New London Tobacco Market, Inc. v. Kentucky Fuel Corporation et al

Filing 206

MEMORANDUM OPINION & ORDER: 1. The Magistrate's Recommended Disposition [R. 189 is ADOPTED as and for the Opinion of the Court; 2. As such, Plaintiffs motions filed at Docket Entries 131, 134, and 170 SHALL BE GRANTED IN PART and DENIED IN PA RT as is consistent with the Report and Recommendation and this Order. Specifically, default judgment is GRANTED as to liability on Counts I, II, and V. As the Plaintiffs did not sufficiently tie their discovery-related injuries to the merits of the claims in Count III and IV, that Plaintiffs motions are denied as to those claims; 3. The Court will hold a hearing at a later date on the issue of what award of expenses, including attorney's fees, is appropriate; 4. The Defendants' Motion to Strike [R. 199 is GRANTED and Plaintiffs' Notice of Supplemental Authority at Docket Entry 198 is STRICKEN from the Record; and, 5. Defendant's Motion for Summary Judgment [R. 125 is DENIED as MOOT as to Counts I and II and DENIED on the MERITS as to Count IV. Signed by Judge Gregory F. VanTatenhove on 09/30/2014.(MRS)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION
LONDON

NEW LONDON TOBACCO MARKET,
INC. and FIVEMILE ENERGY, INC.,
Plaintiff,
V.
KENTUCKY FUEL CORPORATION and
JAMES C. JUSTICE COMPANIES, INC.,
Defendants.

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Civil No. 12-91-GFVT

MEMORANDUM OPINION
&
ORDER

*** *** *** ***
This matter is before the Court pending review of the March 25, 2014 Report and
Recommendation of United States Magistrate Judge Hanly A. Ingram. [R. 189.] The Report
addresses an array of sanctions motions [R. 131; R. 134; R. 170] which were referred for his
consideration. [R. 154; R. 180]. On April 11, Defendants filed objections to this Report. [R.
190.] These objections trigger this Court’s obligation to conduct a de novo review on all those
topics to which they object. See 28 U.S.C. § 636(b)(1)(c). The Court has satisfied that duty,
reviewing the entire record, including the parties’ arguments, relevant case law and statutory
authority, as well as applicable procedural rules. For the reasons set forth below, the
Defendants’ objections to the Magistrate Judge’s Recommended Disposition shall be
OVERRULED and the Recommendation shall be ADOPTED. Additionally, the Court
considers the remaining relevant portions of the Defendants’ Motion for Summary Judgment.
[R. 125.] For the reasons explicated herein, it will be DENIED.

I
The Magistrate Judge conducted an evidentiary hearing on the issues raised in Plaintiffs’
multiple sanctions motions and sets out the factual and procedural background in his March 25,
2014 Recommended Disposition. [R. 189]. He divided his findings of fact into five thematic
categories: (1) Defendants’ Initial Disclosures; (2) Proceedings Concerning Defendants’ Counsel
of Record; (3) Discovery Into the Sale of Fivemile Leases and Permits & Outstanding Royalties;
(4) Discovery Into Defendants’ Financial Information from 2005-Present; and (5) the Deposition
of James C. Justice, III. [R. 189 at 5-13.] Defendants explain that, because the Magistrate
Judge’s conclusions appear to rely on only three of these categories, its objections to the Report
are similarly limited. [R. 190 at 3-4.] Consequently, Defendants objections are limited to the
following topics: (1) Discovery into the Sale of Fivemile Leases and Permits & Outstanding
Royalties; (2) the Deposition of James C. Justice, III; and (3) Discovery into Defendants’
Financial Information from 2005-Present. [See R. 190.] Even within these three categories, the
“[d]efendants do not challenge the accuracy of any particular Finding of Fact” but only argue
that “other facts deserve emphas[is] for purposes of this Court’s de novo review.” 1 [R. 190 at 4.]
Finally, it is also noteworthy that the Defendants do not object to the Magistrate’s factual
findings relating to either of the remaining two categories addressing initial disclosures and
counsel of record.2 [R. 190 at FN 3.] The Magistrate Judges succinctly summarized his
1

To the extent that the Defendants disagree with how the Magistrate Judge focused on or emphasized
certain facts, these doubts do not amount to particularized objections that require the Court to reconstruct the
Magistrate Judge’s carefully done factual explanation. As such, the Court need not sift through and weigh
again every fact found by the Magistrate Judge. If Defendants had sought such a review (they did not), then
specific objections to his factual findings would have been required. Mira v. Marshall, 806 F.2d 636, 637 (6th
Cir. 1986). With that said, the Court will consider, in the context of the objections being advanced, those facts
and circumstances which Defendants believe deserve greater emphasis.
2
Only one minor exception exists. Defendants take issue with what they perceive to be the
Magistrate’s finding that Defendant argued “that the change in counsel had has a lingering ripple effect.” [R.

