10-3476
World Wide v. Shinkong


                              UNITED STATES COURT OF APPEALS
                                  FOR THE SECOND CIRCUIT
                                    ____________________

                                         August Term, 2012

(Argued: January 18, 2012                                      Decided: September 14, 2012)

                                        Docket No. 10-3476

                                      ____________________

WORLD WIDE POLYMERS, INC.,

                                Plaintiff-Counter-Defendant-Appellant,
                         v.

SHINKONG SYNTHETIC FIBERS CORPORATION,

                                Defendant-Counter-Claimant-Appellee.
                                     ____________________

Before: WALKER, LEVAL, and POOLER, Circuit Judges.

        Appeal from orders of the United States District Court for the Southern District of New

York (Loretta A. Preska, C.J.) striking plaintiff’s expert report and claim for money damages

after plaintiff attempted to file its expert disclosures seven weeks late, and later granting

defendant summary judgment. Because we find plaintiff lacked (1) sufficient notice of such

severe consequences for late filing; (2) an opportunity to respond before being sanctioned; and

because we find the penalty far exceeded the transgression, we vacate and remand for further

proceedings consistent with this opinion.

        Vacated and remanded in part, affirmed in part.

                                      ___________________

                                RICHARD DePALMA, Thompson Hine LLP (Joseph B. Koczko,
                               Jeanette Rodriguez-Morick, on the brief), New York, N.Y., for
                               Plaintiff-Counter-Defendant-Appellant World Wide Polymers, Inc.

                               TODD R. GEREMIA, Jones Day (Victoria Dorfman, Julie A.
                               Rosselot, on the brief), New York, N.Y., for Defendant-Counter-
                               Claimant-Appellee Shinkong Synthetic Fibers Corp.

POOLER, Circuit Judge:

       World Wide Polymers, Inc. (“WWP”) sued Shinkong Synthetic Fibers Corp. in

November 2003 seeking damages and injunctive relief arising out of the failure of a joint venture

between the parties. After an initial flurry of activity, the case lay dormant for nearly three years

before discovery resumed. The United States District Court for the Southern District of New

York (Loretta A. Preska, C.J.) granted several requests to extend the discovery schedule, but in

granting the last one expressly stated “[n]o further extensions will be granted.” WWP proceeded

to file its expert disclosure in support of its request for damages seven weeks late without first

seeking an extension of time from the district court. Shinkong objected to the late filing and

asked the district court to strike the expert report and WWP’s claim for damages. The district

court granted Shinkong’s request. Because the district court acted without providing WWP with

(1) sufficient notice of such severe consequences for late filing; and (2) an opportunity to

respond before being sanctioned; and because we find the penalty imposed far outweighed the

transgression, we vacate and remand for further proceedings consistent with this opinion.

                                         BACKGROUND

       WWP is a New Jersey-based distributor of polyethylene terephthalate (“PET”), the

       plastic

used for soft drink bottles. Shinkong is a Taiwan-based company that manufactures and supplies

PET.

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       In May 1998, the parties entered into a customer protection agreement wherein Shinkong

agreed to sell its product only through WWP to customers that WWP independently developed

on Shinkong’s behalf, subject to Shinkong approving those customers. To be approved by

Shinkong, WWP was required to (1) provide Shinkong with the customer’s name; (2) make a

sale of Shinkong PET to the customer; (3) obtain the customer’s approval of the use of Shinkong

PET to make its plastic bottles (for example, Pepsi bottlers could only use Pepsi-approved PET

to make bottles for Pepsi products); and (4) obtain Shinkong’s approval. WWP alleges that it

held up its end of the bargain, finding customers and obtaining the necessary product

certification approvals, only to have Shinkong sell directly to the customers WWP lined up,

cutting WWP out of the sales process. The relationship between the parties ended in late 2001.

