Espinoza et al v. Galardi South Enterprises, Inc. et al
ORDER denying Plaintiffs' 104 Motion to Compel Defendants to Comply wit the Court's August 13, 2014 Order. Signed by Magistrate Judge Jonathan Goodman on 10/16/2014. (tr00)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 14‐21244‐CIV‐GOODMAN
JASZMANN ESPINOZA, et al.,
ENTERPRISES, INC., et al.,
ORDER DENYING MOTION TO COMPEL
THIS CAUSE is before the Court on Plaintiffs’ Motion to Compel Defendants’ to
comply with the Court’s August 13, 2014 Order (the “August 13 Order”) [ECF No. 97]
and for the imposition of attorney’s fees as sanctions. [ECF No. 104]. Defendant Fly
Low, Inc. d/b/a King of Diamonds (“KOD”) opposes the motion and contends that it has
complied with the Court’s August 13 Order. [ECF No. 106]. Plaintiffs’ have filed their
reply and the motion is now ripe. [ECF No. 107]. As more fully explained below, the
Court finds that KOD has substantially complied with the Court’s August 13 Order
regarding the production of documents. While the Court is less than satisfied with
defendant Teri Galardi’s (“Galardi”) affidavit, the Court does not find that it warrants
the granting of Plaintiffs’ motion or the imposition of sanctions. Accordingly, the Court
denies the motion to compel and denies, without prejudice, Plaintiffs’ request for
Plaintiffs are entertainers who are suing Defendants for, among other things,
minimum wage and overtime violations arising from their work at KOD, a strip club
owned (at least as of the time the lawsuit was filed) by Defendants. [ECF No. 14].
On August 6, 2014, various media outlets reported that Defendants had sold
KOD (i.e., both the real estate and the ongoing business) to a third‐party. The Court
held a telephonic hearing on August 12, 2014 to discuss the impact of this sale on the
case. [ECF No. 93]. At the hearing, defense counsel confirmed that KOD had been sold,
but he did not know much else. Accordingly, the Court entered the August 13 Order
requiring Defendants to submit the following information:
By August 27, 2014, Defendants shall produce to opposing
counsel and file with the Court the documents relating to the sale of KOD.
For purposes of illustration only, these documents would include, among
other things, a bill of sale, a quit claim deed, an asset transfer agreement,
etc. If there is a closing binder, then it shall also be produced.
By August 27, 2014, along with producing and filing the
documents noted above, Defendants shall also produce and file an
affidavit from a duly authorized representative that explains the
relationship of the current Defendants and the potential defendants to
[ECF No. 97, p. 2]. In response, KOD submitted, under seal, 15 documents related to
KOD’s sale. [ECF Nos. 102; 103 (sealed)]. KOD also submitted Galardi’s affidavit. [ECF
Plaintiffs filed the instant motion, contending that Defendants failed to produce
all of the Court‐ordered documentation of KOD’s sale and that Galardi’s affidavit fails
to comply with the Court’s August 13 Order. Plaintiffs contend that the documents
Defendants did disclose reveal a strong possibility that the sale of KOD was not a bona
fide arms‐length transaction, but rather a collusive agreement designed to dissipate
Defendants’ assets and to provide the buyers/potential defendants with a successor
liability defense. [ECF No. 104, p. 2]. Plaintiffs want the Court to order Defendants to
produce the remaining KOD sale documents and another affidavit. In addition,
Plaintiffs request the Court sanction Defendants, pursuant to its inherent powers, and
enter a fees award against Defendants for Defendants’ entry into a fraudulent sale of
KOD, the concealment of KOD’s sale, and for non‐compliance with the Court’s August
13 Order. [Id. at pp. 2, 9].
KOD opposes Plaintiffs’ requested relief. [ECF No. 106]. It contends that it
complied with the Court’s August 13 Order because it produced the documents relating
to KOD’s sale and that the documents Plaintiffs request are either not relevant to this
litigation or do not exist. [Id. at pp. 3‐9]. KOD also contends that Galardi’s affidavit fully
complies with the Court’s August 13 Order. [Id. at pp. 10‐11].