2

proposed factual findings in the following way:
1. Defendants failed to produce documents related to the reported sale of the Fivemile
leases and permits requested by Plaintiffs’ Requests for Production Nos. 7–8 within three
days of the September 19, 2013 entry of the Protective Order at Docket Entry 124
because nearly 1,000 documents were not produced until October 25, 2013.
2. Defendants failed to supplement their responses to Plaintiffs’ Interrogatories Nos. 8–9
and Request for Production No. 1 concerning minimum annual royalties due in 2013
because no supplementation was ever made.
3. Defendants failed to produce all the financial documents ordered by the Court to be
produced on October 15, 2013, despite the fact that District Judge Van Tatenhove
overruled Defendants’ objections to that order.
4. Mr. Justice failed to appear for his properly noticed deposition that was scheduled in
accordance with the Court’s Order of July 30, 2013.
[R. 189 at 14-15.]
Neither party objects to the legal framework articulated in the Report. Rather,
Defendant’s objections challenge the Magistrate Judge’s conclusions resulting from his
application of law to the facts. For the reasons stated above, it is unnecessary to restate either the
facts or the law, both of which have already been thoroughly and thoughtfully described.
Nevertheless, the Court will endeavor to briefly restate both the legal framework and pertinent
facts throughout this Order for purposes of clarity and thoroughness. For the reasons stated
above, the Court incorporates the Magistrate Judge’s discussion of the record and applicable
legal framework into this order.3
190 at FN 3.] This is a misreading of the recommendation. The Magistrate explains that Plaintiff’s counsel
(Mr. Lucas) suggested that, despite having acquired counsel, “the ripple effect [caused by the problems in
acquiring and keeping counsel] lingers on.” [R. 189 at 7; R. 191 at 7.] The Magistrate Judge does not attribute
this statement to the Defendants.
3
At docket entry 198, Plaintiffs submit what they term to be “Supplemental authority.” Plaintiffs assert
that this authority, the Order of another Court, demonstrates that the tactics employed by the Defendants in this
case are not isolated but, rather, are calculated business tactics employed by the Defendants in various venues.
The Court does not consider this authority in this Order as the Magistrate Judge did not consider it in preparing
his recommendation. This is consistent with the Magistrate Judge’s decision not to consider similar

3

II
A
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

supplemental authorities which Plaintiffs placed in from of him at Docket Entry 186. See R. 189 at FN 7.
Just as the Court will not consider Plaintiffs’ supplemental authority, the Court will not consider
Defendants’ very late-supplied supplemental authority and affidavits. [See R. 204.] Objections to the Report
and Recommendation were due to this Court no later than 14 days following the Report’s entry. Defendants
supplied their objections which the Court has considered. [R. 190.] The Court will not consider new
objections and justifications supplied by Defendants over six months following the Report’s submission.
These late-filed affidavits are simply ‘more of the same’ from Defendants and are exemplary of the conduct
that has led to today’s entry of default judgment. To consider these objections, at this point, would further
prejudice Plaintiffs by obligating them to expend additional time and energy briefing. Defendants also provide
no legal authority to suggest that the Court must consider these late objections.

4

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 a defendant’s 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 [his] conduct on those proceedings.”) (citations omitted). The burden
is on defendants to show that its “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

5

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.
1
Defendants object to the Magistrate’s recommendation regarding its failure to timely
produce documents related to the reported sale of the Fivemile leases and permits.4 Plaintiffs
first propounded Interrogatories and Requests for Production regarding the leases and permits on
January 4, 2013. [R. 80-1 at 3.] A second set of interrogatories were issued on January 18. [Id.]
Defendants had 30 days to respond to each set of Interrogatories and Requests. See Fed.R.Civ.P.
33(b)(2) & 34 (b)(2)(A). On February 27, the Court ordered the Defendants to comply with
these discovery requests and provided hard deadlines, all within March of 2013. [R. 35.] The
Defendants timely responded, although Plaintiffs contested that the responses were incomplete
and filed a motion to compel. [R. 56-1.] The Court partially granted that motion to compel on
July 30, ordering that documents related to the reported sale of the leases and permits was due
within seven (7) days. [R. 99.] The Defendants responded, not by turning over the documents,
but by requesting the entry of a protective order. [R. 103.] After status conferences and briefing,
the Court approved and entered an agreed protective order on September 19. [R. 124.] Despite
the fact that the Defendants were ordered to produce the contested documents within three days
of the entry that agree protective order [R. 122 at 4], they did not comply until a month later
when, on October 25, the Defendants produced nearly 1,000 emails. [R. 131-1 at 4.] The
Magistrate Judge deemed this production to be a “document dump,” noting that the documents
were not neatly organized or bates stamped. [R. 189 at 10; R. 131-1 at 4.] Finally, as explained

4

Defendants do not object to the Magistrate Judge’s findings regarding their failure to provide
supplemental discovery regarding minimum royalty payments, discussed more infra.

6

by the Magistrate Judge, the Defendants have never provided supplemental discovery regarding
minimum royalty payments made to Fivemile landowners (although Plaintiffs have
independently confirmed such royalty payments exist). [R. 189 at 10.] Plaintiffs have asked for,
and the Magistrate Judge has recommended, that default judgment be entered against Defendants
for this behavior.
Defendants do not rebut the above recited facts but, instead, offer additional pieces of
context that they believe demonstrate the Plaintiffs’ true, ulterior motives in seeking sanctions.
First, they argue that “before the contents of [the disputed] production were even reviewed, the
Plaintiffs were plotting a way to divert attention” from the substance of the disclosure and
instead, plotting “how best to stage a procedural challenge.” [R. 190 at 5-7.] They cite to an
email that was sent, by mistake, to Defendants’ counsel, Mr. A.J. Dudley. [R. 190 at 5-6.]
Second, they argue that the Plaintiffs’ sanction motion [R. 131] was intended to compensate for
the fact that Plaintiffs did not file a motion for summary judgment. [R. 190 at 7.] Neither of
these pieces of information do anything to explain why the Defendants were unable to comply
with Court Orders regarding discovery. Defendants also argue that, because depositions were
not yet noticed at the time they disclosed the nearly 1,000 emails and because Plaintiffs
ultimately depended on the content of some of these emails in depositions, that the delay in their
disclosure was not prejudicial. [R. 190 at 7.] None of these emphasized facts are particularly
persuasive.
Defendants challenge the Magistrate Judge’s findings regarding each element of the
Regional Refuse test. They argue that the above-described behavior fails to support a finding of
bad faith and, further, that their delays have not significantly prejudiced the Plaintiffs. They