       WWP filed its complaint on November 7, 2003, alleging breach of contract, breach of

fiduciary duty, tortious interference with business relations, and unfair and deceptive trade

practices. WWP sought retrospective damages, punitive damages and injunctive relief. The

original discovery schedule called for WWP to serve its expert witness report by February 28,

2005, with all expert discovery completed by April 29, 2005. Both deadlines went unmet. The

docket indicates the matter went virtually dormant between September 2004 and May 2007 until

revived by an inquiry from the district court. Discovery resumed, although the process was not

without conflict. After an attempt to settle failed, the district court granted the parties’ request

for permission to extend discovery to February 28, 2009. In endorsing the schedule, the district

court noted that “the February 28 discovery cut-off date will not be changed.” The district court

ordered a conference for January 14, 2009. However, WWP’s counsel failed to appear, blaming

his recent firm change. The district court re-scheduled the conference for January 20, 2009. In

advance of the conference, Shinkong asked the court for permission to file a Rule 41(b) motion


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to dismiss the action for failure to prosecute. The district court did not grant permission, and

there is no indication in the record that the parties discussed the issue with the district court.

       On February 19, 2009, WWP — with the consent of Shinkong — asked the district court

to extend the discovery deadline to April 30, 2009, explaining:

               As Your Honor may recall, during the January 20 conference call,
               WWP raised the issue of needing a damages expert at trial. Your
               Honor observed that the damages testimony might be of such a
               nature that it could be put in at trial by WWP’s principals, and the
               parties agreed. However, shortly thereafter, we realized that nearly
               all of the documents pertinent to a damages calculation have been
               designated “attorney’s eyes only,” and therefore may not be
               reviewed by WWP’s principals under the Stipulated Protective
               Order in this case. Shinkong has consented to an adjournment of
               the discovery cut off to provide time for WWP to retain an expert
               and to make appropriate disclosures. WWP is currently working to
               engage an appropriate expert witness.

The district court granted the adjournment.

       The day before the discovery cutoff expired, WWP —again with the consent of Shinkong

—asked the district court to extend the close of discovery to August 21, 2009, with WWP’s

expert disclosures due on June 10, 2009. The district court granted the request, but warned “[n]o

further extensions will be granted.” WWP did not make its expert disclosures until July 29, 2009

- seven weeks after the June 10, 2009 deadline. On August 14, 2009, WWP wrote to the district

court, explaining that it did not serve its expert report on time because “[t]he preparation and

delivery of plaintiff’s expert report took longer than anticipated.” The letter, in the form of a

status update to the district court, suggested deadlines for Shinkong’s expert production, but

noted the Shinkong had not responded to WWP’s request for dates. Shinkong responded on

August 20, 2009, with a letter reciting the litany of stops and starts in litigating the case, and

ended by asking the court to sanction WWP by striking the late expert report and WWP’s request

for damages.


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        The next day — before WWP responded to Shinkong’s demand for sanctions — the

district court issued an order striking both WWP’s expert report and request for damages. The

district court stated, “[h]aving reviewed counsel’s recent letters (attached), I now hold that ‘no

further extensions’ means ‘no further extensions’ ” WWP then moved for reconsideration. The

district court, after full briefing, denied the motion:

                If the Court were to reconsider the August 24 order, it would be
                adhered to. “[D]iscovery orders are meant to be followed. A party
                who flouts such orders does so at its peril.” Bambu Sales v. Ozak
                Trading, 58 F.3d 849, 854 (2d Cir. 1995) (internal quotation marks
                omitted). Here, the Court was simply enforcing its order of April
                30, 2009 [dkt. no. 32] that “[n]o further extension will be granted.”
                As noted in the August 24 order, “‘no further extensions means no
                further extensions.”

        Shinkong then moved for summary judgment on WWP’s request for a permanent

injunction — its sole remaining claim for relief — and on Shinkong’s counterclaim for breach of

contract. The district court granted the motion dismissing WWP’s request for injunctive relief

because “the loss of customers and business resulting from the breach of an exclusive

distributorship agreement is typically compensable in monetary damages.” The district court also

found that even if injunctive relief were available, it would enter summary judgment on the

claim for injunctive relief based on the merits. It denied the motion with regard to Shinkong’s

counterclaim. The parties stipulated to the counterclaim’s dismissal, without prejudice to

renewal if WWP prevailed on appeal, and this appeal followed.



                                             ANALYSIS

        I.      Sanctions.

        Federal Rule of Civil Procedure 37 governs the district court’s procedures for enforcing

discovery orders and imposing sanctions for misconduct.

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       Rule 37 provides in relevant part that:

               If a party or a party's officer, director, or managing agent . . . fails
               to obey an order to provide or permit discovery, . . . the court
               where the action is pending may issue further just orders. They
               may include the following:

               (I) directing that the matters embraced in the order or other
               designated facts be taken as established for purposes of the action,
               as the prevailing party claims;
               .. .
               (vi) rendering a default judgment against the disobedient party; or
               (vii) treating as contempt of court the failure to obey any order
               except an order to submit to a physical or mental examination.

Fed. R. Civ. P. 37(b)(2)(A). Imposing sanctions pursuant to Rule 37 “is within the discretion of

the district court and a decision to dismiss an action for failure to comply with discovery orders

will only be reversed if the decision constitutes an abuse of that discretion.” John B. Hull, Inc. v.

Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176 (2d Cir. 1988).

       In “evaluating a district court’s exercise of discretion” to impose Rule 37 sanctions, we

consider a number of factors, including: “(1) the willfulness of the non-compliant party or the

reason for noncompliance; (2) the efficacy of lesser sanctions; (3) the duration of the period of

noncompliance; and (4) whether the non-compliant party had been warned of the consequences

of . . . noncompliance.” Agiwal v. Mid Island Mortg. Corp., 555 F.3d 298, 302 (2d Cir. 2009)

(internal quotation marks omitted) (alteration in original). “Because the text of the rule requires

only that the district court’s orders be ‘just,’ however, and because the district court has ‘wide

discretion in imposing sanctions under Rule 37,’ these factors are not exclusive, and they need

not each be resolved against the party challenging the district court's sanctions for us to conclude

that those sanctions were within the court’s discretion.” S. New England Tel. Co. v. Global NAPs

Inc., 624 F.3d 123, 144 (2d Cir. 2010) (citation omitted).

       The district court’s choice of striking WWP’s request for damages reflects a harsh


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sanction, one akin to dismissing the action altogether. Accordingly, we apply the same standards

as we would have if the district court dismissed the case instead. Dismissal “‘is a drastic remedy

that should be imposed only in extreme circumstances,’ . . . usually after consideration of

alternative, less drastic sanctions.” John B. Hull, 845 F.2d at 1176 (quoting Salahuddin v.

Harris, 782 F.2d 1127, 1132 (2d Cir. 1986)). Finally, “[i]n deciding on the suitability of lesser

sanctions, and whether the sanctions should be aimed primarily against the party or the attorney,

it can be important for the district court to assess the relative roles of attorney and client in

causing the delay, as well as whether a tactical benefit was sought by the [misconduct].” Dodson

v. Runyon, 86 F.3d 37, 40 (2d Cir. 1996).

        Bereft of findings of fact or legal analysis by the district court, we cannot find imposing

the severe sanction of dismissing WWP’s claim for damages was an appropriate exercise of the

district court’s discretion. Even assuming WWP acted willfully in submitting its expert report

seven weeks late without first seeking the court’s permission, the district court provided no

analysis to support its conclusion that striking WWP’s request for damages was the appropriate

remedy for the infraction. First, there is no indication in the record that the district court

considered any lesser sanctions. Second, while this case was prosecuted in fits and starts, with

numerous requests for extensions along the way, the record indicates this was the first time

WWP missed a deadline without first consulting with opposing counsel and jointly requesting an

extension of time from the court.

        Most critically, there is no indication in the record that WWP had any notice that a

possible consequence of late filing could be striking its request for damages and no opportunity

to argue its case before the court prior to such harsh action being taken against it. Parties must

be given notice and an opportunity to respond before a cause of action, or potential remedy, is



                                                   7
dismissed as a sanction for failure to comply with court orders. See, e.g., Valentine v. Museum

of Modern Art, 29 F.3d 47, 49-50 (2d Cir. 1994) (dismissal appropriate where plaintiff’s

“sustained and willful intransigence in the face of repeated and explicit warnings from the court

that the refusal to comply with court orders to appear for his deposition would result in the

dismissal of his action”); John B. Hull, 845 F.2d at 1177 (upholding dismissal of complaint

where district court issued two warnings that failure to obey discovery orders would result in

dismissal).

       While the district court did warn the parties that there would be “no further extensions,”

that is not sufficient to place a party on notice that its request for damages might be stricken.

Furthermore, because the attorney’s failure was one of sloppiness or negligence and did not seek

an unfair advantage over the adversary in the litigation, the late filing of the report did not

warrant so drastic a sanction of the plaintiff (as opposed to the lawyer). Thus, it was not a

transgression warranting the striking of plaintiff’s expert report, much less striking its claim for

damages. See Dodson, 86 F.3d at 39. (“[t]he remedy of [of dismissal] is pungent, rarely used,

and conclusive,” and is employed only where the district court “is sure of the impotence of lesser

sanctions.”).

       We understand the district court’s frustration with the lackadaisical manner in which this

case was litigated. However, the district court failed to provide any analysis as to why the first

sanction meted out was one of the most severe sanctions possible, and the record before us

presents no plausible explanation. See Shcherbakovskiy v. Da Capo Al Fine, Ltd., 490 F.3d 130,

140 (2d Cir. 2007) (“With no findings or explanation from the district court, we cannot conclude

that the sanction of dismissal of the complaint and granting of the counterclaims was

appropriate.”). When an attorney’s misconduct or failing does not involve an attempt to place



                                                  8
the other side at an unfair disadvantage, any sanction should ordinarily be directed against the

attorney rather than the party, absent strong justification. While we do not doubt that a sanction

is appropriate, the facts before us suggest that sanctions should be imposed on the attorney, and

not bar WWP from a full presentation of its case.

        On remand, the district court is free to consider the issue of sanctions anew, so long as

such sanctions are consistent with this opinion.

       II.     Summary judgment.

       WWP also appeals from the district court’s grant of summary judgment to Shinkong on

WWP’s claim for a temporary and permanent injunction — the sole remaining claim after the

district court struck the request for damages. As set forth in eBay Inc. v. MercExchange, L.L.C.:

               a plaintiff seeking a permanent injunction must satisfy a
               four-factor test before a court may grant such relief. A plaintiff
               must demonstrate: (1) that it has suffered an irreparable injury; (2)
               that remedies available at law, such as monetary damages, are
               inadequate to compensate for that injury; (3) that, considering the
               balance of hardships between the plaintiff and defendant, a remedy
               in equity is warranted; and (4) that the public interest would not be
               disserved by a permanent injunction.

547 U.S. 388, 391 (2006).

       The district court correctly concluded WWP did not suffer irreparable harm. When the

alleged harm is the loss of customers and business as a result of a breached agreement for an

exclusive distributorship, that harm is compensable with money damages. Jackson Dairy, Inc. v.

H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir. 1979). There is no question that WWP’s

injuries are compensable with money damages. Further, as a practical matter, nine years have

passed between the filing of the complaint and today. After the passage of so much time, an

injunction cannot provide plaintiff any useful relief. The record makes clear that WWP was in

no hurry to litigate this action — it never sought a preliminary injunction or an expedited


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discovery schedule, nor did it take any action to move the case along quickly, as one might

expect of a party allegedly suffering irreparable harm. There is simply no wrong here than an

injunction can make right. We express no opinion on the remainder of the district court’s

analysis, and on remand the district court is free to revisit the issue of summary judgment anew.

                                         CONCLUSION

       For the reasons given above, we (1) vacate the district court’s decision to strike WWP’s

expert report and claim for damages; (2) affirm the grant of summary judgment on WWP’s claim

for injunctive relief; and (3) remand for further proceedings consistent with this opinion.




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