United States District Court, M.D. Tennessee, Nashville Division
Honorable Curtis J. Collier, District Judge.
REPORT AND RECOMMENDATION
BARBARA D. HOLMES UNITED STATES MAGISTRATE JUDGE.
before the Court are the (i) Plaintiff's Motion for
Partial Summary Judgment (Docket No. 79); (ii) Motion to
Dismiss Count II of Johnson Marcraft, Inc.'s Complaint
filed by Defendant Western Surety Company (Docket No. 80);
(iii) Plaintiff's Motion for Sanctions Against Defendant
Western Surety Company (Docket No. 88); (iv) Emergency Motion
of Alexander Mechanical Contractors, Inc. to Determine
Whether an Enforceable Settlement Agreement Exists (Docket
No. 115); and, (v) Johnson Marcraft, Inc.'s Motion to
Enforce Settlement Against Alexander Contractors, Inc.
(Docket No. 116). By order entered on December 18, 2017
(Docket No. 153), all dispositive motions were referred to
the undersigned Magistrate Judge for report and
Court has reviewed the motions and the parties'
respective responsive filings. For the following reasons, the
undersigned Magistrate Judge respectfully recommends that
Western Surety Company's Motion to Dismiss Count II of
Johnson Marcraft, Inc.'s Complaint (Docket No. 80) be
DENIED and Plaintiff's Motion for Sanctions Against
Defendant Western Surety Company (Docket No. 88) be
GRANTED. Further, the undersigned respectfully
recommends that Johnson Marcraft, Inc.'s Motion to
Enforce Settlement Against Alexander Contractors, Inc.
(Docket No. 116) be GRANTED and the Emergency Motion of
Alexander Mechanical Contractors, Inc. to Determine Whether
an Enforceable Settlement Agreement Exists (Docket No. 115)
be DENIED. Based on the recommendation that the settlement
between Plaintiff Johnson Marcraft, Inc. and Defendant
Alexander Mechanical Contractors, Inc. be enforced, and
because there is no other timely and substantive opposition
to the motion, the undersigned also respectfully recommends
that the Plaintiff's Motion for Partial Summary Judgment
(Docket No.79) be GRANTED.
MOTION TO DISMISS AND MOTION FOR SANCTIONS
underlying relationships and transactions between the parties
giving rise to this lawsuit are recited in the Court's
memorandum of June 22, 2016 (Docket No. 40). Those facts are
not again recited here except as necessary to add context to
the pending matters.
breach of contract action, JMI asserts additional claims in
Count II for vexatious refusal to pay a claim under Missouri
law (Docket No. 1 at 10-11), and, alternatively, for bad
faith refusal to pay a claim under Tennessee law in Count III
(Docket No. 1 at 11-12). In its answer (Docket No. 17),
Western asserts as a first affirmative defense that the
complaint generally fails to state a claim upon which relief
can be granted.
early in this case, a discovery dispute arose about the
sufficiency of responses by Defendant Western Surety Company
(“Western”) to discovery requests propounded by
Plaintiff Johnson Marcraft, Inc. (“JMI”).
See Plaintiff's Motion to Compel at Docket No.
38. One of the specific discovery requests in dispute was
JMI's contention interrogatory seeking description of
each ground on which Western alleged that JMI's complaint
failed to state a claim with all supporting facts and
documents. Id. at ¶¶ 20-31. See
also Order entered on July 8, 2016, Docket No. 46 at
7-9. In its ruling on this discovery dispute, the Court held
that this was a proper discovery request, which Western could
not answer, as it originally did, by simply referencing
produced documents. Id. Western was therefore
compelled to “provide the requested information in
narrative format under oath with specific detail” and
to further “identify [in its sworn response] by
specific Bates numbers the documents that Western contends
support or relate to its position, as stated in the narrative
interrogatory response.” Id. at 9.
is no dispute that in its amended discovery responses,
Western identified only one ground as being the basis for its
defense of failure to state a claim, namely, that no money is
due or owing to JMI because JMI allegedly did not properly
fabricate the materials in question. See Docket No.