7

further contend that they were not properly notified that default judgment was a possible sanction
and argue that a lesser sanction would have been sufficient. The Court will address each factor
in turn.
With regard to bad faith, the Defendants have done nothing to suggest that they were
honestly trying to comply with the Court’s orders. The burden is on Defendants to show that its
“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). Defendants have never, and at the time of
the filing of their objections still had not, provided a reason for their non-compliance.5 As
discussed above, the Defendants have never provided supplemental discovery regarding
minimum royalty payments. [R. 131-2; R. 192 at 4.] They do not even argue that they were
unable to comply with the Court orders. Without even making such an argument, the Court is
left to believe that they could have complied but elected not to do so. This is, by definition,
contumacious and enough to conclude they acted in bad faith. But alas, this is not Defendants’
only error; even when Defendants did actually respond to discovery requests, the responses were
incomplete, late and sloppy. For example, the October 25 email disclosure occurred one month
after the Court-imposed deadline [R. 122; R. 124] and months after they were originally
compelled to disclose the information. [R. 99.]

5

Defendants do direct a few derisive remarks at past counsel, noting that “[p]rior counsel for
Defendants never propounded discovery onto Plaintiffs in nearly thirteen months as counsel.” [R. 190 at
FN7.] Defendants do not suggest, however, that prior counsel was solely responsible for the discovery
violations and such an argument would not be taken well as their non-compliance has continued since prior
counsel’s withdrawal. The Magistrate Judge dedicated a section of his Recommended Disposition to the
proceedings concerning Defendants’ counsel of record. [See R. 189 at 6-7.] The Court notes that Counsel who
drafted the objections currently before the Court has also moved on since its filing. [See R. 196.]
Nevertheless, the Court agrees with Plaintiffs that Defendants “continuing pattern of contempt for the Court’s
orders and their obstruction of discovery show that their non-compliance is not lawyer-driven.” [R. 131-1 at
1.]

8

Defendants’ arguments that Plaintiffs were not sufficiently prejudiced to justify sanctions
are unavailing. [R. 190 at 10.] Defendants’ first argument boils down to a suggestion that
because Plaintiffs made-do with the discovery they did receive, everything is fine. [R. 190 at
10.] No blood, no foul. The fact that Plaintiffs’ were resourceful and did everything they could
to be prepared for depositions with the discovery they had does not mean that they were not
prejudiced by the discovery’s tardiness. Second, Defendants argue that what was “not in the
1,000 emails” also supports their position that Plaintiffs did not suffer prejudice. In Defendants
words, there was no “smoking gun” and, they conclude, “because no email produced on October
25, 2013 aides Plaintiffs’ ability to prove their case, even less (or no) prejudice accrued to
Plaintiffs when those emails were sent when they were.” [R. 190 at 10.] Defendants do not get
to decide what emails aid “Plaintiffs’ ability to prove their case.” The Court concluded that
Plaintiffs were owed certain discoverable information and ordered the Defendants to turn that
information over. Plaintiffs were prejudiced each time the Defendants “prevent[ed] [them] from
obtaining evidence essential to the preparation” of its case. Allstate Ins. Co., 703 F.3d 953 at
956. Additionally, as a result of this behavior and the pending sanctions motion, the Plaintiffs’
trial date has now been continued over nine months and will undoubtedly be continued further.
[See R. 169.] Plaintiffs also argue they were prejudiced by the form in which they received the
emails because nothing was organized or bates stamped. As a result, Plaintiffs contend it was
very difficult to determine whether production was actually complete. [R. 131-1 at 4.] Plaintiffs
have been further prejudiced because of the waste of time and money dealing with these abuses.
See Grange Mut. Cas. Co. v. Mack, 270 F. App'x 372, 377 (6th Cir. 2008).

9

A finding of bad faith supplants the need for notice. Harmon v. CSX Transp., Inc., 110
F.3d 364, 367 (6th Cir. 1997) (“Where a plaintiff has not been given notice that dismissal is
contemplated, ‘a district court should impose a penalty short of dismissal unless the derelict
party has engaged in ‘bad faith or contumacious conduct.’’” (quoting Harris v. Callwood, 844
F.2d 1254, 1256 (6th Cir. 1988) (emphasis added)). Even if the Court had not concluded that the
Defendants acted in bad faith, the Defendants were nevertheless on notice that serious sanctions
including default judgment were a possibility. As the Magistrate Judge acknowledged, explicit
notice was not given. Such explicit notice is not, however, required; “there [are] no magic-words
prerequisite to dismissal [or default judgment] under Rule 37(b).” Allstate Ins. Co., 703 F.3d at
956. Furthermore, Defendants were definitely aware that default judgment was a possibility as
early as October 8, 2013 because that is when Plaintiffs first asked for the Court to impose a
sanction of default judgment. [See R. 131.] See Abbe, 916 F.2d at 1079 (“The court's delay in
ruling on the banks' first motion for sanctions, followed by its order compelling the defendants to
comply with discovery, was sufficient to put them on notice of the consequences of their failure
to cooperate.”) Nevertheless, the Defendants non-compliant behavior has continued to the
present date. Furthermore, the Defendants were sanctioned in this case even earlier, in August
2013, by the Magistrate Judge when they were charged $4,311.67 “in connection with its fees
attributable to presenting the issues concerning Kentucky Fuel Corporation’s principal place of
business and the sale or assignment of the FiveMile leases and permits” in August, 2013. [R. 99;
R. 116.] This lesser sanction should have also placed them on notice that greater sanctions were
possible. Finally, with regard to the fourth factor, the Courts’ lesser sanction was apparently
insufficient to motivate Defendants to cooperate with the discovery process. The Sixth Circuit

