Date: 03-04-2016

Case Style: Synecology Partners L3C v. Business RunTime, Inc., et al.

Case Number: 2016 VT 29

Judge: Harold Eaton, Jr.

Court: Vermont Supreme Court

Plaintiff's Attorney: Lawrence Kenney, Franklin Kochman

Defendant's Attorney: Craig S. Nolan, Kevin A. Lumpkin

Description: In 2008, SynEcology’s founders, Edward Grossman and Jeanne Conde, sold the
company’s assets to Lawrence Kenney. Grossman and Conde subsequently started a new
software company, Business RunTime. In August 2011, SynEcology filed a civil complaint in
Chittenden Superior Court against Business RunTime, Edward Grossman, Jeanne Conde, and
two former SynEcology employees, Thomas Reynolds and Toby Leong, for alleged fraud, theft
of intellectual property, industrial sabotage, computer crimes, burglary, larceny, willful breaches
of nondisclosure and employee contracts, theft and disclosure of trade secrets, and tortious
interference with contractual relations. What followed was a protracted discovery phase,
culminating in Business RunTime’s motion for contempt, sanctions, and attorneys’ fees, filed on
July 23, 2014, which ultimately resulted in dismissal of SynEcology’s complaint.
¶ 3. On April 17, 2012, Business RunTime filed its first set of interrogatories and
production requests, due May 17, 2012. Among other things, Business RunTime specifically
requested all emails relevant to SynEcology’s claims.1 On May 22, 2012, and again on June 1,
2012, Business RunTime made inquiries as to when it could expect a response to the production
request. On June 20, 2012, Business RunTime moved to compel SynEcology to respond to the
interrogatories and production requests. The motion was granted on August 3, 2012.
¶ 4. SynEcology filed its first set of responses on August 31, 2012, three months after
the deadline for Business RunTime’s initial request. Those responses contained a CD with PDF
files purporting to include all relevant emails. Some of the emails were in chronological order,
although none were in native format2, appearing instead in list form with no indication as to
where one email ended and another began. Although the PDF files included some emails from
Mr. Kenney’s work account (the Outlook account) and the inboxes of two SynEcology
employees, there was only one email from the year 2010, and there were no emails from Mr.
Kenney’s personal account (the Comcast account). In addition to filing its responses,
Business RunTime requested “all emails constituting, showing, referring, or relating to any of the allegations in the Complaint” and reserved “the right to request native electronic formats, with all metadata, of any emails that are produced.”
2 In the context of software applications, native format refers to the format in which the file was created.
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SynEcology objected to the production of some emails “as to attorney-client communication,
communication with retained experts and spousal communications,” and indicated that
“[w]ithout waiving the objection and subject to the objection,” it would “provide the emails
requested, subject to a protective order.”
¶ 5. On October 17, 2012, Business RunTime offered SynEcology a proposed
protective order covering information and documents that genuinely fell within the scope of
Vermont Rule of Civil Procedure 26(c)(7), but noted its skepticism that all of the materials
withheld truly fell within the scope of the Rule and reserved the right to object to discovery
materials designated as privileged. Business RunTime specifically requested the native
electronic formats of the emails produced, including the complete email inboxes of Mr. Kenney
and the two relevant SynEcology employees.
¶ 6. On February 25, 2013, SynEcology signed the protective order. On March 1,
2013, nearly eleven months after the initial request, SynEcology responded to the remainder of
Business RunTime’s requests, indicating that by the next week, it would “produce a CD with as
many of the documents as [it] can assemble in native format. This will include all of the Outlook
files.”
¶ 7. Four months later, on June 5, 2013, SynEcology supplemented its discovery
responses, providing a CD with emails from Mr. Kenney, Thomas Barkley, and Joseph Luo, but
no emails from Mr. Kenney’s Comcast account, and no emails in native format. Eighty-six of
the emails provided on June 5 were redacted on grounds of privilege. SynEcology indicated the
date, time, sender, and recipient of the privileged emails, but provided no privilege log.
¶ 8. Following this supplemental response, Business RunTime made three separate
attempts to obtain the emails in native format, as well as the remainder of the emails dated 2010
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from Mr. Kenney’s Outlook account and all relevant emails from his Comcast account. These
attempts, in December 2013, February 2014, and March 2014, proved fruitless.
¶ 9. On March 4, 2014, nearly two years after its initial production request, Business
RunTime filed a second motion to compel production. The trial court granted the motion on
May 22, 2014, ordering SynEcology to produce, by July 1, 2014, all emails “constituting,
showing, referring or relating to any of the allegations in the complaint” in native format, and a
