DMTS, Inc. v. DMC, Inc.
Filing
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ORDER granting 24 Motion for Sanctions. Signed by District Judge Victoria A. Roberts. (CPin)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
DMTS, Inc.,
Petitioner,
Case No. 14-51001
Hon. Victoria A. Roberts
v.
DMC, Inc.,
Respondent.
_________________________________/
ORDER GRANTING DMTS’ MOTION FOR SANCTIONS [ECF No. 24]
I.
Introduction
DMTS, Inc., filed a Motion for Sanctions. It argues that DMC, Inc., failed to
produce documents despite repeated orders by this Court. DMC has not complied with
the Court’s third and most recent order; there, the Court explicitly said such failure could
result in sanctions up to and including the entry of a default judgment. The Motion is
fully briefed. The Court held a telephone conference on June 30, 2016 with Frederick
Acomb representing DMTS and Kevin Stoops representing DMC. Both parties had an
opportunity to be heard.
DMTS’ Motion for Sanctions is GRANTED.
II.
Background
On July 24, 2014, DMTS filed a Petition to Confirm the April 10, 2014 Arbitral
Award (“Arbitration Award”) resulting from proceedings conducted in the Republic of
Korea. The relationship between the parties developed in 2006; they signed a sales
agreement giving DMTS the exclusive right to sell rubber parts for cars to customers in
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the United States and Canada. In 2008, the parties modified the contract to expand the
territory. In April 2011, the parties entered a sales markup agreement which said the
sales markup payable to DMTS is tentatively ten percent of all sales but the parties
would determine the average markup in April of each year.
In May 2011 the parties entered into an escrow agreement with a bank for
customer payments. The bank was supposed to automatically transfer to DMTS, the
amount of its sales markup, and then transfer the remainder to DMC. A dispute arose
when DMC said it could cancel the agreements and decrease or cease paying DMTS
the sales markup.
On October 4, 2012 DMC requested arbitration. DMTS says the Arbitration
Award found DMC obligated to pay 11% sales markup to DMTS and ordered DMC to
pay it for past sales and going forward. DMC says the Arbitration Award was entirely in
its favor.
In order to calculate what it believes it is owed under the Arbitration Award,
DMTS served DMC with six document requests. An early DMC Motion to Quash was
denied. The Court ordered DMC to answer the discovery requests by October 8, 2015.
DMTS says DMC failed to do so. On November 6, 2015, the Court entered a second
Order directing DMC to produce discovery by December 1, 2015. On December 12,
2015, the Court entered a third Order directing DMC to: (1) produce all discovery
requested by February 19, 2016; and (2) file an affidavit swearing it has produced all of
the discovery requested. The Court finds that DMC did not comply with that Order.
While DMC produced more documents, DMTS says DMC missed the February
deadline to file an affidavit. Instead, five days later DMC filed two unsworn declarations.
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Furthermore, the declarations do not swear that all requested discovery has been
produced, but instead say that DMC has turned over “responsive” documents, including
corresponding spreadsheets. DMTS says it remains unable to calculate the amount it is
owed because DMC refuses to turn over the underlying sales documents and records.
DMTS says DMC failed to turn over other documents, such as bank records and emails,
despite evidence that relevant other documents exist.
III.
Legal Standard
Under Fed. R. Civ. P. 37, the Court has authority to impose sanctions for abuse
of the discovery process or for failure to obey a discovery order. There is a four factor
test to determine whether sanctions are warranted. Freeland v. Amigo, 103 F.3d 1271,
1277 (6th Cir. 1997). “The first factor is whether the party's failure to cooperate in
discovery is due to willfulness, bad faith, or fault; the second factor is whether the
adversary was prejudiced by the party's failure to cooperate in discovery; the third factor
is whether the party was warned that failure to cooperate could lead to the sanction; and
the fourth factor in regard to a dismissal is whether less drastic sanctions were first
imposed or considered.” Brown v. Tellermate Holdings Ltd., No. 11-1122, 2015 WL
4742686, at *6 (S.D. Ohio Aug. 11, 2015) (Citing Freeland v. Amigo, 103 F.3d at 1277).
In addition to the remedies available under the Federal Rules of Civil Procedure,
“[a] district court has the inherent power to sanction a party when that party exhibits bad
faith, including the party's refusal to comply with the court's orders.” Youn v. Track, Inc.,
324 F.3d 409, 420 (6th Cir. 2003).
IV.
Discussion
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DMTS says sanctions are necessary because DMC refused to comply with
multiple orders by the Court. It says DMC: (1) failed to produce all requested discovery
and provide a sworn affidavit; (2) did not provide sufficient reasons to justify its nonproduction; (3) represented that emails are deleted after ninety days but does not say
whether it halted document destruction once the action commenced; and (4) refuses to
acknowledge the scope of its noncompliance and suggests that production was merely
delayed and that any oversights are not wilful or prejudicial.
The Court finds DMC failed to cooperate in discovery and the four factor test
weighs in favor of sanctions. The first factor is whether the party's failure to cooperate
in discovery is due to willfulness, bad faith, or fault. DMC’s failure to produce appears
to be wilful. During the phone conference, counsel for DMC said it disagrees with the
premise that the April 10, 2016 Arbitration Award granted any relief to DMTS and since
it believes DMTS’ claim is without merit, the documents DMTS seeks are irrelevant.
The second factor, whether the adversary was prejudiced by the party's failure to
cooperate, also weighs in favor of sanctions. DMTS says the arbitration panel awarded
it a monetary amount on a percentage basis and it needs sales information in order to
calculate its damage award.
The remaining factors, whether the party was warned that failure to cooperate
could lead to the sanction; and whether less drastic sanctions were first imposed or
considered, also favor sanctions; DMC was repeatedly instructed to produce these
documents. DMC was also warned in the Court’s last discovery Order that failure to
fully comply could lead to sanctions, including imposition of default judgment.
As one of four potential sanctions, DMTS requests $5,000 a day for each day
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that DMC fails to produce the documents. The Court believes this is a reasonable
sanction. And, it is far less drastic than the sanction the Court will impose if DMC
continues to ignore the Court’s Orders: default judgment.
V.
Conclusion
DMC is ORDERED to pay DMTS, through counsel, five thousand dollars
($5,000) a day beginning July 5, 2016 and continuing until the following conditions are
met:
1.
DMC must produce all relevant documents corresponding to DMTS’
discovery requests.
2.
DMC must file an affidavit swearing that it has produced all of the
discovery requested by DMTS.
IT IS ORDERED.
S/Victoria A. Roberts
Victoria A. Roberts
United States District Judge
Dated: July 1, 2016
The undersigned certifies that a copy
of this document was served on the
attorneys of record by electronic
means or U.S. Mail on July 1, 2016.
S/Carol A. Pinegar
Deputy Clerk
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