10

has explained they are “loathe to require the district court to incant a litany of [ ] available lesser
sanctions” and in Harmon, affirmed the district court’s dismissal on a record that did not even
articulate whether lesser sanctions were considered. See Harmon, 110 F.3d at 368.
While no single factor is dispositive, Reyes, 307 F.3d 451, 458, it is clear that in a case
when every factor points towards the entry of default judgment (as in this case) that default
judgment is an appropriate tool to use. Again, the Court refers back to the burden placed on
Defendants to show that its “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). The Defendants do
not even argue that its non-compliance was due to inability. The entirety of their argument
focuses on what the Defendants perceive to be Plaintiffs’ wrongs. Defendants’ behavior is, by
definition, contumacious as it is in “willful disobedience of a court order.” Black's Law
Dictionary (9th ed. 2009) (defining “Conduct.”) For all of these reasons, the well-reasoned
recommendation of the Magistrate Judge will be adopted.
2
Like the leases and permit documentation, discussed supra, Plaintiffs requested tax
returns, balance sheets, and financial statements (financial information) through Interrogatories
and Requests for Production on January 4, 2013. [R. 80-1 at 3.] The rules provide Defendants
30 days to respond. On April 9, over three months after the information was requested, the
Magistrate Judge held a status conference to address the disputes.6 Following that status
conference, he ordered Defendants to immediately produce “copies of pages from their tax

6

The Magistrate Judge asked Plaintiffs to submit a statement regarding its position on the discovery
dispute on or before April 2. Plaintiffs complied. Defendants were similarly asked to submit a statement of its
position on or before April 4. Defendants did not comply, “frustrating the Court’s ability to fully analyze the
dispute prior to the call.” [R. 47 at 1.]

11

returns, federal and state (for all states where the Defendants file tax returns), from 2005 to the
present that list any address for Kentucky Fuel Corporation.” [R. 47 at 2.] Defendants were
further ordered to turn over “copies of all balance sheets and financial statements prepared from
2005 to the present.” [Id.] Defendants were given until April 15 to supplement its response with
additional tax returns or else any requests for extensions that might have been filed in connection
with its 2012 returns. [Id.] The Magistrate Judge ruled that the disclosure of “complete and
unredacted copies of both Defendants’ income tax returns (state and federal), balance sheets and
financial statements” from 2005 through that date could be deferred until this Court ruled on a
pending motion to dismiss. If the motion to dismiss was denied then Defendants had fifteen days
to turn over the information. [Id.] Finally, the Defendants requested leave to file further
objections to the disclosure of these documents during that fifteen day window but the
Magistrate Judge denied that request on the grounds that Defendants had waived objections to
producing such documents. [Id.] Plaintiffs were granted the right to file a motion to compel
production of the financial documents prior to this Court’s ruling on the motion to dismiss only if
“their discovery and trial preparation are being impeded by the lack of the complete and
unredacted financial documents.” [Id.]
Plaintiffs filed such a motion to compel on July 18, arguing that they needed the
information to prepare for depositions in advance of the August 31 discovery cutoff. [R. 76.]
On October 8, the Magistrate Judge granted the motion to compel, ordering that “Defendants
SHALL produce their tax returns (state and federal), balance sheets, and financial statements,
from 2005 to the present, within seven (7) days.” [R. 128.] On October 15, the date that
financial information was again due to be turned over, Defendants filed objections to the

12

Magistrate Judge’s order with this Court. Defendants did not, however, seek a stay of the Order
compelling them to turn over the financial information. [R. 133.] On December 16, this Court
overruled Defendants’ objections, ordering that, “[t]o the extent they have not already, Defendants
are ordered to comply with [the Magistrate Judge’s] Order [to Compel].” [R. 156.] Nevertheless,

as of the January 10 oral argument, Defendants still had not turned the financial information
over. Instead, during the oral argument on sanctions, defense counsel sought leave to advance
new arguments about why Defendants should not have to disclose the financial documents,
arguing for the first time that the Justice companies were “merely a guarantor for Kentucky
Fuel’s obligation under the Fourth Amendment.” [R. 191 at 91.] The Magistrate Judge was
unwilling to consider this argument, explaining that Defendants were essentially asserting “an
objection to the discovery and then to the Court's order months after the fact after the objections
period was already -- well, after objections were already allowed and contemplated by the rules.”
[Id at 96.] The Magistrate construed the request as a very late motion to reconsider a past ruling
and concluded he was not going to revisit his earlier order. [Id. at 96.] Following the sanctions
hearing, the Plaintiffs received year-end financial statements for Kentucky fuel for the years
2010, 2011 and 2012 but never received tax returns for either Kentucky Fuel or Justice
Companies.7 [R. 192 at 10.] This means that, to date, Defendants have still not complied with
this Court’s Order to disclose the financial information between 2005-2009 nor fully complied
with the Court’s order to turn over tax returns for 2010-2012. [Id.]