Before addressing the merits of Plaintiffs’ motion, the Court will first address the
underlying theme permeating Plaintiffs’ motion ‐‐ Plaintiffs’ contention that
Defendants’ sale of KOD is likely tainted with fraud and collusion so that Defendants
and the buyers can simultaneously dissipate Defendants’ assets and create a successor
liability defense for the buyers. Plaintiffs reach this conclusion by focusing on Galardi’s
false representations in the sale documents that there was no pending litigation. [ECF
No. 107, pp. 1‐3]. Consequently, Plaintiffs argue that more information is needed to
determine the bona fides of KOD’s sale. The Court understands why Plaintiffs’ counsel is
trying to use the Court’s August 13 Order get to “the bottom” of the KOD sale now:
Plaintiffs’ counsel wants to make sure there is money to pay any judgment.
In particular, Plaintiffs’ counsel is anticipating the following scenario: Plaintiffs
obtain a money judgment against Defendants. When Plaintiffs seek to collect,
Defendants will say they have no money to pay, despite the $6 million sale of KOD.
Plaintiffs will then try to hold the KOD buyers liable for the judgment against
Defendants. The KOD buyers will escape liability, relying, in part, on the theory that
they had no knowledge of this litigation based on Galardi’s representations. [See ECF
No. 104. p. 2]. Thus, Plaintiffs would ultimately be unable to collect.
The Court is not determining whether Plaintiffs would be able to obtain this
information in the normal course of discovery. Rather, the Court’s focus in this Order is
solely on whether Defendants complied with the Court’s August 13 Order.
There are problems with the underlying theme in Plaintiffs’ motion, however.
First, the Court’s August 13 Order was not focused on the bona fides of KOD’s
sale. Instead, as the Order makes clear, the Court was focused on identifying the new
owners of KOD, as neither defense counsel knew anything about the sale. [ECF No. 97,
pp. 1‐2]. There is simply nothing in that order regarding any inquiry into whether the
sale was bona fide or not.
Second, there is nothing, at this time, in the record establishing that the sale of
KOD was a collusive agreement between the buyers and Defendants. For example,
KOD’s instant sale price ($6 million) is almost double the amount that Galardi’s father
bought KOD for in 2002 ($3.15 million). 2 If Defendants and buyers did have a
backroom deal, then why would the buyers legally oblige themselves to almost double
Third, Plaintiffs’ focus on Galardi’s representations in the sale documents as the
source of their theory is misplaced. To be sure, those representations appear to be
blatantly and materially false in light of this lawsuit as well as the other similar lawsuits
in this district. See Vernitta Geter, et al. v. Galardi S. Enters., Inc., et al., No. 14‐21896‐CMA
(S.D. Fla. 2014). But Galardi’s representations were neither made to the Court nor to
Strip‐Club‐Sold‐For‐6‐Million (last visited October 14, 2014).
Plaintiffs. They were made to the buyers. Thus, if anyone is aggrieved it would be them.3
This leads to another problem.
Plaintiffs’ concern that the KOD sale might be part of a grand scheme to dissipate
Defendants’ assets and to allow buyers a successor liability defense is far too premature
and tenuous. It is premature because Plaintiffs do not have a judgment against
Defendants 4 and this case remains at its beginning stages. It is tenuous because it
requires the piling of inference upon inference to reach its conclusion, but each inferred
scenario may turn out differently than Plaintiffs predict. Plaintiffs, however, can rest
assured that the Court noticed that Mr. Akinyele Adams, a KOD manager, potential
defendant, and part of the buyer’s group, testified at the injunction hearing before this
Court regarding this lawsuit. Thus, it seems difficult for Mr. Adams to later contend
that he was unaware of this lawsuit.