62-1 at 4-5 and Docket No. 102 at 1-2. Despite not having
identified any other grounds for its failure to state a claim
defense, on April 28, 2017, Western filed a motion to dismiss
under Fed.R.Civ.P. 12(b)(6), seeking dismissal of Count II of
the complaint as failing to state a claim, based on choice of
law arguments (Docket Nos. 80 and 82). Upon the filing by
Western of the motion to dismiss on grounds that Tennessee
law, not Missouri law, applies and precludes JMI from
recovering on its vexatious refusal to pay claim, JMI then
sought sanctions for Western's failure to have timely
disclosed the choice of law contention in its amended
discovery responses (Docket No. 88), as directed by the
Court's prior order. Docket No. 46 at 7-9.
was only one of multiple discovery disputes in this case
brought to the Court's attention. Following this first
discovery contest, Western asserted that documents produced
by JMI were insufficient. See Docket Nos. 50, 51,
52, 53, 55, and 56. The Court resolved this matter by order
entered on November 10, 2016 (Docket No. 57), after a
telephonic discovery conference. Then, JMI raised issues of
the adequacy of Western's compelled discovery responses
(Docket Nos. 62, 63, ad 66) and the adequacy of
Alexander's discovery responses (Docket Nos. 64 and 65).
Because of the parties' failure to comply with the
Court's procedures for resolution of discovery disputes,
the Court denied those motions (Docket No. 67), without
prejudice to refiling, which did not happen. After that,
issues over the scheduling of third-party depositions arose
(Docket Nos. 78, 85, and 93), in connection with which
Western sought to hold out-of-district witnesses in contempt
(Docket Nos. 103, 104, 105, and 106). This discovery dispute
traveled to the District of Minnesota and back again.
See Docket No. 109. The Court references these
additional contests to show that the parties have a long and
extensive history of discovery disputes in this case, as a
result of which all of the parties have had multiple
occasions, and therefore ample opportunity, to fully inform
themselves of their respective discovery obligations and the
consequences for failing to cooperate in discovery.
party disobeys the pretrial orders of a federal court, the
Federal Rules provide that the court may, on motion or on its
own, issue “any just order, including those authorized
by Rule 37(b)(2)(A)(ii)-(viii). Fed.R.Civ.P. 16(f)(1). The
“just orders” authorized by Rule
37(b)(2)(A)(ii)-(viii) include “prohibiting the
disobedient party from supporting or opposing designated
claims or defenses, or from introducing designated matters in
evidence.” Fed.R.Civ.P. 37(b)(2)(A)(ii). Under Rule
16(f), “[t]he district court has discretion to impose
whichever sanction it feels appropriate under the
circumstances.” Clarksville-Montgomery School
System, v. U.S. Gypsum Co., 925 F.2d 993, 998 (6th Cir.
applying the substantially similar Rule 37, the Sixth Circuit
employs a four-factor test to determine whether a sanction
(even one other than dismissal) is appropriate:
The first factor is whether the party's failure to
cooperate in discovery is due to willfulness, bad faith, or
fault; the second factor is whether the adversary was
prejudiced by the party's failure to cooperate in
discovery; the third factor is whether the party was warned
that failure to cooperate could lead to the sanction; and the
fourth factor in regard to a dismissal is whether less
drastic sanctions were first imposed or considered.
Doe v. Lexington-Fayette Urban County Government,
407 F.3d 755, 766 (6th Cir.2005) (quoting Freeland v.
Amigo, 103 F.3d 1271, 1277 (6th Cir.1997)). The party
seeking to avoid a sanction “has the burden of showing
that his failure to comply was due to inability, not
willfulness or bad faith.” United States v.
Reyes, 307 F.3d 451, 458 (6th Cir.2002).
basis for its failure to disclose a choice of law defense in
its discovery responses, Western argues that the defense is
not novel and should have been expected by JMI because it
cannot recover under both state law theories. Docket No. 102
at 2. Western further contends that there is no prejudice to
JMI because the evidence making up the choice of law defense
has been brought to the attention of JMI through the motion
to dismiss itself, and because discovery could be reopened on
this issue. Id. at 3-4.
misses the mark in a number of directions. First, the Federal
Rules permit a party to plead alternative relief.
Fed.R.Civ.P. 8(d)(2). Rule 8 expressly provides that,
“[i]f a party makes alternative statements, the
pleading is sufficient if any one of them is
sufficient.” Id. Western clearly contends,
under its general failure to state a claim defense, that
neither of the alternative statements made by JMI in Count II
is sufficient because Tennessee law applies and the relief
sought is unavailable under Tennessee law, and it was
therefore incumbent upon Western to identify this choice of
law ground in its discovery responses.
specifically asked in discovery for Western to describe the
grounds for any contention that the complaint failed to state
a claim. When a dispute arose over the sufficiency of
Western's responses to that discovery request, the issue
was presented to the Court, and was intensely contested. The
Court compelled Western to identify all of its
contentions of failure to state a claim, and that
direction was clear and unambiguous. Whether or not JMI
should have expected Western to raise this as a ground for
failure to state a claim is beside the point, and completely
ignores the Court's instructions.
Western cannot now claim that its failure to identify the
choice of law argument earlier was an inadvertent omission.