7

Defendants note that no tax returns exist for Kentucky Fuel because they are “rolled up” into the Justice
Companies’ returns. [R. 190 at 24; R. 191 at 94.] Counsel for Defendants explained that this, at least in part,
informs their hesitation in turning the returns over. The Magistrate Judge reminded Counsel, however, this is
“not a basis to tinker with what’s been ordered,” referring to the Court’s Order to Compel the financial
documents disclosure. [R. 191 at 95.]

13

Now, in their objections, the Defendants again argue that the “Justice companies [are]
merely a guarantor of Kentucky Fuel’s obligation to Plaintiff’s under the Fourth Amendment.”
[R. 190 at 23.] Defendants acknowledge this is the same argument that the Magistrate Judge
refused to consider because it was determined to be both late and waived. [R. 190 at FN13.] To
consider the substance of this late, and waived, argument would further prejudice the Plaintiffs
who have already been significantly impacted by Defendants dilatory tactics. The Court,
therefore, does not consider the argument now for the same reasons that the Magistrate Judge
refused to consider it on January 10. Second, Defendants also argue against default judgment on
the grounds that they have substantially complied because they turned over financial statements
from 2010-2012. [R. 190 at 24.] This argument, too, is unconvincing.
Defendants possess “either an intent to thwart [these] judicial proceedings or a reckless
disregard for the effect of [their] conduct on th[e]se proceedings.” Wu v. T.W. Wang, Inc., 420
F.3d 641, 643 (6th Cir. 2005). Again, Defendants do not even bother to argue that they could not
comply with the Court’s orders. In fact, the Magistrate Judge engaged in a conversation with
counsel for Defendants at the January 10 hearing that demonstrates the non-disclosure is a simple
case of non-compliance. Magistrate Judge Ingram confirmed with defense counsel that the tax
information had still not been produced. [R. 191 at 97.] He then asked, “it’s not a question of an
inability to comply with the Court’s order. It’s simple as non-compliance, correct?” Mr.
Dudley, counsel for defendants responded, “Your Honor, I do have the Kentucky Fuel financial
statements with me and I'm confident we have James C. Justice Company tax returns in
Roanoke, and I can get those promptly, very immediately.” [Id.] Dudley then confirmed that
disclosure of those documents, even immediately, would still be late. [Id.] Even after this

14

dialogue, as explained above, Defendants have not fully complied. The Court also notes that
back in October of 2013, the Defendants should have asked the Court to stay the Order to
Compel while its objections were being considered. Absent a stay, they should have turned that
information over on October 15, 2013. See Maness v. Meyers, 419 U.S. 449, 458 (1975) (“If a
person to whom a court directs an order believes that order is incorrect the remedy is to appeal,
but, absent a stay, he must comply promptly with the order pending appeal.”); Guiden v. Leatt
Corp., 5:10-CV-00175, 2013 WL 4500319 (W.D. Ky. Aug. 21, 2013) (“the filing of an objection
does not automatically stay a Magistrate Judge's order to produce discovery.”) Defendants never
sought a stay of the discovery order, but just chose not to comply. Defendants disregard for
Court orders is not passive or mistaken but is deliberate.
Defendants argue that because discovery had closed in November and the financial
documents will be most useful to Plaintiffs in calculating punitive damages in conjunction with
count five, the fraud count, which was the subject of a motion to dismiss that was denied by this
Court on December 16, 2013, that their late disclosure was not all that prejudicial to Plaintiffs.
[R. 190 at 24.] Defendants acknowledge this does not “excuse[] their lack of production” but
argue that it does “mitigate[] against the prejudice to Plaintiffs.” [R. 190 at 25.] Plaintiffs
strongly disagree, arguing that they need the financial information to prove that Kentucky Fuel
made a larger profit in selling or transferring the Fivemile leases and permits than it did in
mining them. [R. 192 at 23.] The Court notes again this is not the only prejudice the Plaintiffs
have borne. Plaintiffs entire case has been delayed and Defendants behavior has resulted in “an
unnecessary waste of time, money, and effort.” [R. 192 at 19.]
The Court’s discussion of notice and the appropriateness of lesser sanctions, discussed

15

supra II B 1, is incorporated by reference herein. Defendants were on notice that their behavior
warranted sanctions and that serious sanctions were being considered. Lesser sanctions were
already levied against Defendants and with their track record of not respecting Court orders, the
Magistrate Judge nor this Court have any reason to believe that Defendants would start
respecting Court Orders at this late juncture. Accordingly, default judgment is equally
appropriate for the Defendants’ refusal to timely and completely disclose the above described
financial information to Plaintiffs.
B
A court may sanction a party when “a party or a party's officer … fails, after being served
with proper notice, to appear for that person's deposition.” Fed. R. Civ. P. 37(d)(1)(A)(i).
Plaintiffs first noticed the depositions of Steve Ball, Vice President of Operations for the
Justice Companies, and James C. Justice III, Vice President and Director of both corporate
Defendants, to occur on July 31, 2013. [R. 66; R. 67.] However, due to Defendants’ difficulties
in obtaining counsel of record, the parties reached an agreement to continue the “depositions to
be reset at a date, time, and location as the parties may agree, or, absent such an agreement, at a
date, time, and location of Plaintiff’s choosing.” [R. 98 at 1.] On October 18, plaintiffs’ counsel
emailed defense counsel and offered to take the depositions at defense counsel’s office in
Roanoke, Virginia. [R. 150-2.] On October 22, after no response was received from defense
counsel, the Plaintiffs re-noticed the depositions for November 6, 2013 in Knoxville, Tennessee.
[R. 140; R. 141.] Later that day, defense counsel responded, sending an email questioning the
location change for the depositions. [R. 150-3.] On November 4, defense counsel requested that
the depositions be moved back one day and plaintiffs’ counsel agreed to accommodate the