A. KOD’s Document Production
The first part of Plaintiffs’ motion concerns KOD’s document production. [ECF
No. 104, pp. 3‐4]. As Plaintiffs point out, and KOD concedes, KOD did not produce all of
the documents relating to the sale. [ECF No. 106, pp. 6‐9]. Rather, KOD produced 15
Plaintiffs may, of course, pursue these apparent falsehoods in discovery and at
trial. If Galardi made material misstatements in her representations concerning the
absence of litigation, then Plaintiffs’ counsel has ammunition to challenge her veracity.
The Court is not opining, either way, on whether Plaintiffs will or will not
ultimately secure a judgment against Defendants.
documents and omitted some other documents which it contends are not relevant or
would be unduly burdensome to produce. [Id. at p. 6].
The crux of the parties’ dispute on this issue is Defendants’ interpretation of the
Court’s August 13 Order. Defendants have interpreted the Order to require production
of some, but not all, of the KOD sale documents. In that regard, the Court does not find
that interpretation in bad faith or illogical. The August 13 Order does not expressly state
that Defendants shall produce all documents relating to the sale of KOD ‐‐ although that
could also be a very plausible interpretation. Moreover, KOD is correct in noting that a
review of the 15 documents it produced shows who participated in the purchase and
sale of KOD. Accordingly, the Court finds that Defendants have substantially complied
with the Court’s Order and denies Plaintiffs’ motion to compel Defendants to produce
the omitted documents.
The Court, however, will make one final point: KOD’s relevance/unduly
burdensome discovery type objections to the Court’s August 13 Order are inappropriate
and rejected. A court order is not a party‐propounded discovery request to which
parties may interpose discovery‐type objections.
B. Galardi’s Affidavit
As noted above, in the August 13 Order, the Court required Defendants to
“produce and file an affidavit from a duly authorized representative that explains the
relationship of the current Defendants and the potential defendants to KOD.” [ECF No.
97, p. 2]. In response, Defendants filed Galardi’s affidavit, which stated, in relevant part:
The Order directs that I identify the relationship between [KOD]
and the current named defendants in this action, which consist of Galardi
South Enterprises, Inc. (“GSE”), Galardi South Enterprises Consulting, Inc.
(“GSEC”), Mike Kap, Dennis Williams, and the undersigned. GSE and
GSEC are inactive companies, and have no present contractual or
operational relationship with [KOD]. The two individual defendants, Kap
and Williams, are not now and have not within the past five (5) years been
employed by or been under contract with [KOD].
The Order also directs that I identify the relationship of [KOD] with
the proposed named defendants in this action, which consist of Akinyele
Adam, Kitty & AK Corp., Rick Taylor, EMK Equities, LLC, AQFC, “LLD”,
AQFC, LLC, Kodrenyc, LLC, Ak “N” Eli, LLC, Elliot Kunstlinger, and
Akiv Feinsold. None of those parties have any contractual or business
relation with [KOD], except as follows: (1) Ak “N” Eli, LLC owes money
to [KOD] pursuant to a promissory note (the “Note”) produced herewith;
(2) [KOD] has licensed to Ak “N” Eli, LLC and to Kodrenyc, LLC certain
trade‐name and trade‐mark rights belonging to [KOD], pursuant to a
license agreement produced herewith; and (3) Elliot Kunstlinger is a
guarantor of the Note.
[ECF No. 101, ¶¶ 7, 8]. While Galardi’s affidavit is an attempt to comply with the
Court’s order, it is less than satisfactory for a few reasons.
First, Galardi provides no information regarding her relationship to KOD. She
was required to do so, as she is a current Defendant. Second, there is nothing in her
affidavit regarding the relationship between the current Defendants and the potential
defendants to KOD. Rather, what Defendants chose to do was to read the August 13
Order in such a way as to separate the current Defendants’ relationship to KOD versus
the potential defendants’ relationship to KOD. In this way, Defendants would not have
to describe the relationship between the current Defendants and the potential
defendants to KOD. But the Court’s Order does not say what Defendants think it does.
