Evans et al v. Armenta et al
Filing
170
MEMORANDUM OPINION & ORDER: IT IS ORDERED: 1. Plaintiff's Motion to Set Aside [R. 154 , R. 156 ] in 5:14-CV-329-GFVT-REW are GRANTED; 2. Plaintiff's Motion to Set Aside in 5:14-CV-330-GFVT-REW is GRANTED; 3. Default Judgment is entered a s to Ruel Morton, Anover, Inc., and Todd & Ashley, Inc. in action 5:14-CV-329-GFVT-REW; 4. Default Judgment is entered as to Minhtuyen Nguyen in action 5:14-CV-330-GFVT-REW; 6. The Answer filed by Defendants Ruel Morton and Anover, Inc. in 5:14-CV-32 9-GFVT-REW is STRICKEN [R. 75 ]; 6. The Answer filed by Defendant Todd & Ashley, Inc. in 5:14-CV-329-GFVT-REW is STRICKEN [R. 105 ]; 7. The Answer filed by Defendant Minhtuyen Nguyen in action 5:14-CV-330-GFVT-REW is STRICKEN; and 8. Prior to a fin al judgment being entered, the Magistrate Judge shall conduct a hearing to determine the appropriate damages, expenses, and attorneys fees to be awarded in this matter. Following the hearing, the Magistrate Judge shall file a Report and Recommendation with this Court outlining his findings. Signed by Judge Gregory F. VanTatenhove on 3/28/2018.(KM)cc: COR, Todd & Ashley, Ruel Morton, Anover, Inc via U.S. Mail
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
LEXINGTON
ROBB EVANS, et al.,
Plaintiffs,
V.
RAMIRO ARMENTA, et al.,
Defendants.
ROBB EVANS, et al.,
Plaintiffs,
V.
ANNA BURRELL, et al.,
Defendants.
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Civil No. 5:14-cv-00329-GFVT-REW
MEMORANDUM OPINION
&
ORDER
Civil No. 5:14-CV-330-GFVT-REW
MEMORANDUM OPINION
&
ORDER
*** *** *** ***
This matter is before the Court on Plaintiff Receiver’s Motion to Terminate Sanctions
against defendants Ruel Morton, Anover, Inc., Minhtuyen Nguyen, and Todd & Ashley, Inc.;
strike their answers; and enter default against them for their failure to comply with discovery
obligations. [Burrell, R. 100. Armenta, R. 154; R. 156.] As these motions are intertwined and
these Defendants have been dealt with together in past orders, they will be considered together
here. The defendants have not responded and the time to do so has passed. Accordingly, the
relief the Plaintiff seeks is GRANTED. [Burrell, R. 100. Armenta, R. 154; R. 156.]
I
This action arises out of extensive litigation surrounding Fortune Hi-Tech Marketing, a
fraudulent pyramid scheme. [Armenta, R. 154-2 at 2.] In these particular cases, the Receiver
was assigned to recover $37 million from various parties and has brought action against former
independent representatives who were highly compensated under the fraudulent pyramid
scheme. [Armenta, R. 154-2 at 2.]
Defendants were once represented by various attorneys and each entered an answer to
Plaintiff’s Amended Complaint after a Motion to Dismiss was denied. [Armenta, R. 75; R. 89.
Burrell, R. 47.] Counsel for each Defendant eventually asked to withdraw as they were unable
to comply with Court orders because the Defendants would not respond to them. [Armenta, R.
127; R. 128. Burrell, R. 79.] Judge Wier ordered Defendants to find new counsel and they did
not comply. [Burrell, R. 83; Armenta, R. 132; R. 128; R. 127.]
After discovery commenced, Plaintiff filed a motion to compel Defendants to respond to
Plaintiff’s discovery and for sanctions. [Burrell, R. 93; R. 94. Armenta, R. 147; R. 148.]
Defendants did not respond to the Motion to Compel. Judge Wier detailed Plaintiff’s attempts to
secure responses to their discovery requests. [Burrell, R. 151 at 3.]
As a result, Magistrate Judge Wier granted Plaintiff’s Motion to Compel in part and
denied in part. [Armenta, R. 151.] He entered an Order compelling Defendants to “fully and
substantively respond, without objection, to the respective Interrogatories and RFPs within 14
days.” [Armenta, R. 151 at 5.] He awarded attorney’s fees to the Plaintiff [Armenta, R. 151 at 7]
but declined to issue sanctions at the time [Armenta, R. 151 at 8]. However, Defendants were
explicitly warned that failure to comply with Judge Wier’s Order could result in “progressively
harsher sanctions, up to and potentially including striking each Defendant’s answer to Plaintiff’s
First Amended Complaints and the entry of default judgment.” [Armenta, R. 151 at 9.]