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change. [R. 150-5.] On November 6, the day before depositions were scheduled to occur,
plaintiffs’ counsel was informed that Mr. Ball would not be able to appear for his scheduled
deposition. [R. 150-6.] Positions were clarified through subsequent emails and it became clear
that Mr. Ball could attend his deposition but Mr. Justice would not be attending. [R. 150-6.]
The reason provided was that a “meeting in Chicago has not gone as planned” and so Justice would
not be able to make it. [R. 150-3 (Nov. 6 email from Mr. Dudley).] Counsel for Defendants
described the meeting as “being very important to our company and involves roughly a half dozen
non-justice participants from a variety of locations spread far and wide.” [Id.] Mr. Ball was

deposed on November 7 but Mr. Justice, despite being properly noticed, did not appear. [R. 1701 at 3.] The Magistrate Judge recommends that Justice’s failure to appear warrants an entry of
default judgment. [R. 189 at 25.]
Defendants first complain that Plaintiffs did not expend enough effort in attempting to
comply with the Magistrate’s order to reschedule depositions “at a date, time, and location as the
parties may agree” before concluding the “absen[ce of] such an agreement” and choosing “a
date, time, and location of Plaintiff’s choosing.” [R. 98 at 1.] Defendants attempt to shift the
burden to Plaintiffs by arguing that “Counsel for Plaintiffs have never communicated why, after
just two business days, their commitment to take depositions in Roanoke suddenly reversed.”
[R. 190 at 13.] This argument is nothing more than a red herring, sidestepping the more relevant
question of why Mr. Justice did not show up for his deposition in the first place. As the
Magistrate Judge noted, “[n]o explanation has ever been offered by Defendants as to why Mr.
Justice did not appear, nor is there any claim that he was unable to appear.” [R. 189 at 23.] This
continues to be true as an explanation for this behavior is completely absent from the
Defendants’ objections. [See generally R. 190 at 12-23.] Remarkably, Defendants believe that
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their neglect is somehow forgivable because they offered to reschedule Justice’s deposition
following his non-appearance. [R. 190 at 18.] “[M]isconduct is not any less misconduct because
it is executed with a veneer of good intentions.” Reg'l Refuse Sys., Inc., 842 F.2d at 156.
While Defendants have cited Mr. Justice’s meeting as the reason for his failure to appear,
they have failed to provide any actual, specific reasons why this meeting rendered Justice unable
to attend the deposition. Instead, what is produced is more a showing that it might have been
inconvenient for Justice to attend. Much discussion is made in the report and recommendation,
objections, and response to Mr. Ball and Justice’s travel arrangements. [R. 189 at 23; R. 190 at
14; R. 192 at 12.] It is said that Justice was on a plane with Ball but just got dropped off before
his deposition. Ball then stated that he and Mr. Justice had not talked about the depositions
while they were on the plane together. Ball was also unable to answer with any specificity any
questions regarding why Mr. Justice was absent. [R. 161-1 at 37.] Plaintiffs claim and the
Magistrate suggests that it is unlikely Ball did not speak to Justice about the depositions and that
it is unlikely Ball would not have known why Justice failed to appear. This dispute about travel
arrangements is really not central to the Court’s decision. What is central is that Mr. Justice had
been properly noticed for his deposition and then failed to appear. He has never explained why
he was unable to attend. Since Defendants have failed to even present an argument that they
were unable to comply, as opposed to unwilling, the Court assumes that Justice’s absence was
willful and in bad faith.
Justice’s decision not to appear has served to prejudice Plaintiffs in significant ways by
impeding discovery. First, Justice was an important fact witness as Plaintiffs argue that he was
actually involved in the negotiation of the Agreement that is the basis of this litigation. [R. 170-

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1 at 4.] His testimony could prove crucial to Plaintiffs’ fraud claim as he arguably had
knowledge of the negotiations and the Defendants’ intent when entering into the Agreement.
Second, Plaintiffs argue that Justice is even more important because Ball was so inadequately
prepared for his deposition. Plaintiffs’ response includes a full three-page list of topics that
Justice needed to address. [See R. 192 at 24-40.] According to notes appended to the list, Ball
actually confirmed during his testimony that Justice was the person to ask regarding some of the
topics. [See R. 192 at 25 (According to Ball, Mr. Justice had to approve all payments to
Plaintiffs and would be able to answer question related to “email instructing Kentucky Fuel
employees not to pay $5,000 owed to Fivemile Energy.”)] Of course, Defendants disagree and
argue that Plaintiffs were not significantly prejudiced. They argue that Plaintiffs unanswered
questions were irrelevant and outside the scope of the case. [R. 190 at 20.] Defendants do not
get to choose how Plaintiffs prove its case.
As previously explained, Defendants were on notice and lesser sanctions do not
sufficiently address the behavior. Monetary sanctions have already been imposed and the Court
has no reason to believe, despite Defendants statements, that Mr. Justice would comply with a
similar noticed deposition in the future.
C
Defendants also argue that the discovery violations were not sufficiently related to count
five, the fraud count, to justify the Court’s entry of default judgment. [R. 190 at 27.]
Specifically, Defendants suggest that neither the financial statements of Kentucky Fuel or the
Justice Companies nor documentation relating to the Fivemile leases has a bearing on whether
fraud happened in 2010. They further suggest that no evidence exists to show that Mr. Justice

