No sanctions for Carvana in artificial stock inflation case

Carvana won't face sanctions but will need to sit through follow-up depositions on thousands of documents it previously withheld under claims of attorney-client privilege.PHOENIX (CN) — A federal judge declined on Tuesday to sanction used car retailer Carvana for late disclosures in a class action accusing it of artificial stock inflation, but will allow the plaintiffs to conduct follow-up depositions.Attorneys representing Carvana and its founder Ernie Garcia III told a magistrate judge in December that discovery production “is substantially complete.”But since then, United Association National Pension Fund attorney Daniel Drosman says the company has released tens of thousands of additional documents that would have been relevant during depositions of Carvana executives, leading to multiple rounds of discovery disputes.“49,000 pages of documents that we received in drips and drabs starting in June going through August,” Drosman told U.S. District Judge Michael T. Liburdi in a Phoenix courtroom Tuesday afternoon.Of the nearly quarter million documents disclosed in the case so far, Drosman said 75,000 of them were disclosed later than they should have been. He said Carvana produced 23,000 documents on August 21 alone.“Defendants possessed both sets of materials and they affirmatively chose to withhold them,” he said.Drosman argued that Carvana attorneys intended to run out the clock by withholding documents for as long as they could until the written discovery deadline, which was set for April 2026.United Association Pension Fund attorneys deposed key witnesses over the summer, requesting additional documents each time after realizing they didn’t have the information they needed.“This went on and on and on,” Drosman said.Carvana says the documents at issue, mostly emails and other communications within the organization, were withheld because of attorney-client privilege.Beginning in 2020, Carvana faced extensive scrutiny and state license suspensions as its rapid sales growth outpaced its ability to register cars in the states they were sold. Because executives were receiving and discussing legal advice, Carvana added most of those communications to its privilege log, withholding them from production.As a court-appointed special master reviewed those communications and decided most were not privileged communications, Carvana attorneys shared the documents with the plaintiffs.“There was no effort to withhold it,” attorney Jeff Hammel said. “It was known that we were gonna undertake this process on July 1, and it’s taken quite some time to get it all out of the door.”Because Carvana didn’t fight against the plaintiffs’ challenges to its privilege logs, Drosman argued that Carvana knew the documents weren’t privileged and only claimed they were to delay disclosure.In one email the plaintiffs obtained, Drosman said a Caravan executive suggested writing “attorney client privilege,” on all communications to prevent anything from being produced in court.Liburdi, a Donald Trump appointee, disagreed that the delays were intentional.“I don’t find there to be any bad faith or any reason to hold the Carvana defendants culpable,” he said from the bench after the two-hour hearing. “They made some bad calls.”Drosman asked that Carvana be burdened with paying the special master’s fees and paying for the time the plaintiffs used conducting depositions.“They created this problem,” he said. “If anyone’s going to bear the brunt of it, they should.”Liburdi denied those requests. He did, however, allow the Pension Fund to conduct limited follow-up depositions on six Carvana executives of its choosing, using newly acquired documents it lacked the first time around.Because much of the motion for sanctions is redacted, it’s unclear what new information will be the subject of the depositions.Those interviews will be limited to two hours, and the remaining case schedule will not be altered. No trial date has been set.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads