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ECIMOS, LLC v. Nortek Global HVAC LLC

United States District Court, W.D. Tennessee, Western Division

August 11, 2017

ECIMOS, LLC; and ELECTRICAL CONTROLS, INC.; Plaintiffs,
v.
NORTEK GLOBAL HVAC LLC; LOGICAL SYSTEMS, INC.; LOGICAL SYSTEMS, LLC; GAIL WAYNE ROANE; and MICHAEL GRAY, Defendants.

          ORDER

          SAMUEL H. MAYS, JR.UNITED STATES DISTRICT JUDGE

         Before the Court are six motions. First, on September 13, 2016, Charles M. Weirich, Jr. (“Weirich”) filed a motion asking the Court to reconsider a June 2016 award of sanctions against Weirich and Daniel Frederick Peel (“Peel”) based on their conduct as counsel for Plaintiffs ECIMOS, LLC (“ECIMOS”) and Electrical Controls, Inc. (“EC”). (Mot. of Pls.' Attorney to Revise Order to Remove Award of Sanctions Against Pls.' Attorneys and Supporting Mem. of Law, ECF No. 224 (“Reconsideration Mot.”).) Defendants Nortek Global HVAC LLC (“Nortek Global”); Logical Systems, Inc. (“LSI”); Logical Systems, LLC (“LSL”); Gail Wayne Roane (“Roane”); and Michael Gray (“Gray”) (collectively, “De- fendants”)[1] filed a response to the Reconsideration Motion on September 20, 2016. (Defs.' Resp. to Mot. of Pls.' Attorney to Revise Order to Remove Award of Sanctions Against Pls.' Attorneys, ECF No. 229 (“Reconsideration Resp.”).) On September 26, 2016, Magistrate Judge Diane Vescovo filed her report and recommendation addressing the Reconsideration Motion. (R. & R. on Pl.'s Mot. to Reconsider Order on Mot. to Dismiss, ECF No. 230 (“Reconsideration Report”).) No parties objected to the Reconsideration Report, and the time to do so has passed. (Id. at 6 (setting deadline for objections).)

         Second, on September 27, 2016, Plaintiffs, Weirich, and Peel filed a motion asking the Court to stay an order compelling payment of the June 2016 sanctions award. (Motion to Stay Order Compelling Payment of Sanctions and Supporting Mem., ECF No. 231 (“Stay Mot.”).) The same day, Defendants and former Defendant Tesluk filed a response to the Stay Motion. (Resp. of Pls.' [sic] to Mot. to Stay Order Compelling Payment of Sanctions, ECF No. 233 (“Stay Resp.”).)

         The third and fourth motions before the Court are interrelated. On October 4, 2016, Defendants and Tesluk filed a motion asking the Court to enforce a settlement agreement purportedly reached by the parties. (Defs.' Mot. to Enforce Settlement Agreement, ECF No. 238 (“Settlement-Enforcement Mot.”); see also Defs.' Mem. in Supp. of Mot. to Enforce Settlement Agreement, ECF No. 238-1 (“Settlement-Enforcement Mem.”).) On October 26, 2016, Stephen Olita, the principal of both Plaintiffs, emailed to the Court a pro se response (the “Olita Response”) to the Settlement-Enforcement Motion. On February 7, 2017, Plaintiffs, represented by new counsel, submitted a motion asking for leave to supplement the Olita Response. (Mot. and Supporting Mem. for Leave to Suppl. Resp. to Stephen G. Olita's Resp. to Def.'s Mot. to Enforce Settlement Agreement, ECF No. 244 (“Leave-to-Suppl. Mot.”).) Attached to the Leave-to-Supplement Motion is a proposed supplemental response to the Settlement-Enforcement Motion. (Suppl. Resp. to Stephen G. Olita's Resp. to Defs.' Mot to Enforce Settlement Agreement, ECF No. 244-1 (“Settlement-Enforcement Resp.”).) On February 17, 2017, Defendants and Tesluk filed an opposition to the Leave-to-Supplement Motion that responded to the Leave-to-Supplement Motion and the Settlement-Enforcement Response. (Defs. Opp'n to Pls.' Mot. for Leave to Suppl. Resp. to Stephen G. Olita's Resp. to Defs.' Mot. to Enforce Settlement Agreement, ECF No. 245 (“Leave-to-Suppl. Opp'n”).)

