800 COOPER FINANCE, LLC v. LIU et al

Filing 164

OPINION. Signed by Judge Joseph H. Rodriguez on 3/30/2022. (dmr)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

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: Civil Action No. 16-736 (JHR/JS)
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: Civil Action No. 17-456 (JHR/JS)
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: OPINION
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800 COOPER FINANCE, LLC,
Plaintiff,
v.
SHU-LIN LIU, et al.,
Defendants.

KL HOLDINGS, INC., SHU-LIN LIU
AND JOLIN CHIAOLIN TSAO,
Plaintiffs,
v.
800 COOPER FINANCE, LLC, JIMMY
KWONG, KATHARINA M. GREGORIO,
and John Does 1-5,
Defendants.

Counterclaim Plaintiffs KL Holdings, Inc., Shu-Lin Liu, and Jolin Chiaolin Tsao
(“Counterclaim Plaintiffs”) move for sanctions and civil contempt based on the failure of
Counterclaim Defendants 800 Cooper Finance, LLC (“800 Cooper Finance”); Jimmy Kwong
(“Kwong”); and Katharina M. Gregorio (“Gregorio”) (collectively “Counterclaim Defendants”)
to comply with Judge King’s November 10, 2021 discovery order. [Dkt. 149].1 For the reasons
set forth below, the Court will deny this motion.

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Although Counterclaim Plaintiffs filed this motion in connection with the 17-456 matter, the
motion was docketed in the related 16-736 matter. Thus, record citations refer to docket entries
in the 16-736 matter.
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I.

Background
The parties are familiar with this case’s long and complex factual and procedural history,

so the Court will only recite the facts bearing directly on the present motion. On September 3,
2021, Judge King ordered Counterclaim Defendants to produce the operating agreement (the
“Operating Agreement”) of KVest Camden, LLC (“KVest”) (the “September 3 Order”). [Dkt.
135]. KVest was the sole member of Defendant 800 Cooper Finance, LLC (“800 Cooper”),
which Counterclaim Plaintiffs believe to be implicated in the alleged unlawful conduct
committed by Counterclaim Defendants. [Dkt. 135 at 2]. In ordering Counterclaim Defendants
to produce the Operating Agreement, Judge King found:
The Operating Agreement for Kvest—admittedly, the sole member
of 800 Cooper Finance—is therefore relevant to Counterclaim
Plaintiffs’ conversion claims. The operating agreement may shed
light on the relationship between 800 Cooper Finance, Kvest and
other persons/entities knowledgeable about and/or involved in the
alleged improper conduct, and who may have improperly received
distributions from 800 Cooper Finance.
[Id.]. There is no doubt that Judge King intended this production to include the names and
addresses of KVest’s members because she denied a separate discovery request for “documents
evidencing the names and addresses of members of Kvest Camden” as “moot and unnecessarily
cumulative. The Court ordered the production of Kvests’s Operating Agreement, which should
contain the information sought.” [Id. at 3].
Counterclaim Defendants produced the ordered documents, but redacted the last names,
addresses, and tax identifiers of KVest’s members. [Dkt. 152 at 9]. Counterclaim Defendants
then filed a motion for reconsideration, asking Judge King to permit them to permanently
withhold this redacted information. [Dkt. 138-1 at 6–7]. On November 10, 2021, Judge King
granted the motion for reconsideration in part and denied the motion in part (the “November 10

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Order”). [See Dkt. 146]. Judge King permitted Counterclaim Defendants to redact the social
security numbers of KVest’s members. [Id. at 4–5]. But Judge King otherwise denied
Counterclaim Defendants’ motion for reconsideration after finding that it repeated “the same
facts and arguments” that she rejected or accommodated in issuing the September 3 order. [Id.
at 5]. Judge King ordered that “Counterclaim Defendants shall produce the full names and
addresses of Kvest members contained in the limited documents Ordered in the Court’s
September 3, 2021 Opinion and Order [ECF No. 135] within five (5) days of this Order.” [Id.].
November 15, 2021 came and went, but Counterclaim Defendants did not produce
information as the November 10 Order required. On November 23, 2021, Counterclaim
Defendants appealed the November 10 Order. [Dkt. 148]. This appeal was timely because it
was filed within fourteen days of the November 10 Order. See L. Civ. R. 71(c)(1)(A).
However, Counterclaim Defendants did not ask Judge King to stay her November 10 Order
when filing this appeal. See L. Civ. R. 71(c)(1)(B). The next day, Counterclaim Plaintiffs filed
this motion for sanctions under Federal Rule of Civil Procedure 37 for Counterclaim Defendants’
failure to comply with the November 10 Order. [Dkt. 149].
Since then, the Court has decided two motions that touch on this sanctions motion. First,
on March 1, 2022, the Court considered and denied Counterclaim Defendants’ appeal of the
November 10 Order. [Dkt. 159]. Counterclaim Defendants argued, among other things, that
Judge King clearly erred in ordering Counterclaim Defendants to produce KVest member
information because Counterclaim Plaintiffs had not alleged any claims against the members.
Counterclaim Defendants further argued that the claims alleged against Counterclaim Defendants
cannot result in liability against the KVest members under Delaware LLC law. [Dkt. 138-1 at 7–
8]. The Court rejected these arguments, finding that they did “not address Judge King’s core

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finding that Kvest’s members may be ‘knowledgeable’ about the conduct at issue in this case”
and, therefore, that the members may have relevant information concerning this conduct. [Dkt.
159 at 2]. The Court rejected Counterclaim Defendants’ other arguments on procedural grounds,
finding that Counterclaim Defendants repeated the same facts and arguments which Judge King
twice denied. [Id.]. Thus, while the Court took no position on whether the KVest members
could be liable under Delaware LLC law based on the claims pending against Counterclaim
Defendants, the Court found no error in Judge King’s conclusion that the members may have
relevant information about these claims. [See id.]. The Court ordered Counterclaim Defendants
to produce the outstanding information by March 7, 2022. [Dkt. 159]. Counterclaim Plaintiffs
have not alleged that Counterclaim Defendants failed to produce this information.
More recently, the Court granted Counterclaim Defendants’ motion for partial summary
judgment. [Dkt. 161, 162]. The Court agreed with Counterclaim Defendants that Counterclaim
Plaintiffs could not sustain certain claims against Defendants Kwong and Gregorio as a matter of
Delaware law. [See Dkt. 162]. In reaching this conclusion, the Court agreed with Counterclaim
Defendants’ view of Delaware LLC law as set forth in their summary judgment briefing. [Id.].
Counterclaim Defendants relied on a similar interpretation of Delaware law to justify
withholding KVest member information in the discovery dispute discussed above.
II.

Analysis
Federal Rule of Civil Procedure 37(b) sets forth available remedies when a party fails to

comply with a court’s discovery order. Where a party “fails to obey an order to provide or
permit discovery,” a court may issue orders:
(i)
(ii)

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;
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(iii)
(iv)
(v)
(vi)
(vii)

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.

Fed. R. Civ. P. 37(b)(2)(A). “Instead of or in addition to [these remedies], 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). Courts
enjoy wide discretion to award or deny sanctions under Rule 37. See Newman v. GHS
Osteopathic, Inc., Parkview Hosp. Div., 60 F.3d 153, 156 (3d Cir. 1995).
Before determining whether to award sanctions, the Court must first determine if and
when Counterclaim Defendants did not comply with discovery orders. Although Counterclaim
Defendants did not produce the KVest members’ full names and addresses after Judge King’s
September 3 Order, they successfully moved to have Judge King reconsider her opinion and
narrow the information to be produced in the November 10 Order. [Dkt 146]. Counterclaim
Defendants eventually appealed the November 10 Order, but only did so after the deadline to
comply with that order expired. Moreover, the appeal itself did not automatically stay Judge
King’s November 10 Order, and Counterclaim Defendants never requested such a stay. See L.
Civ. R. 72.1(c)(1)(B). As a result, Counterclaim Defendants failed to comply with Judge King’s
November 10 Order.
The Court must now determine which sanctions, if any, are appropriate under the
circumstances. Counterclaim Plaintiffs ask the Court to invoke Rule 37(b)(2)(A)(i) and (ii) and
enter an order precluding Counterclaim Defendants from challenging the claims asserted against
Kwong and Gregorio. [Dkt. 149-1 at 7]. But, as noted above, the Court granted Counterclaim
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Defendants’ motion for summary judgment as to the claims against Kwong and Gregorio after
finding that these claims lacked footing in Delaware law. [See Dkt. 161, 162]. The Court will
not revive these claims now, and therefore declines to impose the requested sanctions under Rule
37(b)(2)(A)(i) and (ii).
Though Counterclaim Plaintiffs do not request monetary sanctions under Rule
37(b)(2)(C), this provision requires courts to award expenses unless a failure to comply with a
discovery order “was substantially justified or other circumstances make an award of expenses
unjust.” Fed. R. Civ. P. 37(b)(2)(C).
The Court finds that monetary sanctions would be unjust under the circumstances of this
case. Counterclaim Defendants filed a timely appeal of the November 10 Order, which local
rules permitted them to do. See L. Civ. R. 72(c)(1)(A). As noted above, Counterclaim
Defendants’ appeal relied on an interpretation of Delaware law which the Court later accepted in
their summary judgment motion. While this Delaware law theory did not expose a clear error in
Judge King’s prior rulings or render the KVest member information irrelevant, it supports
Counterclaim Defendants’ argument that they appealed the November 10 Order in good faith.
[Dkt. 152 at 12–14]. Thus, Counterclaim Defendants’ misstep was not their opposition to the
November 10 Order, but their failure to seek and obtain a stay of the November 10 Order while
they prepared and filed their appeal. No doubt, Local Rule 71(c)(1)(B) states that appealing a
magistrate’s order does not in and of itself stay the order or otherwise excuse the party from
complying with that order. But the Court finds that Counterclaim Defendants’ failure to consider
Local Rule 71(c)(1)(B) is not so egregious to warrant sanctions under Rule 37—monetary or
otherwise—even if this failure also resulted in a failure to comply with the November 10 Order.
The Court therefore declines to impose sanctions under Rule 37.

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III.

Conclusion
For the reasons set forth above, the Court will deny Counterclaim Plaintiffs’ motion for

sanctions. An appropriate order will follow.

March 30, 2022

/s/ Hon. Joseph H. Rodriguez
Hon. Joseph H. Rodriguez, USDJ

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