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Murphy v. Gospel for Asia, Inc.

United States District Court, W.D. Arkansas, Fayetteville Division

September 10, 2018

GARLAND D. MURPHY, III, M.D., and PHYLLIS MURPHY, Individually and on behalf of all others similarly situated PLAINTIFFS
v.
GOSPEL FOR ASIA, INC.; GOSPEL FOR ASIA-INTERNATIONAL; K.P. YOHANNAN; GISELA PUNNOSE; DANIEL PUNNOSE; DAVID CARROLL; and PAT EMERICK DEFENDANTS

          MEMORANDUM OPINION AND ORDER APPOINTING SPECIAL MASTER

          TIMOTHY L. BROOKS UNITED STATES DISTRICT JUDGE

         Having given notice of its intent to appoint a Special Master in its Memorandum Opinion and Order of June 4, 2011 (Doc. 125), having offered both parties the chance to be heard, and having considered the Affidavit (attached as Exhibit 1) attesting that there are no grounds for disqualification under 28 U.S.C. § 455, the Court hereby appoints David R. Cohen[1] as Special Master in this case pursuant to Rule 53(a)(1)(C). The following Order briefly gives context for the current ruling, considers-and overrules-the numerous objections raised by Defendants, and details the Special Master's duties.

         I. BACKGROUND

         At its core, this eleven-month long discovery dispute, stretching back to September 2017, centers on Plaintiffs' attempts to learn whether Defendants, or organizations that they substantially control, have information in their possession responsive to whether solicited donations were spent in the field in accordance with donor designations. Defendants have consistently maintained that "[g]oing to the heart of [Plaintiffs'] allegations, we believe that we will be able to show that the monies that were designated went to the particular items that were specified." (Doc. 26, p. 34). At the time Defendants' lead counsel made that statement, he indicated that the donated money may not have gone directly from donor to GFA to end user. Indeed, he remarked that:

"What was happening, your Honor, is that -just to take one example, you have a - let's say a thousand dollars is given to a Jesus Well, and that thousand dollars went to GFA-lndia, but it may not have gone to GFA-lndia direct. It may have gone to an account in Hong Kong. That money-this was happening in the past. That money was then sat there. GFA-lndia, from its funds, used a thousand dollars of their monies to fulfill the request that had been made by the-by the U.S. donor. So I believe that we will be able to show that, in fact, the monies that were designated went to all the various things that people gave designations for."

(Doc. 26, pp. 34-35).

         Following the case management hearing during which these statements were made, discovery proceeded without delay until Plaintiffs sought evidence that would prove that donated money was in fact sent to the field and spent on the specified purposes. After two largely unsuccessful rounds of discovery revealed how much GFA collected but was silent as to how much was spent in the field, Plaintiffs sought leave of Court (Docs. 32, 33) to approach the impasse from a different angle-the combined use of requests for admission ("RFA") and requests for production ("RFP"). In short, for those donors who had specifically directed that their money should be used in the field, there were 179 unique designation codes representing different field expenditures (e.g. Jesus Wells and water buffaloes). For each code, Plaintiffs proposed to serve six separate RFAs and one RFP. This discovery set was designed to determine whether money had in fact been sent to the field and, if so, how (i.e. by requesting evidence that would show, inter alia, proof of purchases, financial transmittals, etc.).

         Defendants objected to Plaintiffs' Motion to serve this discovery set on numerous grounds. See Doc. 39. The Court subsequently overruled those objections and granted Plaintiffs leave to serve the discovery set. (Doc. 44). After reviewing the Defendants' discovery responses, Plaintiffs sensed that Defendants were giving evasive answers and repeating objections that had been rejected by the Court. They requested that Defendants amend their responses. After multiple email exchanges, Defendants refused to amend their answers and Plaintiffs requested a telephonic discovery dispute conference with the Court. Because this conference did not resolve the impasse, Plaintiffs ultimately filed their first Motion for Sanctions. See Doc. 54. Sensing the need to take a more active role in policing the discovery process in this case, the Court set a formal hearing on the Motion for Sanctions to occur on February 16, 2018, and required all named parties and at least lead counsel for each party to appear in person.

         After reviewing the briefing and engaging in lengthy discussions with counsel, the Court determined that Defendants' answers were deficient and ordered Defendants to amend their responses. Despite Defendants' representation that they had given Plaintiffs the documents showing the expenditures, the Court found that Defendants' responses obscured whether Defendants were in possession of (or still searching for) other responsive documents that would ultimately prove that donations designated for the field and for specific purposes ultimately were spent on those items. Therefore, the Court gave Defendants specific instructions regarding the RFPs. For each RFP, the Court required that the answers be split into two categories: general evidence and specific evidence. As the Court has noted before, general evidence would consist of documents showing that donated money had been spent in the field generally, but it would either not correspond to a designation code or would not be a document specifically showing how much money was spent for each item. Specific evidence would be those types of documents, including receipts, transmittal letters, request letters from the diocese, etc., that would help Plaintiffs track how much money was ultimately spent on these field projects. Four weeks later, when Defendants were to supplement their responses by either providing additional responsive documents or pinpointing the documents that had already been produced, they instead filed a Motion for a Protective Order (Doc. 85) asking yet again to be relieved from the burden of providing answers to these core discovery questions.

