Laios et al v. MTM Builder/Developer, Inc. et al
Filing
71
MEMORANDUM OPINION. Signed by Judge George Jarrod Hazel on 11/12/2014. (ca2s, Deputy Clerk)
,-------------------------------
-----
--------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
*
EDWARD T. LAIOS, eta/.
*
Plaintiffs,
*
v.
*
MTM BUILDER/DEVELOPER
INC., et al.
*
Case No.: GJH-13-2953
*
Defendants.
*
*
*
*
*
*
*
*
*
*
*
*
*
MEMORANDUM OPINION
This is a diversity action brought by Plaintiffs Edward T. Laios ("Laios") and Brightseat
Development Associates, LLC ("Brightseat") against Defendants MTM Builder/Developer, Inc.
("MTM") and Dean F. Morehouse ("Morehouse") alleging that Defendant Morehouse abused his
authority over Brightseat by giving himself unauthorized payments at the expense of Brightseat
and Laios. This Memorandum and accompanying Order address Plaintiffs' Motion for Sanctions
(ECF No. 62) relating to Defendants' failure to comply with the Court's Order to answer
Plaintiffs' discovery requests. A hearing is unnecessary. See Local Rule 105.6. For the reasons
stated below, Plaintiffs' Motion for Sanctions is GRANTED, in part, and DENIED, in part.
I.
BACKGROUND
Brightseat is a Maryland limited liability company. ECF No. 45 at, 4. Brightseat owns a
parcel of real property in Prince George's County, Maryland. ld. Plaintiff Laios and non-party
Morehouse Real Estate Investments, LLC each own a 4 7.5 percent member interest in
Brightseat. ld. at, 14; ECF No. 14 at 13. Gary Laios, who is not a party to this litigation, owns a
five percent interest in Brightseat. ECF No. 14 at 13. Defendant MTM is a Virginia corporation
and is owned and controlled by Defendant Morehouse. ECF No. 45 at
~~
9-10. MTM is the
t;nanager of Brightseat. !d. at ~ 11.
Plaintiffs allege that MTM secretly paid itself management fees of $5,000.00 per month
from Brightseat funds from September 2011 through at least July 2013. !d. at
~
26. Further,
Plaintiffs assert that MTM secretly paid itself "development fees" from Brightseat funds totaling
$53,885.51. !d.
at~
27. Plaintiffs accuse Morehouse of altering Brightseat's books and records to
make it appear as if Brightseat owed Morehouse three quarters of a million dollars. !d. at
~
32.
Plaintiffs claim that Morehouse also had an $850,000.000 dead of trust placed on Brightseat's
property and then diverted $100,000.000 of that loan into his personal account. !d. at
~
37.
Further, Plaintiffs contend that Morehouse used Brightseat funds to pay development fees to a
third party incurred by a separate company owned by Morehouse. !d. at
~
68. Plaintiffs also
assert that Morehouse has consistently refused to allow Laios to inspect Brightseat's books. !d. at
~
54. Based on these facts, Plaintiffs have made claims for breach of contract; breach of the
fiduciary duties of loyalty, care, obedience, and information; fraud; conversion; fraudulent
inducement; and Plaintiff have requested an accounting. ECF No. 45.
Defendants have filed a counterclaim, asserting that Laios is a predatory lender who uses
loan agreements as a means of forcing borrowers to forfeit control of their businesses to Laios.
ECF No. 14 at 12. Defendants assert that Laios has a duty under the operating agreement to
compensate MTM as Brightseat's manager and not to block MTM's right to fees. !d. at 14.
Defendants accuse Laios of buying Brightseat's tax lien certificate to force MTM to either forfeit
its right to compensation or lose Brightseat to Laios at the tax sale. !d. at 15. Defendants allege
2
breach of contract and request a declaratory judgment that MTM is entitled to compensation and
fees. !d. at 16-17.
A Scheduling Order was issued in this case on February 6, 2014. ECF No. 19. On
February 18, 2014, Plaintiffs' counsel propounded interrogatories and requests for production of
documents on both Morehouse and MTM separately. ECF No. 21. After two months of failing to
re<;eive any response, Plaintiffs noted a discovery dispute with the Court on April 22, 2014. !d.
On April 24, the Court ordered Defendants to respond to Plaintiffs' first sets of interrogatories
and requests for production of documents by May 2. ECF No. 23. These answered were later the
subject of a motion to compel more responsive answers. ECF No. 38.
On July 17, 2014, Plaintiff served a second set of requests for production of documents
on MTM, and, on July 21, 2014, Plaintiff served a second set of intehogatories on MTM and a
second set of requests for production of documents on Morehouse. ECF No. 47 at 1. After
receiving no response, on September 2, 2014, Plaintiffs noted another discovery dispute between
the parties. !d. On September 4, 2014, the Court ordered Defendants to respond to the second
sets of propounded discovery. ECF No. 49.