privilege log identifying emails withheld on the grounds of privilege.
¶ 10. On July 3, 2014, SynEcology produced emails from Mr. Kenney’s and two other
SynEcology employees’ Outlook accounts, including 1881 emails from 2010, but no emails from
Mr. Kenney’s Comcast account and no privilege log. SynEcology provided no explanation as to
why some of the 2010 emails were withheld in its initial production response—the number had
risen from one email produced in August 2012 to 1881 emails produced in July 2014.
¶ 11. Business RunTime made two further requests to SynEcology for supplemental
production of emails from Mr. Kenney’s Comcast account and a privilege log. On July 25, 2014,
SynEcology responded to these requests, indicating that there were no relevant emails from Mr.
Kenney’s Comcast account. Although SynEcology promised to provide a privilege log by the
following week, in early August 2014 SynEcology indicated that it would send the requested
emails without a privilege claim. SynEcology subsequently produced forty-eight of the eighty
six emails previously claimed as privileged.
¶ 12. On July 23, 2014, Business RunTime filed a motion for contempt and sanctions,
seeking dismissal as a result of SynEcology’s continuing failure to produce all relevant emails
from Mr. Kenney’s Comcast account and a privilege log. On August 13, 2014, SynEcology
responded to the motion, insisting that it had turned over all of the documents available to
establish its case and prove its damages. In addition, SynEcology asserted that Mr. Kenney’s
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Comcast account was duplicative of his Outlook account, and that it had provided all of the
emails previously claimed as privileged. On September 10, 2014, SynEcology’s attorney,
Jerome F. O’Neill, filed two additional documents with the trial court: a supplemental correction,
acknowledging factual misrepresentations in their August 13 filing denying the existence of
relevant emails in Mr. Kenney’s Comcast account, and a motion for leave to withdraw as
counsel. A hearing on the pending motions was scheduled for September 29, 2014.
¶ 13. At the hearing, the motion for leave to withdraw dominated the proceedings.
Business RunTime stated once again, however, that by its motion, it was seeking dismissal,
reiterating for the trial court the history of the protracted discovery process leading up to that
hearing. Business RunTime also stated that, as a result of SynEcology’s persistent
misrepresentation of the facts regarding discovery, Business RunTime had lost faith in
SynEcology’s ability to comply truthfully with the discovery order.
¶ 14. The trial court granted attorney O’Neill’s motion to withdraw and granted
SynEcology additional time to obtain counsel and submit additional filings on the motion. On
December 3, 2014, attorney John F. Evers appeared on behalf of SynEcology, and on December
16, 2014, SynEcology filed its supplemental opposition to Business RunTime’s motion for
contempt and sanctions. In that supplemental opposition, SynEcology reiterated that previous
statements concerning the relevance of emails in the Comcast account were incorrect and
indicated an ongoing attempt to locate any such emails. SynEcology also indicated its intent to
provide a privilege log.
¶ 15. On December 30, 2014, SynEcology filed a discovery certificate, producing what
it claimed to be all emails requested in April 2012. Specifically, SynEcology provided a CD
containing nonprivileged emails from Mr. Kenney’s Comcast account and indicated that it
would, at a later date, provide a privilege log identifying those emails from the Comcast account
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that were withheld under a claim of privilege. In its brief, SynEcology states that it produced, to
the best of its knowledge, all emails required to be produced by the May 22, 2014 order,
including the thirty-eight emails referenced in the contempt ruling. The record, however, does
not reflect the number of emails produced, nor does it indicate the date, sender, recipient,
contents, or subject lines of the emails included on the CD. Furthermore, there is no record that
SynEcology produced a privilege log at any time following the December 30, 2014 discovery
certificate concerning the emails that it was not producing under claim of privilege.
¶ 16. On February 26, 2015, the trial court granted Business RunTime’s motion for
contempt and sanctions, finding that SynEcology “failed to comply with the court’s May 2014
order.” In reviewing the two-and-a-half year discovery process, the trial court noted
SynEcology’s failure to explain the numerous discrepancies in its responses to production
requests, including the production of 1880 additional emails from 2010, the intentional
misrepresentation as to the existence of relevant emails from Mr. Kenney’s Comcast account,
and the failure to produce a privilege log, which had yet to be produced as of February 2015.
For these reasons, the trial court concluded that SynEcology “purposefully and knowingly, and
in bad faith, failed to provide accurate responses to the document requests for the emails from
the Comcast account.” As a result, SynEcology’s complaint was dismissed. This appeal
followed.
¶ 17. On appeal, SynEcology contends that the trial court erred in dismissing its claims