         The Court has explained at great length in its prior Opinion (Doc. 125) why a protective order was not justified and why Defendants would still be required to turn over documents responsive to Plaintiffs' requests or admit that they simply had no additional proof to verify their alleged promises. See Doc. 125, pp. 2-13. Moreover, as the Court remarked at the sanctions hearing, the fact that these responsive documents were in India was not the Plaintiffs' problem at this point given the long string of dilatory tactics Defendants had employed throughout this litigation to avoid providing simple answers to simple, yet crucial, questions.

         In short, Defendants' task now, as it has been since August 2017, is to provide the paper trail showing how the donated money was disbursed. The Court simply refuses to permit Defendants to continuously assert that donated money went to the field for the items specified and then hide behind ambiguous responses when asked to hand over documentation to verify those representations. If, as Defendants have consistently maintained, donated money earmarked for the field went to the field and if GFA or its affiliated entities made disbursements in keeping with its alleged promises to donors, some paper trail that has yet to be fully documented is bound to exist. See Doc. 125, pp. 11-12.

         Given the above and after numerous hearings and conferences, the Court also found that Defendants' discovery conduct warranted the imposition of sanctions. Indeed, much of what Defendants listed in their specific evidence section, unlike receipts or transmittal letters, was any document that even mentioned an individual designation code, whether responsive or not. For instance, advertisements soliciting donations for particular projects were included in this section. While those documents confirm the extent of GFA's solicitation of funds for particular field items, they are not responsive to the central question of whether Defendants have proof that the monies designated for these items were subsequently spent on them. They certainly are not proof of such expenditures. Additionally, Defendants' vaunted spreadsheets, which they represented to be accurate compilations of expenditures, appear to be merely "spending targets" that were the same across different regions because of the similar number of churches in those regions. (Doc. 125, p. 16). Finally, despite representing that they had already given Plaintiffs all documents showing expenditures, they also admitted that responsive documents, in particular, hardcopy receipts of expenditures, existed in India but had not yet been produced. Indeed, Mr. Mowrey, Lead Defense Counsel, stated that "[t]hese documents are in hardcopy. They are not electronic. I've seen many of them. They are in these notebooks, hundreds of them, hundreds of them, of receipts, hardcopy receipts." (Doc. 65, p. 45: 2-6). Because of the number of unsuccessful discovery attempts Plaintiff had made and because the other documents that Defendants identified as showing the expenditures had not in fact provided answers, the Court denied Defendants' request for a protective order and ordered that these receipts and other responsive documents in India be produced in the United States. It remains unclear whether Defendants have, following the Court's denial of their motion for a protective order, produced these documents to Plaintiffs.

         Thus, as opposed to providing a clear view of the extent to which GFA and its affiliates fulfilled donor designations, these documents and Defendants' skillful parsing only clouded an already obscured terrain. For example, each time they were confronted with charges of sanctionable discovery conduct and, worse, fabrication of documents, they were able to acquire from their field partners and produce in court filings previously-unseen documents and additional explanations about the intricate process by which GFA contends it fulfills donor designations. Despite these purported explanations, the procedure(s) Defendants use to marshal donations from donor to end user and the extent to which they have produced documentation to verify the accuracy of their representations about this process have not become any clearer.

         That is why the Court found that there was a pressing need for the appointment of a Special Master who could investigate whether Defendants have complied with the letter and spirit of this Court's discovery orders and the Rules of Civil Procedure or whether they, as Plaintiffs contend, have concealed otherwise fraudulent activity by fabricating numbers and offering post-hoc justifications to explain a procedure (spending money in the field in accordance with donor designations) that simply never happened. Moreover, given Defendants' recalcitrance in complying with the Court's prior Orders, a Special Master who can oversee the discovery process and ensure that Defendants begin to faithfully comply with their obligations is more than warranted.

         II. LEGAL STANDARD

         Under Rule 53(a)(1)(C), a court may appoint a Special Master to "address pretrial and post-trial matters that cannot be effectively and timely addressed by an available district judge or magistrate judge of the district." Courts commonly invoke this rule in two sets of circumstances that are particularly relevant to the present dispute.

         First, courts often appoint a Special Master to oversee discovery or accountings when the cases involve extraordinary, complex, or time-consuming discovery disputes. See, e.g., Lundy v. Hilder, 289 Fed.Appx. 135, 140 (8th Cir. 2008) (noting that the district court appointed a Special Master to perform an accounting, oversee discovery related to damages, and perform other tasks); Castle Aero Fla. Int'l, Inc. v. Mktg. & Fin. Servs., Inc., 2013 WL 12149691 (D. Minn. Apr. 5, 2013) (appointing a Special Master to oversee the production of concealed bank records); Omnium Lyonnais D'Etancheite Et Revetement Asphalte v. Dow Chem. Co., 73 F.R.D. 114, 117, 188 (CD. Cal. 1977) (appointing a Special Master to oversee discovery in a complicated case involving thousands, perhaps hundreds of thousands, of documents located abroad and parties who grew increasingly suspicious of the veracity of the documents they were receiving).