On October 9, 2014, the Court ruled on the motion to compel more responsive answers to
Plaintiffs' first set of interrogatories and requests for production of documents, and in part,
ordered Defendants to respond on or before October 15, 2014 to several pending and unobjected
to requests. ECF No. 61. Although Defendants did comply with some parts of the Court's Order,
Defendants did not respond by October 15, 2014 to the undisputed interrogatories and requests
for production of documents. ECF No. 66 at 3. On October 27, 2014, Plaintiffs filed the instant
Motion for Sanctions for Violation of the October 9, 2014 Order. ECF No. 62. Defendants
responded to the discovery requests on October 31, 2014. ECF No. 66 at 3.
3
---------
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ j
--
---------------------------------------------
II. DISCUSSION
Plaintiffs assert that Defendants should be sanctioned under Fed. R. Civ. P. 37(b)(2)(A),
which addresses the failure to obey a discovery order. ECF No. 62. Plaintiffs request that the
Court sanction Defendants for their failure to answer several interrogatories by the Court-ordered
deadline. Id. "Federal district courts possess great discretion to sanction parties for failure to
obey discovery orders." Camper v. Home Quality Mgmt., Inc., 200 F.R.D. 516, 518 (D. Md.
2000) (citing Chambers v. NASCO, Inc., 501 U.S. 32 (1991)). Fed. R. Civ. P. 37(b)(2)(A)
provides:
If a party ... fails to obey an order to provide or permit discovery, including an
order under Rule . . . 37(a), the court where the action is pending may issue
further just orders. They may include the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
directing that the matters embraced in the order or other designated facts
be taken as established for purposes of the action, as the prevailing party
claims;
prohibiting the disobedient party from supporting or opposing designated
claims or defenses, or from introducing designated matters in evidence;
striking pleadings in whole or in part;
staying further proceedings until the order is obeyed;
dismissing the action or proceeding in whole or in part;
rendering a default judgment against the disobedient party; or
treating as contempt of court the failure to obey any order except an order
to submit to a physical or mental examination.
Further, under Fed. R. Civ. P. 37(b)(2)(C), "[i]nstead 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." In determining
what sanction would be appropriate, the court evaluates "(1) whether the non-complying party
acted in bad faith, (2) the amount of prejudice that noncompliance caused the adversary, (3) the
4
r,teed for deterrence of the particular sort of non-compliance, and (4) whether less drastic
sanctions would have been effective." Anderson v. Foundation for Advancement, Educ. and
Empl. OfAmerican Indians, 155 F.3d 500, 504 (4th Cir. 1998).
The Court first addresses whether Defendants acted in bad faith in failing to obey the
Court's Order directing Defendants to answer Plaintiffs' interrogatories. Generally, failing to
obey a Court order is an act of bad faith. See Kilborn v. Bakhir, 70 Fed. Appx. 692, 693 (4th Cir.
2003) (" ... a party shows bad faith by delaying or disrupting the litigation or by hampering
enforcement of a court order.") (quoting Hutto v. Finney, 437 U.S. 678, 689 (1978)) (internal
quotation marks omitted); Poole ex ref. Elliott v. Textron, Inc., 192 F.R.D. 494, 506 (D. Md.
2000) ("In cases of bad faith, courts have ordinarily found direct (and often repeated) violation of
court orders."). Here, Defendants admit to failing to answer the interrogatories, claiming that ESI
related discovery, which was also part of the Court's October 9, 2014 Order, was occupying all
of Defense counsel's time. ECF No. 66 at 3. Although this may be true, Defense counsel
· represented to the Court that Defendants would be able to comply with the Court's Order and
failing to do so is sufficient bad faith to warrant some form of sanctions.
The Court next addresses the prejudice Defendants have caused to Plaintiffs due to their
failure to answer the interrogatories by October 15, 2014. Plaintiffs first propounded the
discovery requests at issue on February 18, 2014. Defendants have failed to comply with at least
some of these requests for eight months. Plaintiffs have called on the Court to help resolve
discovery disputes related to these interrogatories on three separate occasions. See ECF Nos. 23,
38 &. 62. Thus, Plaintiffs have certainly suffered added expenses, aggravation, and umiecessary
delay, from Defendants' repeated failures to comply with the discovery rules. See, e.g., Parks v.
Huff, ·955 F.2d 42, 1992 WL 21363, at *2 (4th Cir. 1992) (stating that expense and time lost
5
constitute prejudice); McCloud v. SuperValu, Inc., No. 12-373, 2013 WL 1314964, at *4 (D.Md.