         The fifth and sixth motions before the Court are also interrelated. On March 31, 2017, Defendants and Tesluk filed a motion asking the Court to (1) enforce the purported settlement agreement and dismiss this action, or in the alternative, (2) dismiss this action with prejudice. (Defs.' Second Renewed Mot. to Dismiss and for Sanctions, ECF No. 247 (“Dismissal Mot.”).[2]) On April 14, 2017, Plaintiffs filed a response to the Dismissal Motion. (Pls.' Resp. to Defs.' Second Renewed Mot. to Dismiss and for Sanctions and Counter-Mot. to Stay Proceedings Pending the Court's Ruling on Defs.' Mot. to Enforce Settlement Agreement, ECF No. 249 (“Dismissal Resp.”).) The Dismissal Response included a “countermotion” asking the Court to stay these proceedings until the Court rules on the Settlement-Enforcement Motion (“Stay Countermotion”). (Id. at 3.) On April 24, 2017, Defendants and Tesluk filed a document serving as a reply in support of the Dismissal Motion and as a response to the Stay Countermotion. (Defs.' Reply in Supp. of Second Renewed Motion to Dismiss and for Sanctions, ECF No. 252 (“Dismissal Reply”).)

         For the reasons discussed below, the Leave-to-Supplement Motion is GRANTED and the Settlement-Enforcement Motion is GRANTED in part and DENIED in part. The Reconsideration Motion is GRANTED, and the sanctions levied against Weirich and Peel in the June 2016 Order are stricken. The Dismissal Motion is GRANTED in part and DENIED in part. This action is DISMISSED WITH PREJUDICE. The Stay Countermotion and the Stay Motion are DENIED as moot.

         I. BACKGROUND

         The history of this matter has been recounted in, inter alia, (1) Section I of Magistrate Judge Vescovo's report and recommendation addressing a motion to dismiss filed by Defendants and Tesluk in September 2015, and (2) Section I of the June 2016 Order. (R. & R. on Defs.' Mot. to Dismiss and Order Granting Defs.' Mot. to Strike the Pls.' Suppl. Resp. and Order Denying Pls.' Mot. for Leave to File DVDs and Order Denying Defs.' Mot. for Leave to File Notice of Additional Deficiencies 3-25, ECF No. 183 (“March 2016 Report”); June 2016 Order 3-5.) The following background section addresses subsequent proceedings.

         On July 15, 2016, Defendants filed a “renewed” motion to dismiss based on “continued discovery deficiencies” by Plaintiffs. (Defs.' Renewed Mot. to Dismiss Based on Pls.' Continued Discovery Deficiencies or, Alternatively, Mot. for Extension of Time 1, ECF No. 197 (“July 2016 Mot. to Dismiss”).) Defendants complained of discovery deficiencies after the March 2016 Report, specifically, that between March 2016 and July 2016, Plaintiffs had done nothing to address their outstanding discovery deficiencies. (See, e.g., id. at 2-6.) Defendants sought dismissal as a discovery sanction. (See, e.g., id. at 6-7.) The Court referred the July 2016 Motion to Dismiss to Magistrate Judge Vescovo. (Order of Reference, ECF No. 207.)

         On July 22, 2016, Magistrate Judge Vescovo issued an order awarding Defendants and Tesluk certain attorney fees and expenses pursuant to the June 2016 Order. (See generally Fee Order.) The June 2016 Order had ordered Plaintiffs, Weirich, and Peel to pay attorney fees to Defendants and Tesluk as a sanction. (June 2016 Order 12-16.) After entering the June 2016 Order, the Court referred to Magistrate Judge Vescovo various objections Plaintiffs had made to the requested amount of attorney fees. (See Objs. of Pls. and Pls.' Counsel to Amount of Attorneys' Fees Requested in Affidavits of Defense Counsel, ECF No. 181; Order of Reference, ECF No. 196.) The Fee Order addressed those objections. (See generally Fee Order.) The Fee Order required Plaintiffs to pay Defendants and Tesluk $53, 902.98, and required Weirich and Peel to pay Defendants and Tesluk $51, 223.38. (Id. at 20-21.) The payments were due “within twenty-eight days” -- i.e., by August 19, 2016. (Id. at 20.)

         On July 29, 2016, Plaintiffs filed a response to the July 2016 Motion to Dismiss. (Pls.' Resp. to Defs.' Renewed Mot. to Dismiss or Alternatively, Mot. for Extension of Time, ECF No. 210.) On August 24, 2016, Plaintiffs, Weirich, and Peel filed a document expressing various objections to the Fee Order. (Objs. of Pls. and Pls.' Counsel to Order Awarding Attorney Fees and Expenses to the Defs., ECF No. 215 (“Fee-Order Objs.”).) On August 29, 2016, Defendants filed a reply in support of the July 2016 Motion to Dismiss. (Defs.' Reply in Supp. of their Renewed Mot. to Dismiss Based on Pls.' Continued Discovery Deficiencies or, Alternatively, Mot. for Extension of Time, ECF No. 216.)