         Additionally, courts have appointed a Special Master where a party or parties exhibit inability or unwillingness to comply with discovery orders. See, e.g., Moreland v. State Farm Mut. Auto Ins. Co., 2007 WL 1033453, at*4 (D. Colo. Apr. 3, 2007) (appointing a Special Master to oversee discovery when both parties exhibited an inability "to proceed in an orderly fashion in conducting discovery"); Wachtel v. Health Net, Inc., 239 F.R.D. 81, 112-13 (D.N.J. 2006) (appointing a Special Master to "monitor discovery compliance" to ensure that defendants complete required document production and comply with other discovery orders).

         This discovery dispute has needlessly squandered the resources of the parties, prejudiced Plaintiffs' attempts to uncover information central to their claims, and put an "extraordinary drain on the Court's resources," Wachtel, 239 F.R.D. at 113. As noted above, courts have found that Special Masters are particularly appropriate in cases where complex discovery disputes involving thousands of documents are involved and where there has been a considerable amount of recalcitrance on the part of a party in complying with court orders. Both are present here.

         III. DISCUSSION

         A. Objections

         Pursuant to Rule 53(b)(1), the Court previously gave notice of its intent to appoint a Special Master and set forth a briefing schedule that provided each side an opportunity to be heard. The Court subsequently received Objections from Defendants (Doc. 130). The Court OVERRULES these objections for the following reasons.

         1. Supplanting the Role of the Judge and Jury By Making Findings of Fact

         Defendants suggest that the proposed appointment of a Special Master would supplant the role of the trial judge (and jury) because the Special Master will be tasked with determining, at trial, the ultimate liability issue in this case-whether Defendants and their international partners have spent donated (and designated) money in accordance with the promises they made throughout the class period and in keeping with the donors' designations. This objection is completely unsupported by the authority Defendants cite, fundamentally mischaracterizes the nature of the Court's prior Order, and reflects a misunderstanding of the types of masters authorized by Rule 53.

         Initially, the Court notes that every authority Defendants cite related to this objection (and indeed-in support of every objection they lodged) was decided before 2003. However, as Defendants are likely well-aware, Rule 53 was extensively revised in 2003 to bring the Special Master rule in-line with modern litigation practice and the expanded role that Special Masters had begun to play in all aspects of federal litigation. See, e.g., 9C Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 2601 (3d ed. Apr. 2018) ("To reflect changing practices in the use of masters, Rule 53 was revised substantially in 2003. In contrast to the previous version of the rule, which addressed only the use of masters to perform trial functions, the revision reflected their increased employment in a variety of pretrial and post-trial functions and regularized the process and standards for the appointment of masters to serve in such capacities.").

         Nevertheless, even considering Defendants' authority in the light most favorable to them, these cases do not support their objection. For instance, Defendants cite In re Armco for the proposition that the appointment of a Special Master in this case would essentially represent the abdication of the undersigned's role in presiding at trial over the merits of the case. 770 F.2d 103 (8th Cir. 1985). Unlike here, in In re Armco, the Order appointing a Special Master had in fact enabled the Special Master to conduct trial on the merits. Id. at 105. The Eighth Circuit held that while the Special Master could not preside over the trial, the district court "acted properly in granting the master the broad authority to supervise and conduct pretrial matters, including discovery activity, the production and arrangement of exhibits and stipulations of fact, the power to hear motions for summary judgment or dismissal and to make recommendations with respect thereto." Id. The authority of the Special Master in this case will be much more circumscribed than the authority upheld by the Eighth Circuit in In re Armco.

         Defendants also misunderstand the Court's prior order. Nowhere did it purport to even suggest that the Special Master would have the authority to preside over trial or to make findings which would be subject to no further review and which would be taken as admitted for trial purposes. In fact, such an order would have been directly contrary to Rule 53, which requires the Court to conduct a de novo review of the factual findings in the Special Master's report, after giving each party a chance to lodge any objections they have to that report. See generally Rule 53(f). Thus, Defendants' suggestion that the Court was in effect proposing to appoint a Special Master who would make binding findings of fact, thereby usurping the role of the jury, is plainly incorrect.

         The Court is also not outsourcing its role of supervising proceedings to the Special Master. What the Court is doing, however, is appointing a Special Master to review and verify the numerous discovery representations that have been made by Defendants in this case, given the Court's finding that Defendants' representations about what has currently been produced and what has in fact been produced appear to be very different. Moreover, Defendants' conduct has consistently obscured the mechanics of Defendants' disbursement of funds to the field and undermined their own assertions that such disbursements were made. At every step, Defendants have avoided providing concrete answers or evidence-either to the requests for admissions or through the numerous rounds of discovery-showing how funds were disbursed and spent in the field or even whether funds were disbursed in the field. They have also asserted that they lack control over producing the really responsive documents (i.e. receipts, letters of transmittal, etc.) despite the fact that they 1) know that such documents exist, 2) have seen such documents in notebooks in India, [2] 3) have accountants currently in India reviewing such documents, 4) as named Defendants occupy prime roles within these ...


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