* * * *
[10 FSM Intrm. 469]
MARTIN G. YINUG, Associate Justice:
On October 29, 2001, defendants FSM Development Bank and Island Homes Construction ("the Bank" and "Island Homes" respectively; when referred to together "the moving defendants") filed a motion styled "Motion of Defendants FSMDB and IHC to Alter or Amend Judgment." This motion is referred to throughout as "the pending motion" to distinguish it from the numerous other papers that have been filed in the course of this discovery dispute. On November 6, 2001, the plaintiffs filed a motion to enlarge time to respond to the pending motion; on November 22, 2001, they filed their response. The motion to extend time is granted.
The pending motion challenges this court's order of October 19, 2001 [Adams v. Island Homes Constr., Inc., 10 FSM Intrm. 430 (Pon. 2001)], and is the moving defendants' most recent submission directed to plaintiffs' document production request. The context for this order and memorandum is that the matter that the moving defendants seek not to disclose is and has always been self-evidently relevant, and is thus discoverable.
To clarify what party is seeking what relief, the court notes that the attorney's block of James Woodruff, counsel for the Bank appears in the upper left hand corner of the pending motion. Therefore the court assumes the motion is his work product. The motion is also signed by Salomon Saimon, counsel for Island Homes. However, in its discovery answers filed on June 12, 2001, Island Homes states that it was not a party to the loan that is the subject of the request, and consequently has "no such documents," which for purposes of the pending motion means specified kinds of documents relating to a loan that the Bank made to Paulus Perman ("Perman") in connection with the Panasang construction project ("the Panasang project"). In its August 2, 2001, response to the motion to compel at 3, Island Homes states that "[i]f the plaintiffs would be more specific, then Island Homes could perhaps understand what it is being requested to produce." On November 16, 2001, after the filing of the pending motion, and after the court's October 19, 2001, order addressing discovery issues, Island Homes filed amended discovery responses in which it states that it has none of the requested documents. All three submissions were signed by Island Homes' counsel. The court accepts the November 16, 2001, statement by counsel as an officer of the court who is fully aware of the requirements of Rule 11 of the FSM Rules of Civil Procedure. Thus, even though Island Homes' counsel has signed the pending motion, there remains no live dispute as to Island Homes because Island Homes is in compliance with the court's October 19, 2001, order. Thus for purposes of the disputed discovery, the court will deem the pending motion to have been filed only by the Bank.
In the pending motion, the Bank makes three errors. The first has to do with appealability, the second and the third with relevance. The court addresses each in turn, and then concludes with a discussion of potential sanctions.
The first mistake has to do with the way the Bank characterizes the October 19, 2001, order. It terms the order a "judgment," apparently in an effort to render appealable an order that is unappealable. Generally discovery orders are interlocutory in character and review may be obtained only through means of the contempt process or through appeal of the final judgment in the underlying action. United States v. Columbia Broadcasting Sys., Inc., 666 F.2d 364, 369 (9th Cir. 1982). The Columbia Broadcasting court termed this review of an interlocutory discovery order through the contempt process as "the now familiar principle" that the United States Supreme Court established in 1906 in Alexander v. United States, 201 U.S. 117, 26 S. Ct. 356, 50 L. Ed. 686 (1906). Columbia
[10 FSM Intrm. 470]
Broadcasting, 666 F.2d at 367 n.2, (also citing Cobbledick v. United States, 309 U.S. 323, 326, 60 S. Ct. 540, 541, 84 L. Ed. 783 (1940); United States v. Ryan 402 U.S. 530, 532, 91 S. Ct. 1580, 1581, 29 L. Ed. 2d 85, 88 (1971)). The rationale is that "even though a discovery order may compel a party to perform certain actions, . . . such an order is not injunctive in nature because it does not grant or withhold substantive relief." 19 James Wm. Moore et al., Moore's Federal Practice § 203.10[a] (3d ed. 1999). Section 119(3) of Title 4 of the FSM Code further provides that "any adjudication of contempt is subject to appeal to the Appellate Division of the Supreme Court."1 Thus, the appropriate means by which the moving Bank may challenge the October 19, 2001, order is to subject itself to a contempt proceeding.
The Bank does not cite any authority for designating the October 19, 2001, discovery order as a "judgment," presumably in the sense that term is used in Rule 54(a) of the FSM Rules of Civil Procedure, and for designating the instant motion a motion to alter or amend judgment under Rule 59 of the FSM Rules of Civil Procedure. But consistent with this designation, the Bank applies the 10 day time limit for filing such a motion contained in Rule 59(e), which provides that a motion to alter or amend judgment shall be served no later than 10 days after entry of judgment. The Bank also states that it was not served with the October 19, 2001, order until the tenth day after entry, and cites that fact as the basis for the brevity of their motion. It seeks additional time to respond further. Relevant to this request and as established by the plaintiffs' response, both counsel for the Bank and Island Homes had notice of the substance of the October 19, 2001, order by faxes sent to them by plaintiffs' counsel's office.
The ten day time limit under Rule 59 did not apply to the instant motion, because no judgment was ever entered. Rule 54(b) provides in pertinent part that "an order . . . which adjudicated fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action as to any of the claims or parties, and the order . . . is subject to revision at any time before the entry of judgment" (emphasis added). The October 19, 2001, order was such an order. The appropriate means by which to bring the concerns raised in the pending motion is not by a Rule 59 motion to alter or amend judgment, but by a Rule 54 motion for reconsideration. The motion for reconsideration can be brought any time before entry of judgement, and is not subject to the ten day limit. Thus, the Bank was not bound by the ten day time limit set out in Rule 59(e) of the FSM Rules of Civil Procedure. Notwithstanding that fact, the court finds that the filing of any further papers by the Bank relative to any of the issues raised in the pending motion is unnecessary. The Bank's request for additional time is denied.
The Bank asserts that in its October 19, 2001, order, the court did not address the question of relevance, and requests that October 19, 2001, order be amended to address the relevancy question so that the Bank can decide whether to appeal the October 19, 2001, order. As just discussed, a discovery order is not appealable. But on the relevancy question raised by the Bank, the plaintiffs make one statement at page 7 of the response with which the court is in complete accord: "the relevance of the Plaintiffs' Discovery Request to the claims and defenses in this case [is] so patently obvious that the Court needed only to address the issue of whether the Plaintiffs' First Discovery Request was too
[10 FSM Intrm. 471]
broad." The overbreadth issue was addressed in the court's October 19, 2001, order. The court addresses the relevancy issue ) to this extent the motion is granted ) but only for the purpose of demonstrating why the relevance of the information sought is self-evident.
Like the appealability issue that is raised implicitly as a result of filing the pending motion under the wrong rule, the Bank's explicitly raised relevance issue is not supported by citation to authority, and is also devoid of merit. While the Bank's failure to adequately address the appealability issue may be accounted for by failure to do necessary research as a result of its misunderstanding about the applicable time limit, the same may not be said of the relevancy issue, as to which the parties have been at issue throughout the course of this discovery dispute. By now, the Bank should have come to a better understanding of the law on this point than that evidenced in the pending motion.
1. Relevancy under Rule 26(b)(1)
The first of the two relevancy errors has to do with the Bank's interpretation of Rule 26(b)(1) of the FSM Rules of Civil Procedure. Rule 26(b)(1) provides in pertinent part that
[p]arties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action . . . . It is not a ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.
The Bank urges that discovery must be relevant, and this contention is correct as a general statement. Where the Bank goes wrong is in attempting to draw a distinction at the discovery stage between relevant information, and information that will lead to admissible evidence. The point they miss is that information which leads to admissible evidence is, by definition, relevant within the meaning of that word as used in Rule 26. The United States Supreme Court spoke to this point in Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 352, 98 S. Ct. 2380, 2389, 57 L. Ed. 2d 253, 265 (1978), where, in referring to the text of Rule 26(b)(1), it noted: "The key phrase in this definition ) `relevant to the subject matter involved in the pending action' ) has been construed broadly to encompass any matter that bears on, or that reasonably could lead to other matter that could bear on, any issue that is or may be in the case." "[M]atter that . . . reasonably could lead to other matter that could bear on any issue in the case" is even more expansive than "information [that] appears reasonably calculated to lead to the discovery of admissible evidence" as the latter phrase is used in Rule 26(b)(1). The court in Avianca, Inc. v. Corriea, 705 F. Supp. 666, 676, (D.D.C. 1989) (citing Oppenheimer) expressly noted that "[r]elevancy is very broadly defined, including both directly relevant material and material likely to lead to the discovery of admissible evidence." Succinctly put, "if requested materials lead to discovery of admissible evidence, the discovery request is relevant." Weddington v. Consolidated Rail Corp., 101 F.R.D. 71, 73 (N.D. Ind. 1984).