Rather, the Court’s Order was written in the conjunctive, not the disjunctive, and
required Defendants to explain the relationship between current Defendants and
potential defendants to KOD, e.g., who sold KOD and to whom.
Despite not finding Defendants’ affidavit particularly convincing in terms of
fully complying with the Court’s August 13 Order, the Court declines to grant
Plaintiffs’ motion and order Defendants to file another affidavit for a few reasons. First,
another affidavit would add little to identifying the parties to the KOD sale transaction.
Plaintiffs can decipher from the submitted documents the KOD sale transaction and the
relationship between some of the current Defendants and the buyers/potential
defendants. Second, the Court is sure Plaintiffs will be seeking these type of answers,
whether in written discovery requests or deposition testimony, from the current
C. Attorney’s Fees
A court may impose sanctions for litigation misconduct under its inherent
power. Chambers v. NASCO, Inc., 501 U.S. 32, 43‐44 (1991). A court’s inherent power
derives from its need “to manage [its] own affairs so as to achieve the orderly and
expeditious disposition of cases.” Id. at 43 (internal citation omitted). This inherent
power to impose sanctions, however, “must be exercised with restraint and discretion.”
Roadway Express, Inc. v. Piper, 447 U.S. 752, 764 (1980).
In the Eleventh Circuit, the “key to unlocking a court’s inherent power [to
impose sanctions] is a finding of bad faith.” Barnes v. Dalton, 158 F. 3d 1212, 1214 (11th
Cir. 1998) (citing In re Mroz, 65 F.3d 1567, 1575 (11th Cir. 1995)). However, “a conclusory
finding of bad faith is not sufficient to withstand appellate review.” In re Porto, 645 F.3d
1294, 1305 (11th Cir. 2011). When considering possible sanctions under “the court’s
inherent power, the threshold of bad faith conduct is at least as high as the threshold of
bad faith conduct for sanctions under 28 U.S.C. § 1927.” Peer v. Lewis, 606 F.3d 1306,
1316 (11th Cir. 2010) (internal citations omitted)(emphasis supplied). Under section 1927
“’[b]ad faith’ is the touchstone. Section 1927 is not about mere negligence.” Schwartz v.
Millon Air, Inc., 341 F.3d 1220, 1225 (11th Cir. 2003) (internal citations omitted).
Here, Plaintiffs request that the Court use its inherent powers to sanction
Defendants by entering a fees award against them because Defendants: (1) engaged in
fraudulent conduct and/or a collusive agreement to consummate KOD’s sale; (2)
concealed the sale from the Court, Plaintiffs, and Defendants’ own lawyers, thereby
disrupting these proceedings; and (3) did not comply with the Court’s August 13 Order.
[ECF No. 104, pp. 2, 9]. At this time, the Court does not find that any of Plaintiffs’
proffered reasons reach the “bad faith” threshold to justify sanctions.
First, as noted above, there is nothing at this time which proves that KOD’s sale
was fraudulent or the product of a collusive agreement. Supra, pp. 4‐6.
Next, while Defendants did not openly and voluntarily disclose KOD’s sale to
Plaintiffs or their counsel, there is no evidence establishing that Defendants were acting
in bad faith by intentionally attempting to conceal the transaction. In fact, there is little
in the record that suggests Defendants were trying to conceal the transaction at all. The
hearing was scheduled because the Undersigned read news reports about the sale. This
is inconsistent with a scheme to keep the sale secret. To be sure, the sale has slowed
down this litigation. But on the record before it, the Court cannot conclude that
Defendants acted in bad faith.
Finally, as explained above, the Court does not find that Defendants violated the
Court’s Order so as to justify the imposition of sanctions under the Court’s inherent
For the reasons set forth above, Plaintiffs’ motion to compel is denied. Plaintiffs’
request for attorney’s fees is denied without prejudice.
DONE and ORDERED, in Chambers, in Miami, Florida, October 16, 2014.
Copies furnished to:
All Counsel of Record
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