Each Defendant disregarded the Magistrate Judge’s Order and did not produce discovery
within fourteen 14 days. [Armenta, R. 156-2 at 3; R. 154-2 at 4. Burrell, R. 100-2 at 3.]
Plaintiff sent demand letters to each Defendant with the Magistrate Judge’s Order [Armenta, R.
151] attached and specifically stated the Plaintiff would move to strike their answers and would
move for default and default judgment. [Armenta, R. 156-2 at 3; R. 154-2 at 4. Burrell, R. 1002 at 3.] Plaintiff has attached the letter as well as the marked envelopes in the record. [See
Armenta, R. 156; R. 154. See Burrell, R. 100.]
II
Federal Rule 37(b)(2)(A) provides, in relevant part, that “[i]f a party or a party's officer,
director, or managing agent ... fails to obey an order to provide or permit discovery . . . the court
where the action is pending may issue further just orders.” Fed.R.Civ.P. 37(b)(2)(A). The rule
then enumerates seven options for how to sanction the party, one of which is “rendering a default
judgment against the disobedient party.” Fed.R.Civ.P. 37(b)(2)(A)(vi). The rule further
provides, with regard to attorney fees and expenses, that:
Instead of or in addition to the orders above, the court must order the disobedient party,
the attorney advising that party, or both to pay the reasonable expenses, including
attorney's fees, caused by the failure, unless the failure was substantially justified or other
circumstances make an award of expenses unjust.
Fed.R.Civ.P. 37(b)(2)(C). In the Sixth Circuit, entry of default judgment pursuant to Rule 37 is
reviewed for an abuse of discretion. Stooksbury v. Ross, 528 F. App'x 547, 552 (6th Cir.2013)
(citing Bank One of Cleveland, N.A. v. Abbe, 916 F.2d 1067, 1073 (6th Cir.1990). Furthermore,
despite the fact that an entry of default is a “‘drastic step which should be resorted to only in the
most extreme cases,’” Stooksbury, 528 F. App'x at 552 (quoting United Coin Meter Co. v.
Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir.1983)), “the district court does not abuse its
discretion in entering a default judgment where a ‘party has the ability to comply with a
discovery order and does not,’” Stooksbury, 528 F. App'x at 552 (quoting Abbe, 916 F.2d at 1073
(quoting Reg'l Refuse Sys. v. Inland Reclamation Co., 842 F.2d 150, 154 (6th Cir.1988))).
The test for determining whether the Defendants’ conduct in not cooperating with
discovery is sufficiently egregious to justify an entry of default judgment involves the
consideration of four factors:
1) whether the defaulting party's failure to cooperate with discovery was willful and in
bad faith as opposed to an inability to cooperate; 2) whether the adversary was
prejudiced; 3) whether the defaulting party was warned that his failure to cooperate could
lead to a default judgment; and 4) whether less drastic sanctions were imposed or
considered before the default judgment was ordered.
Stooksbury, 528 F. App'x at 552–53 (citing Abbe, 916 F.2d at 1073 (quoting Regional Refuse,
842 F.2d at 154.))
“Although no one factor is dispositive, dismissal [or default judgment] is proper if the
record demonstrates delay or contumacious conduct.” United States v. Reyes, 307 F.3d 451, 458
(6th Cir.2002). Conduct is deemed contumacious when it is in “willful disobedience of a court
order.” Black's Law Dictionary (9th ed.2009) (defining “Conduct.”) Put another way,
“[c]ontumacious conduct refers to behavior that is perverse in resisting authority and stubbornly
disobedient.” Carpenter v. City of Flint, 723 F.3d 700, 704–05 (6th Cir.2013) (quoting Schafer
v. City of Defiance Police Dep't, 529 F.3d 731, 737 (6th Cir.2008) (quoting Webster's Third New
International Dictionary 497 (1986) (internal citations omitted)); see also Wu v. T.W. Wang, Inc.,
420 F.3d 641, 643 (6th Cir.2005) (For conduct to be considered in bad faith, it “must display
either an intent to thwart judicial proceedings or a reckless disregard for the effect of [their]
conduct on those proceedings.”) (citations omitted). The burden is on Defendants to show that
their “failure to comply was due to inability, not willfulness or bad faith.” Reyes, 307 F.3d at
458 (quoting Regional Refuse Sys., Inc., 842 F.2d at 154.) Thus, the Sixth Circuit presumes that
default judgment “is not an abuse of discretion if the party has the ability to comply with a
discovery order but does not.” Id.