Nor can Western rely on any lack of clarity in the
Court's directions about Western's obligations in
responding to JMI's contention interrogatories. While the
Court stops short of finding that Western's actions rise
to the level of bad faith, the Court does find Western's
failure to identify choice of law as a ground for its failure
to state a claim defense to be in willful disregard of the
Court's order compelling detailed disclosure of all
grounds for that defense. Western has made no showing that
its failure to follow the Court's order was due to some
inability to comply.
the Court finds that Western's failure to disclose this
contention is prejudicial to JMI. Western bases its Motion to
Dismiss on facts that would at least generate, if not
require, additional discovery, including but not limited to,
the intent of the parties (Docket Nos. 80 at 2 and 82 at 7),
the order in which the subject Payment Bond was signed
(Docket No. 82 at 2, n.3), and the location where the Payment
Bond was signed (Docket No. 82 at 12-13). JMI had no
opportunity for such discovery, because the deadline for
completion of discovery expired on April 28, 2017
(see Order at Docket No. 72), the same date on which
Western filed its Motion to Dismiss.
respect to the severity of the sanction and prior warning,
the Court notes that the lesser sanction of compelling
responses was already afforded to Western. See Order
at Docket No. 46. Western thus had its chance to cooperate
in discovery prior to imposition of sanctions. Further, the
Court's earlier order clearly and explicitly instructed
Western to comply with its discovery obligations, which
Western elected not to do. Western's disregard for the
opportunity given by the Court to provide a detailed response
of all grounds for its claimed defenses compels the
conclusion that no lesser sanction would be effective, nor is
a lesser sanction warranted at this procedural posture in
this case. See e.g. Universal Health Group v. Allstate
Insurance Company, 703 F.3d 953 (6th Cir. 2013)
(dismissal warranted by plaintiff's discovery violations
that prejudiced defendant, even without explicit warning).
of these reasons, Western is appropriately prohibited under
Rule 37(b)(2)(A)(ii) from asserting its choice of law
arguments with respect to Count II of the complaint as a
sanction for failing to disclose choice of law as a ground
for its failure to state a claim defense, as directed by the
Court's order compelling that information. JMI's Motion
for Sanctions (Docket No. 88) should therefore be GRANTED and
Western's Motion to Dismiss (Docket No. 80) should
therefore be DENIED. The Court further finds that imposition
of this sanction is sufficient in and of itself, such that an
award of attorney's fees in addition would be unjust.
Accordingly, the Court declines to award attorney's fees
JMI has clearly elected to proceed with its vexatious refusal
to pay claim under Missouri law in Count II as the
alternative to its bad faith refusal to pay claim under
Tennessee law in Count III. JMI should therefore be precluded
from pursuing Count III for the remainder of trial
preparation and trial in this case. This election is only as
between Count II and Count III. It does not impact any other
claims made in the Complaint.
parties' conflicting positions over whether a settlement
occurred between JMI and Third-Party Defendant Alexander
Mechanical Contractors, Inc. (“Alexander”) is
collateral to the underlying litigation in this case. For
that reason again, the Court does not find it necessary to
detail the entire procedural history of this case. Instead,
the Court will begin its discussion with the circumstances of
the parties' attempt at settlement that resulted in the
prior unsuccessful attempts at settlement, principals of JMI
and Alexander began communicating directly in August of 2017
(without involvement of counsel) about the potential for
settlement. At some point, JMI President Tim Scharf
and Alexander President Bill Alexander believed they were
close enough to reaching a settlement that they brought in
the lawyers to document the terms.
August 28, 2017, Mr. Alexander sent a draft release and
settlement agreement, which had been drafted by
Alexander's counsel, to Mr. Scharf. Mr. Scharf
subsequently forwarded the draft release and settlement
agreement to his attorneys, who then notified Alexander's
counsel by email on August 30, 2017 that the proposed
language of the draft settlement agreement was unacceptable.
The point of discord about the settlement agreement was
whether it would include a release of JMI's claims
against Western. At that time, the parties acknowledged that
there was no agreement to the global settlement originally
provided for in Alexander's draft release and settlement
settlement discussions continued between the attorneys, and
also between Mr. Scharf and Mr. Alexander separately. There
is no dispute that on September 8, 2017, Alexander agreed to
settlement in exchange for release of the claims by and
between Alexander and JMI exclusive of Western. See
Alexander Motion, Docket No. 115 at 4-5. On that date,
Alexander's counsel confirmed this agreement by email to
JMI's counsel, stating:
Please find enclosed Alexander's acceptance of your
settlement offer of $310, 000 with a confidential settlement
and release of all claims by and between JMI and Alexander.
In addition, we will be following up on this email with a
second email that includes an offer … on behalf of
Western Surety Company for full and final settlement of all