for four reasons: (1) the circumstances called for a less drastic sanction than dismissal; (2) the
dismissal was not related to a claim at issue in the discovery order; (3) the dismissal was based
on objectively erroneous premises; and (4) the dismissal was without prior warning.
¶ 18. Under Vermont Rule of Civil Procedure 37, the trial court has discretion to
sanction a party in varying degrees of severity for “fail[ure] to obey an order to provide or permit
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discovery.” V.R.C.P. 37(b)(2). If warranted by a finding of gross indifference, bad faith, or
willfulness, coupled with substantial prejudice to the moving party, the trial court may dismiss
the action or proceeding. John v. Med. Ctr. Hosp. of Vt., Inc., 136 Vt. 517, 519, 394 A.2d 1134,
1135 (1978). Imposition of sanctions under this rule “is necessarily a matter of judicial
discretion” that is “not subject to appellate review unless it is clearly shown that such discretion
has been abused or withheld.” Id. at 519, 394 A.2d at 1135; accord State v. Lee, 2007 VT 7,
¶ 15, 181 Vt. 605, 924 A.2d 81 (mem.) (“As with other discovery rulings, the decision to impose
sanctions for failure to comply with an order compelling discovery lies well within the trial
court’s discretion.” (quotation omitted)).
¶ 19. Notwithstanding this broad discretion, we have held that “where the ultimate
sanction of dismissal is invoked it is necessary that the trial court indicate by findings of fact that
there has been bad faith or deliberate and willful disregard for the court’s orders, and further, that
the party seeking the sanction has been prejudiced thereby.” Med. Ctr. Hosp. of Vt., Inc., 136
Vt. at 519, 394 A.2d at 1135. “The imposition of the dismissal sanction cannot be imposed
merely as punishment for failure to comply with the court’s order.” Id. Rather, the party’s
failure must evidence “flagrant bad faith” and “callous disregard of responsibilities counsel owe
to the court and to their opponents.” Id. at 520, 394 A.2d at 1135 (citing Nat’l Hockey League v.
Metropolitan Hockey Club, Inc., 427 U.S. 639, 642 (1976)); accord Rathe Salvage, Inc. v. R.
Brown & Sons, Inc., 2008 VT 99, ¶ 12, 184 Vt. 355, 965 A.2d 460 (“Despite trial courts’
otherwise broad discretion to impose discovery sanctions . . . litigation-ending sanctions are
reserved for only the most flagrant cases and are inappropriate where failure to produce
discovery is due to an inability fostered by circumstances outside of the party’s control.”).
Failure to comply with the trial court’s discovery orders may be deemed willful when
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the court’s orders have been clear, when the party has understood them, and when the party’s non-compliance is not due to factors beyond the party’s control. In addition, a party’s persistent refusal to comply with a discovery order presents sufficient evidence of willfulness, bad faith or fault.
Handwerker v. AT&T Corp., 211 F.R.D. 203, 209 (S.D.N.Y. 2002) (citations and internal
quotations marks omitted), aff’d, 93 F.App’x 328 (2d Cir. 2004) (mem.).
¶ 20. Further, a party is prejudiced if the failure impairs their “ability to go to trial or
threaten[s] to interfere with the rightful decision of the case.” Adriana Intern. Corp. v. Thoeren,
913 F.2d 1406, 1412 (9th Cir. 1990) (citation omitted). The “[f]ailure to produce documents as
ordered . . . is considered sufficient prejudice.” Id. Although the law presumes prejudice from
unreasonable delay, the presumption may be rebutted, and unless frivolous, will shift the burden
to the moving party to show at least some actual prejudice. In re Eisen, 31 F.3d 1447, 1452-53
(9th Cir. 1994) (citation omitted). It is then for the nonmoving party to persuade the trial court
that “the claims of prejudice are either illusory or relatively insignificant when compared to the
force of his excuse.” Id. at 1453 (quotation omitted).
¶ 21. SynEcology’s contention that the circumstances called for a less drastic sanction
than dismissal is incorrect because the trial court’s order includes findings that describe a pattern
of conduct that satisfies the standard articulated in Med. Ctr. Hosp. of Vt., Inc., and therefore
warrants dismissal. The trial court reviewed the thirty-four month long discovery process, which
included multiple requests for supplemental production by Business RunTime and two motions
to compel. In drawing the conclusion that SynEcology acted in bad faith, the trial court
specifically noted SynEcology’s repeated insistence that it had produced all emails from the
Comcast account, which it later retracted, without explanation, when that insistence was shown
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to be false.3 With regard to its finding that SynEcology acted with deliberate and willful
disregard for the court’s orders, the trial court noted SynEcology’s failure to produce a privilege
log, despite promising to do so on at least three occasions and being compelled to do so by a
court order. Further, the trial court found Business RunTime was prejudiced by this behavior
because: (1) the case was delayed for more than two years; (2) it was required to engage in
unneeded motion practice to obtain materials it was properly entitled to; and (3) it suffered