Rule 37 does not require Defendants receive a hearing before default judgment is entered,
but only requires the opportunity to be heard and has made explicit in comments that “the court
can consider . . . written submissions as well as on oral hearings.” Fed. R. Civ. P. 37. Parties
have had the opportunity to be heard have not submitted a single response throughout these
proceedings. See JPMorgan Chase Bank, N.A. v. Neovi, Inc., No. 2:06-CV-0095, 2007 WL
1875928, at *6 (S.D. Ohio June 20, 2007); see also Johnson v. Cleveland Heights/Univ. Heights
Sch. Dist. Bd. of Educ., 66 F.3d 326 (6th Cir. 1995). As Defendants have not submitted anything
at all, this Court has been forced to only rely on Plaintiff’s allegations. Regardless, Plaintiff has
provided adequate evidence to support default judgment.
The first factor this Court considers is “whether the defaulting party's failure to cooperate
with discovery was willful and in bad faith as opposed to an inability to cooperate.” Stooksbury,
528 F. App'x at 552–53. Throughout this litigation, Defendants have made no attempt to
cooperate except to submit an answer. Even their attorneys asked to be withdrawn from this case
due to their inability to communicate with Defendants. [Armenta, R. 127; R. 128. Burrell, R.
79.] They have disregarded orders to find counsel [Burrell, R. 83; Armenta, R. 132; R. 128; R.
127] and completely ignored the Magistrate Judge’s Order to participate in discovery. [Armenta,
R. 151.] As the burden rests on the Defendants to prove that their “failure to comply was due to
inability, not willfulness or bad faith,” and they have not responded, this Court finds that their
failure to comply is willful and a result of bad faith. Reyes, 307 F.3d at 458
Second, we look to “whether the adversary was prejudiced.” Stooksbury, 528 F. App'x at
552–53. The Receiver alleges he was injured by Defendants’ repeated failure to comply with
discovery requests and has already been awarded attorney’s fees in the Magistrate Judge’s order.
[See Armenta, R. 156-2 at 7; R. 154-2 at 7; R. 151. See Burrell, R. 100-2 at 7.]
Third, “the defaulting part[ies] [were] warned that [their] failure to cooperate could lead
to a default judgment.” Stooksbury, 528 F. App'x at 552–53. Defendants were explicitly warned
that failure to comply with the Magistrate Judge’s Order could result in “progressively harsher
sanctions, up to and potentially including striking each Defendant’s answer to Plaintiff’s First
Amended Complaints and the entry of default judgment.” [Armenta, R. 151 at 9.] Also, the
Receiver notified the Defendants that they would move to strike their answers and would move
for default and default judgment if they didn’t receive a response after the Magistrate Judge’s
Order. [Armenta, R. 156-2 at 3; R. 154-2 at 4. Burrell, R. 100-2 at 3.]
Fourth, “less drastic sanctions were imposed . . . before the default judgment was
ordered.” Stooksbury, 528 F. App'x at 552–53. Magistrate Judge Wier ordered Defendants to
comply with his Order to participate in discovery and Defendants did not. [See Armenta, R.
151.] He granted Plaintiff attorney’s fees. [See Armenta, R. 151.] These lesser sanctions were
entirely fruitless and resulted in zero action from Defendants.
Though default judgment is a harsh sanction, Defendants Ruel Morton, Anover, Inc.,
Minhtuyen Nguyen, and Todd & Ashley, Inc, have left this Court with no other option. They
have failed to participate in any way in discovery or litigation of this matter. This Court cannot
consider another alternative as it has never been presented with any type of response from Ruel
Morton, Anover, Inc., Minhtuyen Nguyen, or Todd & Ashley, Inc.
III
Accordingly, it is hereby ORDERED:
1.
Plaintiff’s Motions to Set Aside in 5:14-CV-329-GFVT-REW are GRANTED
[R. 154; R. 156];
2.
Plaintiff’s Motion to Set Aside in 5:14-CV-330-GFVT-REW is GRANTED [R.
3.
Default Judgment is entered as to Ruel Morton, Anover, Inc., and Todd & Ashley,
100];
Inc. in action 5:14-CV-329-GFVT-REW;
4.
Default Judgment is entered as to Minhtuyen Nguyen in action 5:14-CV-330-
GFVT-REW;
5.
The Answer filed by Defendants Ruel Mortion and Anover, Inc. in 5:14-CV-329-
GFVT-REW is STRICKEN [R. 75];
6.
The Answer filed by Defendant Todd & Ashley, Inc. in 5:14-CV-329-GFVT-
REW is STRICKEN [R. 105];
7.
The Answer filed by Defendant Minhtuyen Nguyen in action 5:14-CV-330-
GFVT-REW is STRICKEN [R. 47]; and
8.
Prior to a final judgment being entered, the Magistrate Judge shall conduct a
hearing to determine the appropriate damages, expenses, and attorneys fees to be awarded in this
matter. Following the hearing, the Magistrate Judge shall file a Report and Recommendation
with this Court outlining his findings.
This the 28th day of March, 2018.
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