Moreover, "[i]t is clear that what is relevant in discovery is different from what is relevant at trial, in that the concept at the discovery state is much broader." Flora v. Hamilton, 81 F.R.D. 576, 578 (M.D.N.C. 1978). See also 8 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2008 (1970) ("The rule requires only that the information sought be `relevant to the subject matter involved in the pending action.' This is an explicit recognition that the question of relevancy is to be more loosely construed at the discovery stage than at the trial" (footnote omitted).) This difference between relevancy during discovery and at trial is consistent with the clear policy of the discovery rules, which is toward full, complete disclosure. Avianca, 705 F. Supp. at 676. "Discovery should ordinarily be allowed under [the] concept of relevance unless it is clear the information sought can have no possible bearing upon the subject matter of the action." 23 Am. Jur. 2d Depositions and Discovery § 22 (1983) (footnote omitted). The narrow interpretation of relevancy for which the Bank
[10 FSM Intrm. 472]
appears to contend is inconsistent with such a policy.
Thus, any attempt to say, as the Bank does, that "[i]nformation that is not relevant is not discoverable even if the information sought appears reasonably calculated to lead to the discovery of admissible evidence," Motion of Defs. FSMDB and IHC to Alter or Amend Judgment at 3 (Oct. 29, 2001), is demonstrably wrong. Such a contention is entirely at odds with Rule 26 of the FSM Rules of Civil Procedure.
2. Relevancy of the documents sought by plaintiffs
The Bank's second relevancy mistake has to do with the way it applies the concept of relevancy under Rule 26(b)(1) to the documents which plaintiffs seek. The discovery request that the Bank challenges is as follows:
1. Produce all documents that relate in any way to any loans provided to Paulus Perman in connection with the Panasang Project, including, but no limited to, any documents related to the application for any loan, the approval or disapproval of any loan, any modification or amendment to the terms of any loan, the disbursement of any funds under any loans and the receipt of any payments toward satisfying any loan.
Discovery Request at 4, attached as exhibit "A" to plaintiffs' July 30, 2001, Motion to Compel Discovery. In its original objection to the plaintiffs' discovery request, the Bank contends that the plaintiffs'
basic claim in this case is that a side agreement was made among them and the defendants by which the Bank was supposed to directly pay [the plaintiffs'] billing related to defendant Island Homes Construction. The Bank has denied the existence of any such agreement. The existence of this illusory "agreement" is the gravamen of the entire case. Thus, the broad swath of documents requested is beyond the reasonable scope of discovery in this proceeding is not likely to lead to the discovery of admissible evidence.
Response of FSM Dev. Bank to Pls.' Request for Production of Documents at 1-2 (May 28, 2001). It is of no consequence for discovery purposes that the Bank has denied the existence of the agreement. Nor does the fact that the Bank characterizes the agreement as "illusory" bring anything to the discussion. It is an extraordinary proposition indeed to suppose, as the Bank would seem to imply, that it can limit the scope of the plaintiffs' legitimate discovery by either denying allegations of the complaint, or by the way in which it characterizes those allegations.
Paragraph one requests the production of certain categories of documents having to do with any loans provided by the Bank to Perman in connection with the Panasang project. The allegations of the complaint as they relate to the Panasang project are as follows. All paragraph references are to the complaint filed on April 24, 2000.