Mar. 27, 2013) (same); Khepera-Bey v. Santander Consumer USA Inc., No. 11-1269, 2013 WL
451325, at *3 (D.Md. Feb. 4, 2013) (same).
Plaintiffs assert that Defendants' failure to identifY any fact-witnesses was "particularly
prejudicial" because, without the identities of Defendants' witnesses, Plaintiffs were not able to
notice depositions or take other discovery steps. !d. at 7. However, Defendants have now
answered Plaintiffs' interrogatories and assert that Defendants' non-expert witnesses will be
Defendant Morehouse and Plaintiff Laios. !d. at 3. Defendants claim that they do not intend to
present any witnesses that are currently unknown to Plaintiffs. !d. at 3-4. As Plaintiffs had
already planned to depose Morehouse and Laios is a Plaintiff, Plaintiffs have not missed any
opportunities to depose any additional witnesses. Thus, the Court finds that the prejudice caused
to Plaintiffs is not the failure to depose witnesses, but simply the aggravation of the delay and the
expenses incurred to obtain the discovery.
As far as the third factor to be considered-the need for deterrence of the particular sort
of non-compliance-Defendants' behavior does warrant sanctions. Defendants have made
deterrence an important factor in this case by consistently showing an indifference to discovery
deadlines. The particular discovery requests subject to this Motion for Sanctions have been
pending for over eight months. Further, Defendants' failure to meet the October 15, 2014 Courtordered deadline is not the Defendants' first missed deadline. Defendants also failed to respond
to Plaintiffs' second set of interrogatories and requests for production of documents until ordered
by the Court. See ECF No. 49. This behavior "frustrates the fundamental purpose underlying the
discovery rules to provide adequate information to litigants in civil trials" and should be
deterred. Porreca v. Mitchell L. Morgan Mgmt., Inc., No. 08-1924, 2009 WL 400626, at *7
6
(D.Md. Feb. 13, 2009) (quoting Al Barnett & Son, Inc. v. Outboard Marine Corp., 611 F.2d 32,
36 (3d Cir. 1979)); see also Wake v. Nat'l R.R. Passenger Corp., No. 12-1510, 2013 WL
1316431, at *3 (D.Md. Mar. 27, 2013) ("The third factor, the need for deterring this type of
conduct in the future, is also easily met, as Plaintiff has demonstrated an inclination towards
ignoring the Federal Rules of Civil Procedure, Discovery Guidelines of this Court, and direct
Court Orders.").
Finally, the Court considers what sanctions will be the least drastic yet effective. The
proper sanction under Fed. R. Civ. P. 37(b) for a party's failure to obey a court order regarding
discovery should be no more severe than is necessary to prevent prejudice to the other party.
Wilson v. Volkswagon of American, Inc., 561 F.2d 494, 504 (4th Cir. 1977). Thus, the court
focuses on the extent to which one party's failure to respond to discovery impaired the other
party's ability to prosecute or defend when sanctioning a party for the failure to obey a court
order. !d. at 516. Precluding evidence typically requires some strong evidence of prejudice.
Bethesda Softworks LLC v. Interplay Entm 't Corp., No. 09-2357, 2011 WL 1559308, at *6
(D.Md. Apr. 25, 2011).
Plaintiffs request that the Court sanction Defendants by finding certain facts conclusively
established and striking Defendants' affirmative defense and counterclaim relating to
Defendants' allegations that Laios engaged in misconduct. ECF No. 62. However, as discussed
above, Defendants' untimely responses have not caused Plaintiffs to lose the opportunity to
depose witnesses who may testify that Laios engaged in misconduct. To be sure, Plaintiffs have
suffered some prejudice, but striking Defendants' affirmative defense and counterclaim or
conclusively establishing that Laois did not engage in any misconduct are not apropos to
Plaintiffs' prejudice of delay, expenses, and aggravation. Instead, the appropriate sanction is
7
attorney's fees and the costs incurred because of Defendants' violation of the Court's October 9
Order. The Court believes that this sanction, being less severe than Plaintiffs' request, is equally
as likely to deter and dissuade Defendants from committing any future violations.
IV. CONCLUSION
For the reasons explained above, Plaintiffs' Motion for Sanction is GRANTED, in part,
and DENIED, in part. Plaintiffs are awarded monetary sanctions against Defendants pursuant to
Fed. R. Civ. P. 37(b)(2)(C) for the reasonable expenses, including attorney's fees, caused by the
failure of Defendants to timely comply with the October 9 Order. Plaintiffs are to submit a taskbased itemized statement of fees and expenses within ten days. Defendants will then have ten
days to respond.
A separate Order shall issue.
A---£-
Dated: November 12, 2014
GEORGE J.lfAZEL
United States District Judge
8
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?