         On August 30, 2016, Defendants filed a motion asking the Court to compel Plaintiffs and Plaintiffs' Counsel to comply with the Fee Order. (Defs.' Notice and Mot. to Compel Compliance with the Court's Order, ECF No. 217 (“Mot. to Compel Compliance”).) The Motion to Compel Compliance represented that “Plaintiffs and their counsel have failed to comply with [the Fee Order], ” and asked the Court to compel the ordered payments. (Id. at 1.) The Court referred the Motion to Compel Compliance to Magistrate Judge Vescovo. (Order of Reference, ECF No. 220.)

         On September 13, 2016, Weirich filed the Reconsideration Motion. The Court referred the Reconsideration Motion to Magistrate Judge Vescovo on September 15, 2016. (Order of Reference, ECF No. 225.) The same day, Plaintiffs filed a response to the Motion to Compel Compliance. (Pls.' Resp. to Defs.' Notice and Mot. to Compel Compliance with the Court's Order, ECF No. 226 (“Mot. to Compel Compliance Resp.”).)

         On September 19, 2016, Magistrate Judge Vescovo granted the Motion to Compel Compliance. (Order Granting Defs.' Mot. to Compel Pls.' Compliance with the Ct.'s Order, ECF No. 227 (“Order Granting Mot. to Compel Compliance”).) Plaintiffs, Weirich, and Peel had argued that the Fee Order was not a final order and that, until it was final, paying the sanctions award was unnecessary. (See Mot. to Compel Compliance Resp. 2-3.) Magistrate Judge Vescovo rejected that argument and ordered Plaintiffs, Weirich, and Peel to pay the sanctions award within seven days, by September 26, 2016. (Order Granting Mot. to Compel. 4-5.)

         On September 26, 2016, Magistrate Judge Vescovo filed the Reconsideration Report. It recommends that the Court deny the Reconsideration Motion “to the extent [it] seeks revision of the [March 2016 Report] but that the Court reconsider [the June 2016 Order] if [the Court had] failed to consider” Plaintiffs' objections to the March 2016 Report. (Id. at 2.)

         Weirich and Peel filed the Stay Motion on September 27, 2016. The Stay Motion represents that the parties have “reached an agreement for the resolution of all claims, counterclaims, and sanctions awards.” (Stay Mot. ¶ 1.) The gravamen of the motion is that, because the settlement agreement has resolved the sanctions award, enforcing the award is unnecessary. The same day, the parties filed a Notice of Settlement. (ECF No. 232.) Plaintiffs also filed the Stay Response.

         On October 4, 2016, Defendants and Tesluk filed the Settlement-Enforcement Motion. That motion recounts the history of the September 2016 settlement negotiations. (Settlement-Enforcement Mot. ¶¶ 1-7; see also Settlement-Enforcement Mem. 2- 6.) According to Defendants and Tesluk, the parties reached a binding settlement agreement verbally on Friday, September 23, 2016, “with the understanding that the settlement would be further reduced to a more detailed writing over the weekend.” (Settlement-Enforcement Mot. ¶ 1.) Following negotiations over the weekend and on the following Monday, “[a]t 3:00 pm on Monday, September 26, 2016, [Weirich] sent counsel for Defendants an email communicating Plaintiffs' acceptance of the final draft of the settlement agreement.” (Id. ¶ 3.) On September 27 and 28, however, Weirich and Peel “advised Defendants that [Stephen Olita] had not signed the agreed upon [Written Settlement Agreement (“WSA”)], and was not returning [Weirich's and Peel's] calls or text messages.” (Id. ¶ 4.) Late in the afternoon on September 29, “Plaintiffs' counsel notified Defendants . . . that [Olita] was no longer willing to sign the [WSA].” (Id. ¶ 7.) The Settlement-Enforcement Motion asks the Court to “find that the [WSA] is binding upon all Parties”; “[d]ismiss this case, with prejudice”; and “[a]ward Defendants their attorney fees and costs incurred since Monday, September 26, 2016, including those incurred with respect to” the Settlement- Enforcement Motion, “as a sanction for Plaintiffs' and Mr. Oli-ta's conduct.” (Id. ¶ 9(a)-(c).)

         The same day that Defendants and Tesluk filed the Settlement-Enforcement Motion, Weirich and Peel filed motions to withdraw as Plaintiffs' counsel. (Charles M. Weirich, Jr.'s Am. Mot. to Withdraw as Counsel for Pls. and Supp. Mem. of Law, ECF No. 236 (“Weirich Withdrawal Mot.”); Daniel F.B. Peel's Motion to Withdraw as Counsel for Pls. and Supp. Mem. of Law, ECF No. 237 (“Peel Withdrawal Mot.”).) On October 12, 2016, the Court entered an order that, inter alia, granted the withdrawal motions. (Order 8-11, ECF No. 239 (“October 2016 Order”).) The order also instructed Plaintiffs to respond to the Settlement-Enforcement Motion within fourteen days. (Id. at 1, 11-12.)