Perman obtained a loan for an apartment building to be built on his property at Panasang Heights in Pohnpei. ¶¶ 10-11, 18. Perman also entered into a construction contract with the Island Homes under which it agreed to construct apartment building. ¶ 10. The Bank acted as a witness to the contract between Perman and Island Homes. ¶ 11. Island Homes also had agreements with both plaintiffs that allowed it to purchase construction materials on an open account credit basis. ¶¶ 7-9. As the project progressed, however, Island Homes fell into arrears to both plaintiffs, and the plaintiffs' terminated Island Homes credit privileges. ¶¶ 12-14. At a meeting on September 23, 1997, attended by representatives of all of the parties in this case, the plaintiffs agreed to permit credit purchases for
[10 FSM Intrm. 473]
the project to resume so long as the Bank, using loan funds, brought the accounts current and also agreed to pay the plaintiffs directly for any materials purchased by Island Homes. ¶ 17. The plaintiffs permitted credit purchases to resume, but the Bank neither brought the accounts current nor made future payments directly to the plaintiffs. ¶¶ 16-17. The Bank and Perman together disbursed loan proceeds to unknown third parties, and not to the plaintiffs. ¶ 41.
If the court understands the Bank's contentions regarding relevancy, then it is contending that any evidence regarding the loan, including the relationship among the parties created by the loan and any of the rights, duties, and obligations owed by the parties under the loan agreement, is not relevant, and therefore not admissible. But a central allegation of the plaintiffs' claim is that the alleged agreement among the parties that the Bank would pay the plaintiffs directly arose when the general contractor, Island Homes, failed to pay plaintiffs for the construction materials it purchased. The source of the money that allegedly should have been paid to plaintiffs ) either, presumably, by Island Homes as a result of progress payments made to it by Perman during construction or, as alleged, by the Bank directly under the terms of the alleged agreement ) would have been the proceeds of the Bank's loan to Perman. Under the loan agreement, the Bank would have been obligated to pay Perman; under the subsequent alleged agreement, the Bank agreed to pay the money it would have otherwise paid Perman as owner of the Panasang project directly to the plaintiffs. Because of the existence of the loan agreement, the bank's net disbursement would have been the same, the only difference being the entity to which the money was paid. But if, as the Bank contends, evidence of the loan is not relevant, then that evidence is not admissible, and there would be no evidence to explain why the Bank would allegedly agree to pay Island Homes' debt to the plaintiffs for construction material. On the basis of the remaining alleged facts, the Bank would be cast in the role of a volunteer who stepped forward to pay Perman's indebtedness when it had no obligation to do so, a most unlikely event in the commercial world. But the evidence that the Bank agreed to pay loan proceeds to plaintiffs, who supplied building materials for the Panasang project, instead of Perman, the owner of the project, provides a rationale for the Bank's conduct. It would seem sensible to say that when a bank makes a loan on a commercial project such as an apartment building, it has an interest in seeing that the project is completed so that generation of a revenue stream, ordinarily the most likely source of loan repayment, occurs.
"`Relevant evidence' means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." FSM Evid. R. 401. All relevant evidence is admissible, except for the specific exceptions set out in the FSM Rules of Evidence. FSM Evid. R. 402. The information sought under the discovery request goes to the existence of the loan between Perman and the Bank. If the plaintiffs could prove this loan, then it becomes "more probable . . . than it would be without the evidence" that the Bank agreed to pay loan funds to the plaintiffs. The evidence of the loan, apart from leading to relevant evidence, is in itself highly relevant evidence under FSM Rules of Evidence 401 and 402. Thus, the relevance of the documents sought under Rule 26 of the FSM Rules of Civil Procedure is sufficiently stark that it can scarcely be disputed. In face of this stark relevance, the Bank has pursued its relevancy contention.
c. Potential sanctions
The court wearies of the Bank's apparent efforts to evade legitimate discovery requests in this case. In the considerable amount of paper it has submitted thus far, one meaningful discovery point has been made, which had to do with the phrase "relating to." Adams v. Island Homes Constr., Inc., 10 FSM Intrm. 430, 432 (Pon. 2001). But even that point was one of general interest, and not a critical one ) the Bank could have meaningfully complied with the discovery request without bringing the motion that gave rise to the "relating to" discussion. The court also notes the presence of the phrase "the endless stream of discovery drivel emanating from plaintiffs' quarter" on the second page
[10 FSM Intrm. 474]
of a response filed by the Bank on September 28, 2001, a derisive reference to plaintiffs' legitimate discovery requests. While such a characterization may be less objectionable in the course of a spontaneous oral exchange, needlessly denigrating language of this sort is inappropriate in written court papers. It has no place in the civil colloquy ) especially in the course of written discourse which permits the authoring party time to reflect ) within the bounds of which professional, zealous advocacy takes place. Such comments are no substitute for convincing arguments that follow from the careful marshaling of facts, and the application to those facts of carefully researched principles of law.