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was in communication with Plaintiffs when the Fourth Amendment was negotiated. [Id.] The
Magistrate Judge considered “whether there is a sufficient relationship between the discovery
and the merits sought to be foreclosed by the sanction to legitimate depriving a party of the
opportunity to litigate the merits.” [R. 189 at 26 (quoting 8B Charles Alan Wright & Arthur R.
Miller, Federal Practice & Procedure § 2283 (3d ed. 2013))]. With regard to count five, he
concluded that Defendants’ conduct was sufficiently tied to the fraud count:
As for Plaintiffs’ fraud claim in Count V of the Amended Complaint (that includes a
request for punitive damages), Mr. Brownlow attests that Mr. Justice “committed to mine
the Fivemile properties, so [Plaintiffs] therefore agreed to include the ‘Covenant to Mine’
in the Fourth Amendment.” D.E. 137-1 at 3. Plaintiffs claim that this was among
Defendants’ false representations made during the negotiations of the Fourth
Amendment. Mr. Justice intentionally deprived Plaintiffs of relevant discovery
concerning this commitment when he chose not to appear for his properly noticed
deposition. Plaintiffs therefore have sufficiently linked the merits of their fraud claim in
Count V to the discovery misconduct committed by Defendants.
[R. 189 at 28.] Defendants do not object to the Magistrate’s factual findings and his findings,
recited above, clearly tie Mr. Justice’s testimony to the fraud count.
Brownlow’s affidavit states that, during a negotiation with Steve Ball, at the Greenbrier
Resort in West Virginia, “Mr. Ball periodically excused himself from the table to go talk with
Mr. Jay Justice. He would then come back to the table and report to us what Mr. Justice said.
One of the things that he reported was that Mr. Justice committed to mine the Fivemile
properties, so we therefore agreed to include the ‘Covenant to Mine’ in the Fourth Amendment.”
[R. 137-1 at 3.] Plaintiffs also argue that the tax returns which they have been deprived of are
relevant to the fraud count as they need to be able to “determine the extent of the increased
profits caused by the failure to mine.” [R. 192 at 23.] Defendants have cited to no case nor
explained why these connections are insufficient to justify the entry of default judgment.

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D
In its objections, the Defendants attempted to segregate all of its many violations and to
suggest that, when viewed in isolation, no single violation was worthy of sanction. While the
Court has considered Defendants’ objections separately in this review, it is worth noting that
when Defendants pattern of conduct is considered more broadly, it is even more appalling and
further justifies the entry of default judgment. In addition to the multiple discovery abuses
objected to, the Magistrate also summarized how the Defendants were dragging their feet in
getting counsel appointed [R. 189 at 6-7] and were severely delayed (three-months) in serving
initial disclosures [R. 189 at 5-6]. Each of these instances caused additional delay to Plaintiffs.
In sum, Defendants’ entire strategy in this case has been to delay, object and not-comply. Such a
consistent pattern of obfuscation is exactly why the rules provide the sanction of default
judgment. The Court is aware of the seriousness of entering default judgment but notes that a
party that is serious about their duties to opposing counsel and the Court would spend more time
attempting to comply with, as opposed to evading, Court Orders.
III
Prior to the filing of the motions for sanctions, the Defendants filed a motion for
summary judgment as to Counts I, II, and IV of the Plaintiffs’ Amended complaint. Due to the
Court’s entry of default judgment on Counts I, II, and V, supra, this motion is only partially still
relevant. For this reason, the Court will only consider Defendants’ motion as to Count IV.
A
Summary judgment is appropriate where “the pleadings, discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact

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and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2); Celotex
Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). “A genuine dispute exists on a material fact, and
thus summary judgment is improper, if the evidence shows ‘that a reasonable jury could return a
verdict for the nonmoving party.’ ” Olinger v. Corp. of the President of the Church, 521 F.
Supp. 2d 577, 582 (E.D. Ky. 2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986)).
In deciding a motion for summary judgment, the Court must review the facts and draw all
reasonable inferences in favor of the non-moving party. Logan v. Denny’s, Inc., 259 F.3d 558,
566 (6th Cir. 2001) (citing Liberty Lobby, 477 U.S. at 255). In terms of burden shifting, the
moving party has the initial burden of demonstrating the basis for its motion and identifying
those parts of the record that establish the absence of a genuine issue of material fact. Chao v.
Hall Holding Co., Inc., 285 F.3d 415, 424 (6th Cir. 2002). The movant may satisfy its burden by
showing “that there is an absence of evidence to support the non-moving party’s case.” Celotex.,
477 U.S. at 325. Once the movant has satisfied this burden, the non-moving party must go
beyond the pleadings and come forward with specific facts to demonstrate there is a genuine
issue. Hall Holding, 285 F.3d at 424 (citing Celotex, 477 U.S. at 324.) Moreover, “the
nonmoving party must do more than show there is some metaphysical doubt as to the material
fact. It must present significant probative evidence in support of its opposition to the motion for
summary judgment.” Id. (internal citations omitted). The trial court is under no duty to “search
the entire record to establish that it is bereft of a genuine issue of material fact.” In re Morris,
260 F.3d 654, 655 (6th Cir. 2001) (citing Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479-80
(6th Cir. 1989)). Instead, “the nonmoving party has an affirmative duty to direct the court’s