         On October 26, 2016, Olita sent the Court an email with numerous attachments, including the Olita Response. (Email from Stephen Olita, ECIMOS, LLC, to Hon. Samuel H. Mays, Jr. (Oct. 26, 2016) (attachment titled “ECIMOS Response to ORDER DOC 239.pdf”).) On November 9, 2016, Defendants and Tesluk filed a Notice Regarding Motion to Enforce Settlement Agreement. (ECF No. 240.) The notice states that Defendants and Tesluk received the Olita Response and argues that the Court should grant the Settlement-Enforcement Motion. (See generally id.)

         On December 27, 2016, three attorneys with Bateman Gibson, LLC, filed notices of appearance seeking to represent Plain- tiffs. (Notice of Appearance, ECF No. 241 (appearance of J. O'Neal Perryman); Notice of Appearance, ECF No. 242 (appearance of Ralph T. Gibson); Notice of Appearance, ECF No. 243 (appearance of Everett B. Gibson).) On February 7, 2017, Plaintiffs, through their new counsel, filed the Leave-to-Supplement Motion and the accompanying Settlement-Enforcement Response. The gravamen of the Settlement-Enforcement Response is that Weirich and Peel pursued their own interests, not Plaintiffs', when negotiating the Settlement Agreement. (See generally Settlement-Enforcement Resp.) On February 17, 2017, Defendants and Tesluk filed the Leave-to-Supplement Opposition.

         On February 28, 2017, the Court entered an order addressing the July 2016 Motion to Dismiss. (Order, ECF No. 246.) The Court noted that, if it granted the Settlement-Enforcement Motion, the July 2016 Motion to Dismiss would be moot. (Id. at 2.) The Court denied the July 2016 Motion to Dismiss to the extent it requested dismissal of the action. (Id. at 3.) Because Defendants had faced a deadline when they filed the July 2016 Motion to Dismiss, that motion had requested, in the alternative, an extension of time to file a motion for sanctions based on any “additional or new discovery deficiencies.” (Id.) The Court granted the July 2016 Motion to Dismiss insofar as it requested an extension of time. (Id.) The Court gave Defendants until March 31, 2017, “to file a motion for sanctions based on additional or new discovery deficiencies.” (Id.) On March 31, 2017, Defendants filed the Dismissal Motion.

         On April 14, 2017, Plaintiffs filed the Dismissal Response, which included the Stay Countermotion. On April 24, 2017, Defendants filed the Dismissal Reply.

         II. JURISDICTION

         The operative complaint in this action is the Third Amended Complaint filed by Plaintiffs on January 14, 2015. (Third Am. Compl. for Breach of Contract, Theft of Trade Secrets, Conversion, Civil Conspiracy, Procurement of Breach of Contract, and Interference with Business Relations, ECF No. 47 (“Third Am. Compl.”).) Under 28 U.S.C. § 1331, U.S. district courts have original jurisdiction “of all civil actions arising under the Constitution, laws, or treaties of the United States.” The Third Amended Complaint asserts, inter alia, that Defendants and Tesluk violated the U.S. Copyright Act of 1976 by infringing on copyrighted material in Plaintiffs' Integrated Process Control System (“IPCS”). (See, e.g., Third Am. Compl. ¶¶ 14, 69-77.) It also asserts, inter alia, that Defendants' and Tesluk's conduct related to the IPCS violated the Digital Millennium Copyright Act of 1998. (Id. ¶¶ 78-85.) Those claims arise under the Constitution or laws of the United States. The Court has jurisdiction over the Third Amended Complaint's federal-law claims.

         The Court has supplemental jurisdiction over Plaintiffs' state-law claims under 28 U.S.C. § 1367(a). Those claims derive from a “common nucleus of operative fact” with the federal-law claims. United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966); Soehnlen v. Fleet Owners Ins. Fund, 844 F.3d 576, 588-89 (6th Cir. 2016).

         III. ANALYSIS

         A. Leave-to-Supplement Motion

         The Leave-to-Supplement Motion asks the Court to allow Plaintiffs to “supplement” the Olita Response with the Settlement-Enforcement Response. (Leave-to-Suppl. Mot. 1.) Plaintiffs represent that, when Olita submitted the Olita Response, Plaintiffs had been unable to find substitute counsel following the withdrawals of Weirich and Peel. (Id. at 1-2.) Plaintiffs represent that they found replacement counsel on December 27, 2016, and that permitting the Settlement-Enforcement Response would cause “minimal” prejudice to Defendants. (Id. at 2.)

         The Leave-to-Supplement Opposition argues that the Settlement-Enforcement Response is “procedurally improper, ” “untimely, ” and would prejudice Defendants and Tesluk. (Leave-to-Suppl. Opp'n 3; see generally id. at 3-4.)

         Neither Plaintiffs nor Defendants and Tesluk provide any citations to rules or caselaw addressing the Court's ability to grant Plaintiffs ...


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