increased attorneys’ fees. Considering this, combined with SynEcology’s repeated failures to
comply with the production requests, including its failure to produce a privilege log, its
numerous unmet promises to do so, and the production of additional emails without explanation,
the trial court properly concluded that SynEcology “purposefully and knowingly, and in bad
faith, failed to provide accurate responses to the document requests for the emails from the
Comcast account” or an explanation for failing to comply with the trial court’s May 2014 order
to produce a privilege log.
¶ 22. SynEcology contends that the trial court’s dismissal was in error because it was
not related to a particular claim at issue in the discovery order. SynEcology argues that it was
incumbent on the trial court to explain how the alleged discovery failures were serious enough to
justify dismissal. Discussing Rule 37(b)(2)(A) of the Federal Rules of Civil Procedure, which
mirrors Rule 37(b)(2)(A) of the Vermont Rules of Civil Procedure, the U.S. Supreme Court in
Insurance Corp. of Ireland Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 705-06
(1982), held that it does not violate due process to render a default judgment against a defendant
who fails to comply with a pretrial discovery order. The Court found that “the preservation of
due process was secured by the presumption that the refusal to produce evidence material to the 3 SynEcology’s retraction was prompted by Business RunTime obtaining copies of some of the emails from Mr. Kenney’s Comcast account. The record does not reflect whether SynEcology ever produced any such emails.
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administration of due process was but an admission of the want of merit in the asserted defense.”
Id. at 705 (quoting Hammond Packing Co. v. Arkansas, 212 U.S. 322, 350-51 (1909)). “Due
process is violated only if the behavior of the defendant will not support the Hammond Packing
presumption,” and “[a] proper application of Rule 37(b)(2) will, as a matter of law, support such
a presumption.” Id. at 706.
¶ 23. Here, SynEcology’s discovery abuses go to the heart of the case: it was asked to
produce all emails relevant to the merits of its claims, and it willfully failed to do so, and indeed,
misrepresented their existence to the trial court. These repeated failures to produce evidence
central to proving or disproving its claims easily meet the Hammond Packing presumption, and
the trial court’s dismissal does not, therefore, offend due process.
¶ 24. SynEcology’s argument that the trial court’s dismissal was based on objectively
erroneous premises is also incorrect. In its brief, SynEcology contends that its supplemental
production on December 30, 2014 remedied prior insufficiencies. Specifically, SynEcology
alleges that the thirty-eight emails referenced as missing in the contempt ruling were, to its “best
knowledge,” included in the documents produced on December 30, 2014. The Court finds no
support in the record for these assertions. As stated above, the record does not reflect the
number of emails produced on December 30, 2014, nor does it indicate the date, sender,
recipient, contents, or subject lines of the emails included on the CD provided by SynEcology on
that date. Furthermore, although SynEcology indicated that “[i]tems that are not being produced
based on a claim of privilege shall be identified by way of a privilege log which shall be
provided under separate cover,” there is nothing in the record indicating that SynEcology
produced a privilege log at any time following the December 30, 2014 discovery certificate. The
trial court noted that because of SynEcology’s flagrant disregard of discovery requests and its
admission that it lied about the Comcast emails, it had become impossible to know whether there
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were additional relevant documents improperly withheld. Therefore, the assertion that the court
was acting under objectively erroneous premises in dismissing the action is not supported by the
record. The discovery certificate did not inform the court of what had been produced and, like
earlier discovery representations by Synecology, was facially incomplete in the absence of
record evidence supporting the production of a privilege log concerning emails that were
admittedly not produced.
¶ 25. For these reasons, the trial court’s decision satisfies the requirement for dismissal,
outlined in Med. Ctr. Hosp. of Vt., Inc. The trial court has broad discretion in imposing
sanctions, and we will not disturb its findings absent a showing that discretion was abused or
entirely withheld. Id. 136 Vt. at 519, 394 A.2d at 1135. Although dismissal is a severe sanction,
on these facts we find that the trial court’s exercise of discretion can be easily sustained.
¶ 26. We disagree with SynEcology’s claim that the dismissal of the action without a
hearing on the motion for contempt was error. In its brief, SynEcology suggests that the hearing
on September 29, 2014 was devoted entirely to attorney O’Neill’s motion for leave to withdraw,
rather than the motion for sanctions, and that the trial court indicated that it would hold a second
hearing on the motion. At the hearing on September 29, following a discussion regarding the
