y. 2004) (citingZagano, 900 F.2d at 14). Here, the dispositive motion has already been resolved-in Banco Central's favor.
Principal Defendants have offered no reason why Banco Central's explanation is not adequate. To the extent that the defendants address the adequacy of Banco Central's explanation when Defendants complain that dismissal will result in Banco Central's being "better off with this case on appeal," (Def. Mem. Opp. Dism., 9), the existence of a "mere tactical advantage, whether to one side or another, is not a proper basis on which a Court should determine a Rule 41(a)(2) motion." SEC v. Oakford Corp., 181 F.R.D. 269, 273 (S.D.N.Y. 1998). The Court finds that Banco Central has provided an adequate explanation for wishing to dismiss the remaining claims.
Conclusion
The Zaqano factors weigh heavily in favor of dismissing Banco Central's remaining claims without prejudice. Principal Defendants have not demonstrated that dismissal of the remaining claims will result in legal prejudice. Specifically, Banco Central's brief delay in moving for dismissal did not result in prejudice to the defendants. There is no evidence that the instant motion stems from undue vexatiousness on the part of Banco Central. Despite the advanced stage of litigation, the defendants do not appear to have expended significant resources in preparing for a trial on the remaining claims. There is little chance that the defendants will endure duplicative expense as a result of re-litigation. Banco Central has provided adequate reasons for wishing to dismiss its claims without prejudice. Accordingly, pursuant to Federal Rule 41(a)(2), the Court dismisses Banco Central's remaining claims without prejudice.
(2) Motion to Compel; Imposition of Sanctions
Banco Central moves, pursuant to Federal Rule 37, to compel discovery and impose sanctions on the Principal Defendants for attorneys' fees and costs incurred in moving to compel discovery.
(a) Motion to Compel
Rule 69(a) provides in relevant part that "[i]n aid of the judgment or execution, the judgment creditor . . . may obtain discovery from any person, including the judgment debtor, in the manner provided in these rules or in the manner provided by the practice of the state in which the district court is held." "Discovery of a judgment debtor's assets is conducted routinely under the Federal Rules of Civil Procedure." First City, Texas-Houston, N.A. v. Rafidain Bank, 281 F.3d 48, 54 (2d Cir. 2002) Under Rule 69(a), "a judgment creditor is entitled to a wide range of discovery concerning the assets and liabilities of a judgment debtor." British Int'l Ins. Co. v. Seguros La Republica, S.A., 90 Civ. 2370, 2000 U.S. Dist. LEXIS 7509, at *16 (S.D.N.Y. June 1, 2000). Under Federal Rule 37(a), a district court may compel a non-responsive party to provide the requested discovery. Further, under Rule 37(a), if the court grants the motion to compel, the court also may require the non-compliant party to pay the attorney's fees and costs incurred by the moving party in making the motion to compel.
Principal Defendants' counsel, Dale Cubitt, submits an affidavit in opposition to the motion in which he states that compliance with the discovery requests would be "a great imposition, would result in nothing being discovered . . . and it is a big fishing expedition." (Cubitt Aff. ¶ 3.) Defendants also claim, in their legal memorandum ("Def. Opp. Mot. Compel"), that complying with the discovery requests could force the defendants into bankruptcy and that the discovery requests are an "exercise in futility." (Def. Mem. Opp. Mot. Compel, 3.) The Principal Defendants also make the assertion that the Court should not compel discovery simply because "the case is not over with and responding to discovery should not be required until it is finally over." (Id.).
Defendants' objections to Banco Central's motion to compel discovery fail for two reasons.
First, the defendants failed to make a timely objection to Banco Central's request for discovery. "The law is well settled that a failure to assert objections to a discovery request in a timely manner operates as a waiver." Eldaghar v. City of N.Y. Dep't of Citywide Admin. Servs., No. 02 Civ. 9151, 2003 U.S. Dist. LEXIS 19247, at *2 (S.D.N.Y. Oct. 20, 2003). Under Federal Rules 33 and 34, Principal Defendants had until July 17, 2006 to answer Plaintiff's discovery demands. Defendants remained silent. Even after Banco Central notified the defendants by letter, on August 22, 2006, that Defendants were required to respond to the discovery request, the defendants offered no answer. Due to the lack of timely response, Principal Defendants therefore are deemed to have waived their objection to the demand for discovery.
Second, even if the Court were to consider the defendants' objections, the objections are without merit.