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attention to those specific portions of the record upon which it seeks to rely to create a genuine
issue of material fact.” In re Morris, 260 F.3d at 655.
B
Defendants argue that there is no question of material fact regarding the question of
whether Kentucky Fuel has a continuing obligation to pay for “shortfalls” in royalties on the
Deep Woods Properties and Permit. [R. 125-1 at 7-10.] They cite to the sworn declaration of
Stephen Ball, Senior Vice President of Operations of the Justice Companies and Kentucky Fuel
Corporation, to support this contention. [R. 15-1 at 7.] In his declaration, Mr. Ball attests that:
(4) At the time the Fourth Amendment document was entered into by the parties, it was
the intention of Kentucky Fuel Corporation and James C. Justice Companies, Inc. that all
obligations of Kentucky Fuel Corporation and James C. Justice Companies, Inc. as they
relate to the Deep Woods Properties and Permit would be extinguished upon the
execution o fsaid document, including, but not limited to, the basis for relief sought in
Count IV of Plaintiffs’ Amended Complaint.
(5) It is my belief as a signing party familiar with all negotiations surrounding the
execution of the Fourth Amendment, that all signing entities to the Fourth Amendment
had the same understanding as to the extinguishing of any remaining liability on the part
[of] Kentucky Fuel Corporation and James C. Justice Companies, Inc. as it relates to the
Deep Wood Properties and Permit.
[R. 125-5 at 2.] Defendants also argue that the Fourth Amendment Agreement (“Agreement”)
does not include language referring to a continuing obligation or liability for any shortfall
amount. [R. 125-1 at 8-9.]
Not all that surprisingly, Plaintiffs disagree with Defendants interpretation of the
Agreement. Plaintiffs cite to the Declaration of William Brownlow, IV, who is the President of
New London Tobacco and a member of Fivemile Energy LLC. [R. 137-1.] Brownlow was
“personally involved in the negotiation, drafting and preparation of the Fourth Amendment” and
attests that the covenant to mine (Article 10 of the Agreement) was included because of

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concerns he had about Kentucky Fuel not mining the property. [R. 13-1 at 1-2.] He argues that
this “’Covenant to Mine’ was intended to be a substantive commitment by Kentucky Fuel to
mine the coal on the property.” [R. 137-1 at 3.] Finally, he addresses the Declaration of Mr.
Ball, explaining that he disagrees with Ball’s assertion that “all signing entities to the Fourth
Amendment had the same understanding as to the extinguishing of any remaining liabilities on
the part of Kentucky Fuel Corporation and James C. Justice Companies, Inc., as it relates to the
Deep Wood Properties and Permits.” [R. 137-1 (referring to Ball’s Declaration).] Plaintiffs also
contend that Ball’s statements are refuted by the actual language of the Agreement and cite to
two provisions that they contend reaffirm the Defendants’ obligation to comply with past
agreements to mine the property. [R. 137 at 17 (referring to R. 40-5 at 3, 7.)]
The critical question presented is whether the parties did or did not intend to extinguish
Defendants’ obligations when they prepared the Agreement. The questions, as have been
presented, constitute genuine disputes of material fact. Apparently both parties agree that
extrinsic evidence is necessary to resolve this disagreement as the Defendants produced
testimony from Mr. Ball to establish its position and Plaintiffs directly contradicted Ball’s
position with statements provided by Mr. Brownlow. The rule in the Sixth Circuit is that
“disputed issues of contractual intent are factual issues not to be resolved at summary judgment.”
B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 594 (6th Cir. 2001) (citing United States v.
Cello–Foil Prods., Inc., 100 F.3d 1227, 1234 (6th Cir.1996) (reversing summary judgment order
and stating that “issues regarding parties' intent, with respect to agreements or contracts, present
interpretative issues traditionally understood to be for the trier of fact”)) (additional citations
omitted); see also Parrett v. Am. Ship Bldg. Co., 990 F.2d 854, 858 (6th Cir. 1993) (citing

24

Manley v. Plasti–Line, Inc., 808 F.2d 468, 471 (6th Cir. 1987) (“Summary judgment is then
proper only when the documents in question are undisputed and reveal that no question exists as
to intent.”). The question of what the parties intended when coming to this agreement cannot be
resolved on the record before this Court so summary judgment is, therefore, inappropriate.
IV
Accordingly, and the Court being sufficiently advised, it is hereby ORDERED:
1.

The Magistrate’s Recommended Disposition [R. 189] is ADOPTED as and for

the Opinion of the Court;
2.

As such, Plaintiffs’ motions filed at Docket Entries 131, 134, and 170 SHALL

BE GRANTED IN PART and DENIED IN PART as is consistent with the Report and
Recommendation and this Order. Specifically, default judgment is GRANTED as to liability on
Counts I, II, and V. As the Plaintiffs did not sufficiently tie their discovery-related injuries to the
merits of the claims in Count III and IV, that Plaintiff’s motions are denied as to those claims;
3.

The Court will hold a hearing at a later date on the issue of what award of

expenses, including attorney’s fees, is appropriate;
4.

The Defendants’ Motion to Strike [R. 199] is GRANTED and Plaintiffs’ Notice

of Supplemental Authority at Docket Entry 198 is STRICKEN from the Record; and,
5.

Defendant’s Motion for Summary Judgment [R. 125] is DENIED as MOOT as

to Counts I and II and DENIED on the MERITS as to Count IV.

This 30th Day of September, 2014.

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