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Regions Bank v. Gateway Housing Foundation

United States District Court, M.D. Tennessee, Nashville Division

August 16, 2017




         Pending 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).

         Pursuant 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.

         Plaintiff 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.

         Following 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.

         Defendant 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.

         McNellis 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.

         The 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.

         On 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.


         The 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.


         The 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.

         A court 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. ...

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