Defendants insist that they should not be required to respond to post-judgment discovery requests until the case is "over." This argument has no support in law. As Banco Central correctly points out, it has a right to seek discovery, regardless of whether the case is "over." Absent the entry of a stay of judgment, a judgment creditor is entitled to seek discovery, even during the pendency of an appeal. See British Int'l Ins. Co. v. Sequros La Republica, S.A., No. 90 Civ. 2370, 2000 U.S. Dist. LEXIS 7509, at *17-18 (S.D.N.Y. 2000). The Court has not ordered a stay of judgment in this case: The Court denied Principal Defendants' ex parte application for a stay of judgment. See Banco Cent. De Para. v. Para. Humanitarian Found., Inc., No. 01 Civ. 9649, 2006 U.S. Dist. LEXIS 2280 (S.D.N.Y. Jan. 19, 2006). Thus, Banco Central is entitled to pursue post-judgment discovery, regardless of whether appeal is imminent and regardless of the status of Banco Central's remaining claims.
Defendants' other arguments are also baseless. To the extent that the defendants oppose Banco Central's discovery requests because compliance would force Defendants into bankruptcy, the precarious financial health of the defendants is irrelevant. As the Court explained in British Int'l Ins. Co., a discovery request under Rule 69(a) is valid regardless of the debtor's financial difficulties, because "even if a judgment debtor is destitute, there is arguably no information concerning its financial situation which is of greater potential relevance to a judgment creditor than the identity and location of the debtor's assets." 2000 U.S. Dist. LEXIS 7509, at *17-18. Similarly, the defendants' claim that discovery would be futile, presumably because the defendants have no assets that can be attached, is also irrelevant. "The fact that a judgment creditor may have difficulty reaching those assets is not determinative of relevance." Id. at *17. Finally, even if the discovery request is a "fishing expedition," as Mr. Cubitt claims, this Court recognized long ago that "a judgment creditor is entitled to fish for assets of the judgment debtor." Capital Co. v. Fox, 15 F. Supp. 677, 678 (S.D.N.Y. 1936). Banco Central is entitled as a judgment creditor, under Rule 69, to a very broad inquiry regarding the location and identity of the Principal Defendants' assets. See British Int'l Ins. Co., 2000 U.S. Dist. LEXIS 7509, at *16 (noting that a judgment creditor is "ordinarily entitled to a very thorough examination of a judgment debtor with respect to its assets, including discovery of the identity and location of any of the judgment debtor's assets, wherever located") (internal quotations and citations omitted).
(b) Motion to Impose Sanctions
Rule 37(a) also governs the plaintiff's request for sanctions. The rule provides that, if a motion to compel discovery under Rule 37(a) is granted
the court shall, after affording an opportunity to be heard, require the party or deponent whose conduct necessitated the motion or the party or attorney advising such conduct or both of them to pay to the moving party the reasonable expenses incurred in making the motion, including attorney's fees, unless the court finds that the motion was filed without the movant's first making a good faith effort to obtain the disclosure or discovery without court action, or that the opposing party's nondisclosure, response, or objection was substantially justified, or that other circumstances make an award of expenses unjust.
Rule 37 "places the burden on the disobedient party to avoid expenses including attorneys' fees by showing that his failure is justified or that special circumstances make an award of expenses unjust." JSC Foreign Econ. Ass'n Technostroyexport v. Int'l Dev. Trade Servs., No. 03 Civ. 5562, 2005 U.S. Dist. LEXIS 16772, at *34 (S.D.N.Y. Aug. 16, 2005) (quoting 1970 Advisory Committee Notes to Rule 37(b)). It is well settled that "Rule 37(a) provides, in fact, that the losing party on a motion to compel must pay reasonable expenses, barring extenuating circumstances."Id. (citations omitted).
Here, Banco Central first made a good faith effort to obtain discovery. The plaintiff sent a letter to the defendants, over one month after the discovery deadline had passed, requesting that the defendants respond to Banco Central's discovery requests and placing the defendants on notice that, if they continued to fail to respond, Banco Central would be forced to alert the Court to Principal Defendants' non-compliance at the September 5, 2006 status conference.
The defendants have not offered any valid justification, either in their memorandum or at oral argument, for why they have refused to comply with Banco Central's discovery requests. As discussed above, the defendants' wish to wait until the case is over and the defendants' financial difficulties do not constitute valid reasons for Principal Defendants' obdurate refusal to respond to Plaintiff's legitimate demands for post-judgment discovery.
Although Rule 37 permits sanctions to be imposed upon the non-compliant party's counsel, Banco Central seeks to impose sanctions only upon the Principal Defendants, not upon Mr. Cubitt. Thus, the Court will not sua sponte impose sanctions against Mr. Cubitt. See id. (imposing sanctions only upon the non-moving party, because the moving party did not affirmatively request sanctions to be imposed on non-moving party's counsel).
The Court also notes that Principal Defendants appear to threaten to disobey an Order of this Court directing the Principal Defendants to comply with the plaintiff's demands for discovery. The defendant's memorandum in opposition states as follows:
In the event Plaintiff's accompanying Motion [to dismiss the remaining claims without prejudice] is, in fact, granted Principal Defendants will appeal, post an appropriate bond through third parties and not answer any interrogatories or document production requests until the matter is finalized in the appellate court.
(Def. Mem. Opp. Mot. Compel, 2.) (emphasis added).
The Court takes this opportunity to place Principal Defendants and Mr. Cubitt on notice that the Court has broad discretion, pursuant to Federal Rule 37(b), 28 U.S.C. § 1927, and its inherent power to manage its own affairs, to impose a range of sanctions on a party and/or counsel who refuse to comply with discovery orders and otherwise abuse court process. See Source Enters. v. Tanners Ave. Corp., No. 04 Civ. 1788, 2004 U.S. Dist. LEXIS 22188 (S.D.N.Y. Nov. 1, 2004) (discussing the sources of authority from which the court derives the power to impose sanctions). In particular, the Court directs the defendants' and Mr. Cubitt's attention to 28 U.S.C. § 1927, which provides in relevant part that "any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." These sanctions may be awarded against an attorney for discovery abuses. Cielo Creations, Inc. v. Gao Da Trading Co., No. 04 Civ. 1952, 2004 U.S. Dist. LEXIS 11924 (S.D.N.Y. June 28, 2004). The Second Circuit has upheld the imposition of such sanctions on counsel for forcing plaintiffs to make successive motions to compel discovery. See Apex Oil Co. v. Belcher Co. of N.Y., 855 F.2d 1009, 1019 (2d Cir. 1988).
(3) Tulac's Motion to Dismiss
Banco Central has outstanding claims against Tulac for conversion and constructive trust. Tulac also has an extant counterclaim in interpleader. Tulac requests that the remaining claims against him be dismissed with prejudice and that his interpleader be dismissed as moot. Tulac argues that, since Banco Central has already obtained relief on the conversion claim from the Principal Defendants and now moves to dismiss its remaining claims, "there is no legal or factual basis for me to remain in the case." (Tulac Mem., 2.)
As a nominal defendant, Tulac "is not a real party in interest . . . because he has no interest in the subject matter litigation." SEC v. Cherif, 933 F.2d 403, 414-16 (7th Cir. 1991). Typically, a nominal defendant is made party to an action "solely because it is a party which can facilitate the relief sought."Glynn v. Gonda, No. 06 Civ. 5447, 2006 U.S. Dist. LEXIS 51854, at *1-2 (S.D.N.Y. July 25, 2006). See SEC v. Cavanagh, 445 F.3d 105, 109 (2d Cir. 2006) (noting that a "relief defendant (sometimes referred to as a nominal defendant) may be joined to aid the recovery of relief and has no ownership interest in the property which is the subject of litigation") (quoting SEC v. George, 426 F.3d 786, 798 (6th Cir. 2005); S.E.C. v. Colello, 139 F. 3d 674, 676 (9th Cir. 1998) ("The paradigmatic nominal defendant is `a trustee, agent, or depositary . . . [who is] joined purely as a means of facilitating collection.'") (citation omitted); Federal Ins. Co. v. Tyco Int'l Ltd., 422 F. Supp. 2d 357, 388 (2006) ("Parties that are considered nominal are those that have no personal stake in the outcome of the litigation and who are not necessary to an ultimate resolution.").
Tulac has been named as a nominal defendant in the caption of this case since the commencement of the action. Now that the funds in the Citibank accounts which Tulac maintained have been recovered by Banco Central and those accounts have been closed, Tulac's role as "trustee, agent, or depositary" of those funds has ended. Plaintiff's counsel stated at oral argument that Banco Centrale consents to dismissal with prejudice of the claims against Tulac and dismissal of Tulac's counterclaim in interpleader. Accordingly, the Court dismisses with prejudice Banco Central's claims against Tulac and dismisses with prejudice Tulac's counterclaim in interpleader.
Conclusion
Banco Central's remaining claims against the Principal Defendants, for constructive trust and civil conspiracy, are dismissed without prejudice. Banco Central's claims against Tulac are dismissed with prejudice. Tulac's counterclaim in interpleader also is dismissed with prejudice.
The Court orders the Principal Defendants to respond to Banco Central's interrogatories and request for document production no later than January 26, 2007. Failure to do so will result in the imposition of sanctions.
Banco Central shall submit to the Court, no later than January 26, 2 007, an accounting of the attorneys' fees and costs that it incurred in making its motion to compel discovery. If Principal Defendants wish to respond to the application for fees and costs, they may do so by the close of business on February 16, 2007. Fees and costs will be imposed upon the Principal Defendants as the Court deems appropriate, pursuant to Federal Rule 37(a), by a future Order.