motion for leave to withdraw, Business RunTime stated, “we do have a motion for contempt that
is fully briefed.” Following a discussion about whether to rule on that motion at the hearing, the
trial court stated:
[I] want to be fair to [SynEcology]. . . . I could do what [Business RunTime] is asking and just say I’m going to decide this motion now and whatever remedy I think is appropriate, I’ll do before you get a new lawyer, but I would rather have you consult somebody else first. So I am going to give you time to get another lawyer and let the other lawyer file something else before I rule on the motion.
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The trial court then informed SynEcology that it would receive a standard form in the mail with
the deadline to obtain counsel and file a notice of appearance. Following a discussion between
the trial court and Mr. Kenney about this deadline, the trial court stated, “we definitely do need
one thing from you though, Mr. Kenney, which is the mailing address that should be used for the
hearing—the form that I just said we are going to send.”
¶ 27. SynEcology now argues that the trial court intended that a hearing on the motion
for contempt would precede any ruling. It bases this argument on the trial court’s final remarks,
when it stated, “the hearing—the form I just said we are going to send.” When read in context,
however, it is clear from the trial court’s remarks that they were made in reference to the form
indicating the deadline for filing anything in response to the motion for contempt, and not in
reference to a hearing on that motion. As reflected by the record, neither party requested a
hearing with respect to the motion for contempt pursuant to Rule 78(b)(2). See V.R.C.P.
78(b)(2) (“An opportunity to present evidence shall be provided, if requested. . . . In any case,
the court may decline to hear oral argument and may dispose of the motion without argument.”);
Shaw v. Barnes, 166 Vt. 610, 610, 693 A.2d 710, 711 (1997) (mem.) (holding that civil rules
give trial court discretion to decline oral argument on motions in all cases).
¶ 28. Despite the fact that neither party requested one, the trial court initially scheduled
a hearing on the contempt motion. The trial court used the majority of that hearing to discuss the
subsequently-filed motion to withdraw by Synecology’s counsel, although the pending contempt
motion seeking dismissal was also discussed. At the hearing, the trial court informed
Synecology that before ruling upon the contempt motion, it would allow time for substitute
counsel and supplemental pleading. This is exactly what the trial court did. Synecology’s new
counsel filed the supplemental pleading, but did not request a hearing on the motion. Rule
78(b)(2) authorizes a court to dispose of a motion without argument, and the decision to do so is
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within the discretion of the court. Bandler v. Cohen Rosenthal & Kramer, LLP, 2015 VT 115,
¶ 11, ___ Vt. ___, ___ A.3d ___ (“The Vermont Rules of Civil Procedure give the trial court
discretion in deciding whether to hear argument.”). Error in the decision not to hold a hearing
requires an affirmative showing the court abused or withheld its discretion. Id. ¶ 10. Based on
the record, especially where neither party requested a hearing, that showing has not been made.
¶ 29. We leave for another day whether, under certain circumstances, a warning prior to
dismissal may be required. Where, as here, the motion itself specifically seeks dismissal as a
sanction, no purpose is served by any additional warning from a court that it is considering
dismissal. Here, the trial court’s order dismissing the complaint was in response to Business
RunTime’s motion for contempt, sanctions, and attorneys’ fees. The first sentence of that
motion put SynEcology on notice that the sanction of dismissal was being requested. That
sentence provides:
Defendant Business RunTime, Inc. . . . hereby move[s] this Court pursuant to V.R.C.P. 37(b) to hold Plaintiff SynEcology Partners L3C in contempt for failure to comply with this Court’s May 22, 2014 compulsion order, and further move this Court to dismiss this case and for attorney’s fees. (emphasis added).
It was clear from the motion that the court must, necessarily, consider whether to grant the
requested relief. Further, SynEcology was given additional notice at the hearing on September
29, 2014, when Business RunTime’s counsel reiterated that dismissal was being sought as a
sanction. That SynEcology may not have felt dismissal was a likely outcome is far different than
not knowing the issue was before the court.

Outcome: Synecology’s conduct regarding discovery, which the trial court’s order describes, was sufficient to justify the animadversion of the court. It is clear from its discussion that the trial court lost faith in SynEcology’s willingness to undertake a good faith effort to comply with the discovery orders or motions to compel. Although SynEcology argues that it was willing and able to produce the Comcast emails and privilege log, the trial court had no reason to believe
SynEcology would suddenly make good on its promises having failed to do so in the past.

Affirmed.

Plaintiff's Experts:

Defendant's Experts:

Comments: