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Coan v. Dunne

United States District Court, D. Connecticut

April 16, 2019

RICHARD M. COAN, Plaintiff-Trustee,
v.
SEAN DUNNE et al., Defendants.

          ORDER DENYING TRUSTEE'S MOTION FOR CONTEMPT AND IMPOSING SANCTIONS PURSUANT TO FED. R. CIV. P. 37(E)(1)

          JEFFREY ALKER MEYER, UNITED STATES DISTRICT JUDGE

         Plaintiff-Trustee Richard M. Coan has moved for contempt and discovery sanctions against debtor-defendant Sean Dunne. Doc. #70. In essence, the Trustee accuses Dunne of willful failure to preserve and produce emails from certain email accounts as well as other discovery misconduct.

         I referred the Trustee's motion to U.S. Magistrate Judge Robert M. Spector, who pursuant to 28 U.S.C. § 636(e)(6)(B) entered an order certifying facts to support a finding of contempt and recommended a range of sanctions including an award of attorney's fees and costs, an adverse inference instruction, and a finding of waiver of privilege. See Doc. #225. Now before me are Dunne's objections to the Magistrate Judge's ruling, as well as objections from the remaining defendants. For the reasons I explain below, I will deny the Trustee's motion for contempt but I will impose sanctions on Dunne for his discovery misconduct pursuant to Federal Rule of Civil Procedure 37 and the Court's inherent authority.

         Background

         This is a financial fraud case that is related to bankruptcy proceedings in Connecticut and the Republic of Ireland involving real estate developer Sean Dunne. See Coan v. Dunne, 2019 WL 302674, at *1-*2 (D. Conn. 2019) (generally describing the history of this case). The facts and posture of this case are well-known to the parties. The pertinent facts laid out here are generally taken from those certified by Judge Spector to which the parties have not objected but as supplemented by consideration of additional factual submissions that have been filed subsequent to Judge Spector's ruling.

         Since 2010, Dunne has maintained several email accounts. Dunne claims that in 2011 or 2012 he stopped using two of these accounts: seanpa@mountbrook.ie and seanbb@mountbrook.ie. Doc. #225 at 17. Dunne swears that he stopped using the seanpa@mountbrook.ie account because his personal assistant had stopped working for him, and that he closed the seanbb@mountbrook.ie account because the Mountbrook server had been functioning poorly while he was in the United States, consequently frustrating his email use. Doc. #274-1 at 36 (¶¶ 8-9).

         Dunne and his agent James Ryan both swear that the Mountbrook server did not provide for cloud-based email access; these emails were stored on a private server, and Ryan abandoned the server in a Dublin building that Dunne gave up to a creditor in June 2013. Doc. #274-1 at 37 (¶¶ 9-11), 86-87 (¶¶ 1-3). Dunne does not possess the server and does not have access to the two Mountbrook email accounts that were stored on the server. Id. at 37 (¶ 10).

         Dunne transitioned from the private-server Mountbrook email service to Google email. Id. at 36-37 (¶ 9). Google's “Gmail” service is a web-based email service that does not involve storage of emails exclusively on private servers. The first Gmail account that Dunne opened, in approximately May 2011, was seandunnebb@gmail.com. Id. at 37 (¶ 9). According to documents obtained by the Trustee from third party sources, Dunne used the seandunnnebb@gmail.com account to communicate with Seamus Reddan, his agent for the sale of Walford, a large property in Ireland that the Trustee alleges Dunne fraudulently transferred. Doc. #225 at 19; see Doc. #189 at 32 (¶¶ 145-50) to Coan v. Killilea, No. 15-05019 (Bankr. D. Conn. 2016).

         In June 2013, Google informed Dunne that there had been an attempt to hack the account, and so Dunne closed this account and created a second Gmail account: seandunne365@gmail.com. Id. at 37 (¶ 11). According to Dunne, concerns and notifications about hacking continued, which caused him to close this second account in approximately December 2013 and then to open a third Gmail account that he continues to use to this day. Ibid.

