United States District Court, M.D. Tennessee, Nashville Division
ORDER AND MEMORANDUM
A. TRAUGER, UNITED STATES DISTRICT JUDGE.
before the court are a Report and Recommendation of the
Magistrate Judge (Docket No. 97), Objections by Defendants
(Docket No. 98), and a Response by Plaintiff (Docket No. 99).
to 28 U.S.C. § 636(b)(1), Fed.R.Civ.P. 72(b)(3) and
Local Rule 72.03(b)(3), the court has reviewed de
novo the portions of the Report and Recommendation to
which objections were filed, the Objections, the Response and
the file. For the reasons stated herein, the Objections of
the Defendants are overruled, and the Report and
Recommendation is adopted and approved.
brought this action to collect on a letter of credit that was
guaranteed by Defendants Gateway Housing Foundation
(“Gateway”) and Terry McNellis. This court
confirmed an arbitration award in Plaintiff's favor for
$4, 512, 887.09, plus interest of $849.06 per diem, and
entered a final judgment for Plaintiff against Defendants.
Docket No. 36. The court retained jurisdiction to enter
further necessary orders, including any orders to enforce the
terms of the final judgment and/or for an award of
attorneys' fees and costs to Plaintiff. Id.
entry of the final judgment, Plaintiff began efforts to
collect its judgment by serving discovery in aid of execution
on Defendants. Docket Nos. 39-42. Plaintiff also sought a
charging order against certain LLCs and LPs that reportedly
owed money to Gateway. Docket No. 43. Because Defendants did
not respond to the discovery requests, Plaintiff filed a
Motion to Compel. Docket No. 45.
McNellis filed a Motion to Set Installment Payments (Docket
No. 47), asking the court to allow him to make monthly
payments in the amount of $100, 000 until the entire judgment
was satisfied or until he liquidated sufficient assets to
satisfy the judgment. In his motion, McNellis represented
that he had limited ability and means to submit payments for
the entire judgment. The Magistrate Judge granted in part and
denied in part Plaintiff's Motion to Compel, finding that
Defendants had been derelict and had provided no financial
data at all, and ordering that Defendants file full financial
information for the past year, not the past five years as
sought by Plaintiff. Docket No. 59. The Magistrate Judge
denied the Motion to Set Installment Payments because
Defendants had failed to provide any financial data to
support the motion. The Magistrate Judge took under
advisement Plaintiff's request for attorneys' fees
for having to file the Motion to Compel. Id.
then filed an Emergency Motion to Stay Garnishments and a
Renewed Motion to Set Installment Payments (Docket No. 61),
supported by copies of the responses McNellis had made to
Plaintiff's discovery requests and by McNellis'
Affidavit. McNellis again stated that he did not have the
present liquidity to satisfy the judgment in full. He
represented that he had liquidated all readily available
assets and did not have the present ability to make any
payment larger than $100, 000 per month without defaulting on
existing obligations he had in his real estate business. He
stated that his real estate business is structured so that he
is required to maintain a certain level of liquidity to avoid
defaulting on antecedent obligations and that any default on
antecedent obligations would preclude and greatly impair his
ability to make the $100, 000 monthly installment payments to
Plaintiff. Docket No. 61-2.
Magistrate Judge set a hearing for September 7, 2016, in
order to allow McNellis to testify concerning his financial
circumstances. During his examination, McNellis revealed that
he had substantial amounts of assets that could be
liquidated, but that liquidation would involve paying federal
capital gains taxes. Docket No. 81. The Magistrate Judge
found that McNellis' financial statement revealed that he
did have the wherewithal to satisfy the judgment from current
assets. Docket No. 80 at 1. The Magistrate Judge found that,
contrary to McNellis' contention in previous pleadings,
he had readily marketable assets and that, although he would
incur tax liabilities, the sale of the assets would not
otherwise jeopardize his business activities. Id.
Therefore, Defendants' Motion to Set Installment Payments
and to Stay Garnishments was denied. Id.
February 23, 2017, Plaintiff filed a Satisfaction of Judgment
(Docket No. 84), acknowledging that the judgment had been
paid in full by Defendants. On March 7, 2017, the Magistrate
Judge held a telephone conference concerning the sanctions
and the satisfaction of the judgment. He ordered the parties
to attempt to resolve the sanctions issue, indicating that he
believed some sanctions were appropriate, but not necessarily
the full amount sought by Plaintiff. Docket No. 88. He
indicated that, if the parties were unable to settle this
issue, Plaintiff should file a Motion for Sanctions. That
motion (Docket No. 92) and the request for attorneys'
fees for filing the Motion to Compel, which the Magistrate
Judge had taken under advisement, are the subjects of the
pending Report and Recommendation.
Magistrate Judge has recommended that the request for
attorneys' fees he had taken under advisement be granted
and that Defendants pay $3, 500 to Plaintiff for work done in
connection with filing the Motion to Compel. Defendants do
not object to that award.
Magistrate Judge has also recommended that Plaintiff's
Motion for Sanctions be granted and that Defendants pay $40,
000 to Plaintiff as sanctions for Plaintiff's having to
respond to the two Motions to Set Installment Payments and to
the Emergency Motion to Stay Garnishments. Plaintiff seeks
sanctions pursuant to the court's inherent powers and
Rule 37 of the Federal Rules of Civil Procedure.
may assess attorneys' fees under its inherent powers when
a party has acted in bad faith, vexatiously, wantonly or for
oppressive reasons or when the conduct is tantamount to bad
faith. Metz v. Unizan Bank, 655 F.3d 485, 489
(6th Cir. 2011); Plastech Holding Corp. v. WM
Greentech Automotive Corp., __ F.Supp.3d __, 2017 WL
2831733 at * 3 (E.D. Mich. June 30, 2017). If a party has
engaged in bad faith conduct, appropriate sanctions may
include the imposition of attorneys' fees. Id.