1. Potential Rule 11 sanctions
In lieu of complying with this court's order of October 19, 2001, the moving defendants filed the pending motion. Rule 11 of the FSM Rules of Civil Procedure provides in pertinent part that
the signature of an attorney [on a party's papers] constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.
The court has discussed three errors that occur in the Bank's pending motion. Specifically, the Bank has contended that plainly relevant information is not relevant, and has done so in the face of clear law that is contrary to its position. The question becomes whether the Bank's relevancy argument is so wide of the mark as to be frivolous. Thus, the court finds that a prima facie case exists for a violation of Rule 11 of the FSM Rules of Civil Procedure.
Accordingly, at the time of the hearing on attorney's fees associated with the plaintiffs' original motion to compel, the court will also hold a hearing on whether Rule 11 violations exist, and whether sanctions should be imposed. The sanctions that the court will consider are monetary sanctions to be assessed against counsel and/or requiring a remedial research memorandum directed to the point of law as to which the pending motion is in error. The court will set a briefing schedule on the Rule 11 question at the same time that it issues a notice of trial. For now, the efforts of the Bank's counsel should be turned towards complying with the discovery request.
Even though the court has found that no live discovery dispute exists with respect to Island Homes, Island Homes' counsel also signed the pending motion. Therefore, at the hearing on Rule 11 sanctions, Island Homes' counsel should be prepared to address why at least nominal sanctions should not be imposed against him in the event the court finds that a Rule 11 violation has occurred.
2. Potential sanctions under Rule 37(b)(2)(A)
Rule 37(b)(2)(A) provides that where failure of compliance with an order under Rule 37(a) takes place, the court may order that "the matters regarding which the order [compelling discovery] was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order." As applied to the allegations in the complaint in the case, it would mean entry of an order deeming established the allegations that the Bank entered into an agreement that it would pay the construction loan proceeds directly to the plaintiffs and not to Perman. The Bank is put on notice that if compliance in accordance with this order is not forthcoming, the court will consider imposition of this sanction under Rule 37(b)(2)(A).
[10 FSM Intrm. 475]
3. Potential sanctions under 4 F.S.M.C. 119
Section 119(1)(b), Title 4 of the FSM Code defines contempt of court as "any intentional disobedience or resistance to the Court's lawful . . . order." The Bank will comply with plaintiffs' discovery request no later than the close of business on Friday, December 7, 2001. No later than the close of business on Monday, December 10, 2001, the plaintiffs will advise the court whether full, unqualified compliance has occurred. If not, then pursuant to 4 F.S.M.C. 119(2) the Bank will be ordered to show cause at a hearing to be held on the following day, Tuesday, December 11, 2001, why it should not be held in contempt of this court's previous discovery orders. The court will also hear argument at that time on the appropriate discovery sanction under Rule 37 of the FSM Rules of Civil Procedure. The hearing will be held telephonically, with counsel present in Pohnpei, and court present in Yap. Counsel will initiate the call to the court in Yap. The time for the hearing is 2:00 p.m. Pohnpei time, or 1:00 p.m. Yap time.
* * * *
1. United States cases draw a distinction between parties and nonparties where contempt sanctions are imposed for failure to comply with discovery: a nonparty may appeal both civil and criminal contempt sanctions, while a party may only appeal a criminal sanction. United States v. Columbia Broadcasting Sys., Inc., 666 F.2d 364, 367 n.2 (9th Cir. 1982). This rule has been "persuasive[ly] criticized." Id. In any event, this is not a concern in the case at bar because 4 F.S.M.C. 119 addresses the question.