         To corroborate his claim about hacking concerns, Dunne has produced a copy of a Google notification that was sent to him in June 2013 advising him that his seandunnebb@gmail.com account had been locked because of too many log-in attempts and his contemporaneous forwarding of this advisory to a colleague stating: “Vinny, call me later as somebody trying to hack my email account. May need to close it down:” Doc. #274-1 at 89. Similarly, he received another warning from Google to the seandunne365@gmail.com account on December 16, 2013. Id. at 91.

         In short, Dunne had four email accounts that were either discarded or closed by Dunne by the end of 2013. By that point in time, Dunne had been sued in 2012 in Connecticut state court by NALM and had also filed for bankruptcy in Connecticut in March 2013. In June 2013, Dunne was subject to formal, on-the-record interrogation by the Trustee at which time he was asked and answered questions about his email accounts. Doc. #274-1 at 17-27. He was questioned again in December 2013 at which time he expressed concern that “somebody was hacking my e-mail account.” Id. at 31.

         Despite the pendency of the NALM state court action, the federal bankruptcy, and formal questioning in 2013 about the emails by the Trustee, neither the Trustee nor any other creditor made any request to Dunne in 2012 or 2013 to preserve his emails. It was not until several years later in 2016 that the Trustee first served a discovery demand for Dunne's emails.

         On July 25, 2016, the Trustee subpoenaed Dunne for a wide range of documents including his emails. Doc. #225 at 14. In addition, this was the first discovery request for documents related to Walford. Id. at 20. When Dunne did not comply with the July 2016 subpoena, the Trustee moved to compel production of documents that the July 2016 subpoena requested, and by February 2017, the Bankruptcy Court had ordered Dunne to produce responsive documents and file an affidavit certifying that all responsive documents in Dunne's possession and control had been produced to the Trustee. Id. at 14-15. Dunne then certified in February 2017 that he had conducted a good faith search to find all responsive documents, and that he had provided them for production. Id. at 15. It stands to reason that, because the email accounts at issue here were either closed or unavailable to Dunne by the end of 2013, it was not false as to these email accounts for Dunne to have certified in February 2017 that he had conducted a good faith search to locate and produce documents responsive to the subpoena but without producing these emails.

         The Trustee renewed his motion to compel and for contempt in July 2017, and in August 2017, the Bankruptcy Court found Dunne in contempt and ordered him to produce all documents responsive to the July 2016 subpoena, including a list of all email accounts he had used since the start of 2010. Ibid. The Bankruptcy Court also ordered the Trustee to serve a copy of the order on Google and AT&T so that those companies could produce emails from two of Dunne's email accounts with Dunne's cooperation. Ibid. Dunne then appealed the Bankruptcy Court's contempt order. Ibid. While Dunne's appeal was pending, Google informed the Trustee in November 2017 that its users could obtain and produce account content themselves or by using the Google Takeout feature. Ibid.

         The record, however, is not clear whether this feature existed in 2013 at the time that Dunne closed two of his Gmail accounts or whether this feature would have allowed Dunne in 2017 to recover email accounts that had been closed many years before. To the contrary, Google further advised the Trustee in January 2018 that “[t]he seandunnebb@gmail.com account was deleted by the user and purged by Google in 2013.” Id. at 18-19. The reasonable inference from this record is that Dunne could have done nothing at the time he was served with the July 2016 subpoena or later to recover the seandunnebb@gmail.com and seandunne365@gmail.com accounts that he had closed in 2013. Nevertheless, in December 2017, the Trustee moved in the Bankruptcy Court for further contempt against Dunne on the ground that Dunne had neither used Google Takeout, nor executed a consent order that Google had provided him, nor taken any further steps to produce email account content. Id. at 15-16.

         In January 2018, the Bankruptcy Court entered an order finding Dunne in further contempt, ordering him to submit a sworn affidavit or declaration regarding the document requests he had not yet complied with, and to file a privilege log of any withheld documents or communications that would allow the parties to assess Dunne's claims of privilege. Id. at 16. Dunne filed an unsworn certification on February 9, 2018, listing his email accounts at seanpa@mountbrook.ie; seanbb@mountbrook.ie; seandunnebb@gmail.com; seandunne365@gmail.com; and seandunne366@gmail.com. Ibid. He claimed he only had access to the seandunne366@gmail.com account, from which he produced 1, 800 pages of email. Ibid.

         On February 23, 2018, Dunne produced to opposing counsel but did not file with the Bankruptcy Court a privilege log listing 2, 518 documents as privileged. Ibid. Although it appears that Dunne was supposed to and should have filed this log with the Bankruptcy Court, it is hard to understand the Trustee's claim of prejudice in light of the fact that the Trustee timely received a copy of this privilege log.

         The District Court affirmed the Bankruptcy Court's contempt findings on September 27, 2018. Ibid.; see In re Dunne, 2018 WL 4654698 (D. Conn. 2018) (Shea, J.). Judge Shea affirmed the finding that Dunne had failed to comply with the July 2016 subpoena, 2018 WL 4654698 at *5, affirmed the finding that Dunne was unable to show why he was unable to produce records from all of his email accounts, id. at *7, *9, and affirmed the Bankruptcy Court's order directing the Trustee to subpoena Google and AT&T, id. at *9. Judge Shea remanded for consideration whether Dunne had acted in bad faith to warrant an award of attorney's fees. Id. at *8-*9.

         In fall 2018, Dunne hired an IT consultant to ensure that the seandunne366@gmail.com account had been fully searched. Doc. #225 at 21. The parties have since disputed the appropriate search terms for the IT consultant to use. See Doc. #304 at 24-25; Doc. #329 at 10.

         On January 2, 2019, other defendants produced numerous emails from the seandunne366@gmail.com account that Dunne had not produced. Doc. #225 at 21. The Trustee has also learned that Dunne regularly communicates via text, and Dunne has conceded that while the July 2016 subpoena requests text messages, he automatically deleted his texts and so has only produced texts that postdate September 1, 2018. Ibid. On January 18, 2019, Dunne filed revised and supplemental privilege logs with the Court. Id. at 22.

         Judge Spector concluded that Dunne's production continued to be incomplete, that his privilege logs continued to list nonprivileged material, and that Dunne had unacceptably delayed in retaining an IT consultant. Id. at 24. Judge Spector then concluded that on this basis Dunne should be held in further contempt, and went on to consider appropriate sanctions. Judge Spector recommended that Dunne be held responsible for attorney's fees involved with the Trustee's contempt motion, the cost of searching Dunne's remaining electronically stored information for responsive and nonprivileged documents to the July 2016 subpoena, an adverse inference about Walford arising from Dunne's deleted emails, and a waiver of Dunne's privilege as to any new documents discovered between now and trial. Id. at 25-30.

         Since both Judge Shea's and Judge Spector's prior rulings, Dunne retained new counsel who has substantially supplemented the factual record to shed light on on Dunne's actions and his state of mind with respect to his closing of the email accounts. Docs. #274, #329. It is this additional information that leads me in this ruling not to view Dunne's actions quite as unfavorably as they may have been viewed by both Judge Shea and Judge Spector. This is not to excuse Dunne for his prior failure to comply with discovery demands, but my focus remains on evaluating Dunne's actions and state of mind in light of the current record before me.

         Discussion

         The Trustee has moved for the Court to hold Dunne in contempt pursuant to Federal Rules of Civil Procedure 37 and 45 as well as under the Court's inherent powers. Doc. #70 at 1. Federal Rule of Civil Procedure 37(b)(2)(A) empowers the Court to issue discovery sanctions in its discretion “[i]f a party . . . fails to obey an order to provide or permit discovery.” Among the permissible sanctions a court may impose are treating as a contempt of court the failure to obey a discovery order. Id. at 37(b)(2)(A)(vii). Similarly, “a valid subpoena is a ...


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