Vista Food Exchange, Inc. v. Lawson Foods, LLC

Filing 201

OPINION AND ORDER for 197 Report and Recommendations. The Court reviews the remainder of the Report and Recommendation for clear error. Finding no clear error, the Court ADOPTS the Report and Recommendation in full. SO ORDERED. (Signed by Judge Andrew L. Carter, Jr on 11/30/2020) (kv)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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11/30/2020
VISTA FOOD EXCHANGE, INC.,
:
Plaintiff,
:
:
v.
:
1:17-cv-07454-ALC-SN
:
OPINION AND ORDER
LAWSON FOODS, LLC,
:
:
Defendant.
:
:
:
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ANDREW L. CARTER, JR., District Judge:
On November 1, 2019, a Contempt Order was issued against Defendant Lawson Foods,
LLC (“Lawson”), Simon Law, managing member of Lawson, and non-party Fortress Foods LLC
(“Fortress”). Fortress failed to respond to a subpoena, and, upon an evidentiary hearing, Law and
Lawson were held responsible as alter egos or in light of their control of Fortress. A fine was also
imposed for each additional day Fortress did not answer the subpoena, for which Law and Lawson
were held jointly and severally liable. To date, the subpoena remains unanswered and the fine has
not been paid. The Court now reviews a Report and Recommendation in which Judge Netburn
recommends granting in part a motion by Plaintiff Vista Food Exchange (“Vista”) for further
sanctions, including striking Lawson’s answer and entering default judgment. For the reason that
follow, the Court ADOPTS the Report and Recommendation.
BACKGROUND
The instant matter arises from the relationship between Vista, a wholesaler and distributor
of various foods, and Lawson, a company to which Vista sold pork.
In May 2016, Smithfield Farmland Corp./Smithfield Foods (“Smithfield”), a company that
supplied pork to Vista, learned that Lawson had purchased some of its pork, which was certified
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for domestic consumption only, from Vista, and exported it to China. The export of pork that was
not certified for Chinese consumption potentially exposed Smithfield to penalties under Chinese
law. Smithfield promptly notified Vista that if any pork purchased and resold by Vista was again
exported to China, it would stop selling its products to Vista. In response, Vista put all of Lawson’s
orders on hold and informed Lawson that Vista would not resume sales to Lawson unless Lawson
promised not to export Vista-Smithfield pork to China.
On May 25, 2016, Simon Law, CEO of Lawson, signed an agreement certifying that
Lawson Foods would not “export. . . .non-certified Smithfield pork products directly or through
any third party where there is any reason to believe such product is destined for export to the PRC”.
Letter Agreement (ECF No. 160-2). The crux of the instant lawsuit, initiated on September 29,
2017, is that Lawson did not comply with this Letter Agreement. Instead, Vista alleges that Lawson
used Fortress as a shell company to continue to sell pork to China in violation of the Letter
Agreement without being detected by Vista and Smithfield. Smithfield, upon discovering further
unauthorized sales by Lawson to China, terminated its relationship with Vista. Vista seeks, in part,
to recover lost profits from the termination by Smithfield.
The Contempt Order
Over the course of discovery, Vista complained that Lawson had failed to comply with its
discovery obligations, including by hiding certain records that were allegedly in the custody and
control of Fortress Foods, Inc. The details of these compliance issues are laid out in detail in
transcripts of discovery conferences and orders by Judge Netburn, to whom this matter was
referred for general pre-trial proceedings. See e.g., ECF Nos.79, 99, 149, 179. Relevant here is the
obfuscation that led to the Contempt Order with which Lawson has not complied.

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At a June 26, 2018 conference, Lawson represented to Judge Netburn that it did not export
or ship pork to China or Chinese customers, and therefore had no documents responsive to certain
of Vista’s discovery requests. Judge Netburn ordered Lawson to file “an affidavit from the
president or CEO or whoever is the appropriate person of Lawson, indicating that Lawson has not
exported or shipped directly to customers in China Smithfield products. . . that Lawson purchased
from Vista [from] January 1st, 2015 to. . . 12/31/2017” and, if Lawson had done so, “to include
whatever identifying information [it] ha[d] about that product”, such as “. . . serial numbers. . .,
the description of the product, to whom it was exported, the date on which it was exported, and
the names of any other non-parties that were involved in that exporting.” ECF No. 79 at 29:1330:12.
In response, Lawson submitted a declaration by Mr. Law. ECF No. 76-2. Therein, he
attested that “the only records Lawson maintains concerning products sold to China are: (1)
invoices and bills of lading reflecting Lawson’s purchases and (2) journal entries reflecting
amounts paid for product sold to China.” ECF No. 76-2 ¶ 19. The declaration did not answer
whether Lawson exported pork to China during the relevant period, or identify any such shipments
or third parties involved, if so. Therefore, at an August 6, 2018 conference, Judge Netburn ordered
a records deposition to answer these outstanding questions. ECF No. 99 at 31:23-32:16.
On August 28, 2018, Lawson filed a Corrected Declaration of Simon Law. ECF No. 1012. Therein, Law admitted to selling pork to China. “By way of explanation” for prior
representations to the contrary, Law stated that “Lawson ha[d] not sold any pork products to China
since mid-2017 due to unfavorable political and economic conditions”. ECF No. 101-2 at ¶ 10.
Law admitted that “Lawson shipped product to China through a captive intermediary called
Fortress Foods, LLC” and “listed Fortress as the product’s shipper.” ECF No. 101-2 at ¶ 41. He
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further admitted that “[t]he original declaration left out the fact that Lawson handled the
arrangements to have the shipping container transported from the United States to China and paid
for the shipping” for Fortress Foods shipments, ECF No. 101-2 at ¶ 39. Law conceded that his
initial declaration “failed to identify electronic records that [he] now realize[d] were in Lawson’s
possession, custody, or control”. ECF No. 101-2 at ¶ 42.
On September 10, 2018, after the records deposition, Vista sought an extension of time for
discovery, in part to secure discovery of Fortress Foods. ECF No. 104 at 3. Lawson issued a
subpoena for Fortress Foods to produce documents on October 15, 2018. ECF No. 104-2. Fortress
did not reply to the subpoena. Thereafter, Vista requested that Judge Netburn issue an order to
show cause why Fortress should not be sanctioned for failure to comply with the subpoena. ECF
No. 124. Vista also argued to Judge Netburn that Fortress was a “front or alter ego for Lawson”
and that Law “prepared the withheld records in Fortress’s name”. ECF No. 124 at 1.
On January 8, 2019, Judge Netburn ordered a status report including a summary of
“Plaintiff's requests for documents and the extent to which the requested documents were provided
to Vista.” ECF No. 131 at 1. Lawson reported that it had made substantial progress in producing
documents. ECF No. 131 at 2. However, Vista reported the production included “no pleading
indicating to which demands the documents [were] purportedly responsive”, “were produced in a
format that is not searchable and [had no] load file for review in Vista’s discovery platform, as
required by the parties’ ESI Protocol.” ECF No. 132. Vista therefore required an extension of time
to review the documents prior to filing any response on the status of discovery, which Judge
Netburn granted. ECF No. 133.
On February 1, 2019, Vista filed a motion to compel Lawson to produce “all documentation
sufficient to track all pork product from the time it was delivered to Lawson to the time it reached
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the customer in the People’s Republic of China [] during the period from January 1, 2015 to
present”; “all documentation relating to the sale of all pork product exported to the PRC during
the relevant time period that Lawson was required to create, complete or retain under the applicable
regulations of the United States Food and Drug Administration; United States Department of
Agriculture; Customs and Border Protection (Department of Homeland Security); and Internal
Revenue Service; and “to produce the log-in information including user name and password for
the Automated Commercial Environment (‘ACE’) portal account that Lawson used to submit
documents/information with the Customs and Border Protection (‘CBP’)”. ECF No. 134 at ¶¶ 13. Further, Vista requested that Judge Netburn issue an order for Fortress Foods, its managing
partner Hong Lin, and Ada Law, Simon Law’s wife, who was identified as a contact for Fortress
on an invoice that was produced to Vista, to show cause why they should not be sanctioned for
failing to comply with the Vista subpoena. ECF No. 134 ¶ 4.
On April 18, 2019, Judge Netburn found that “Lawson’s production [had] been inadequate
and that it [] failed to produce the documents that it should have maintained under both the
regulatory schemes that govern its exporting business and its obligations to preserve documents
once it was aware of the possibility of litigation over the subject matter”. ECF No. 149 at 2. Judge
Netburn ordered Lawson “to produce all records that reflect its purchase and exporting of
Smithfield-Vista pork products to the PRC from January 1, 2015, to the present”, or Vista would
be “entitled to an adverse inference at trial regarding Lawsons failure to maintain its records”. ECF
No. 149 at 3. Judge Netburn also ordered Fortress and its managing partner Hong Lin to show
cause why they should not be held in contempt for failing to comply with a subpoena. ECF No.
149 at 4. She declined to issue an order to show cause as to Ada Law, whose testimony was deemed
unnecessary at that juncture, ECF No. 149 at 4. Further, an evidentiary hearing was set on whether

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Hong Lin and Fortress Foods should be held in contempt for failing to comply with a subpoena, at
which hearing Law would also testify regarding “the relationship between Fortress Foods and
Lawson to determine whether any contempt finding should also be entered against Lawson, Simon
Law or both.” ECF No. 149 at 5.
The evidentiary hearing was held on July 16, 2019. Lin did not appear, so Law was the
only witness examined. During that hearing Law testified, inter alia, that Law prepared the health
certificates for shipments by Fortress, 43:17-44:5; that Lawson was the exporter of record for
shipments by Fortress Foods, 44:6-12, 67:18-68:21; that Law provided instructions to a freight
forward, F.C. Gerlach, regarding shipments by Fortress Foods to China, 49:1-12; that Lawson paid
the bill from F.C. Gerlach for shipments by Fortress Foods, 56:16-20; that Fortress Foods was
listed as an affiliate of Lawson on a shipping contract so it could use Lawson’s overseas shipping
rate, 65:9-24; that Lawson received money from sales of pork to China where Fortress Foods was
the nominal seller, ECF No. 179 at 19:22-20:2; and that Law was not aware of any money being
paid to Fortress Foods in connection with those sales and did not send any money to Fortress
Foods, 70:16-72:3.
By Opinion and Order 1 dated November 1, 2019, Judge Netburn issued a finding of
contempt against Fortress Foods, as well as Lawson, in light of overwhelming evidence that
Lawson and Law control (or, are) Fortress Foods. Judge Netburn imposed a daily fine of $100
from the October 15, 2018 due date of the Fortress Foods subpoena and entered this fine against
Fortress Foods and Lawson jointly and severally. She further gave Fortress Foods and Lawson 14

1

The Parties consented to Judge Netburn deciding the contempt motion by Notice, Consent and Reference
of a Dispositive Motion to Magistrate Judge, which the Court approved. ECF No. 171. Given Lawson’s consent to
Judge Netburn deciding the contempt motion, Lawson’s argument that Judge Netburn “usurped” the jury by doing so
is without merit.

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days from the date of the order to comply with the subpoena. If Fortress Foods or Lawson did so,
they could move to set aside the finding of civil contempt and the fine. Finally, Judge Netburn
warned Lawson that if “Lawson again fail[ed] to produce responsive documents, . . . upon
application from Vista, the Court w[ould] enter a default against Lawson and move the case to a
determination of the appropriate judgment”. ECF No. 172 at 13.
Lawson moved for a stay of the Contempt Order pending an interlocutory appeal, which
was denied. See ECF No. 183. On November 13, 2019, Lawson filed a notice that it appealed the
Contempt Order to the Second Circuit. ECF No. 175. On June 2, 2020, the Court of Appeals
dismissed Lawson’s appeal for lack of jurisdiction. See ECF No. 195.
The Instant Motion and Report and Recommendation
On January 23, 2020, Vista filed a Motion for Sanctions in light of Lawson’s failure to
comply with the Contempt Order. ECF No. 184. Therein, Vista requested that default judgment be
entered against Lawson, that further contempt sanctions be entered against the Lawson, Law and
Fortress (together, the “Contemnors”), and that Vista be awarded attorneys’ fees and costs. ECF
No. 184 at 2. On February 10, 2020, Lawson filed an opposition. ECF No. 189. Vista replied on
February 24, 2020. ECF No. 192.
On October 26, 2020, Judge Netburn issued a Report and Recommendation recommending
that Vista’s motion be granted in part and denied in part. Judge Netburn reiterated the finding from
the Contempt Order: “Lawson, through its managing member and president Simon Law, created
Fortress Foods solely to evade its contractual obligations to Vista (and Smithfield). Lawson has
further failed to comply with its discovery obligations both by inadequately maintaining its records
and by falsely characterizing records ostensibly under the control of Fortress Foods as beyond its

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reach”. ECF No. 197 at 3. She concluded that the Contemnor’s non-compliance was willful; that,
in view of Lawson’s failure to comply with the Contempt Order, lesser sanctions would not be
effective; that the length of non-compliance with the Contempt Order counseled in favor of further
sanctions; and that Lawson had been warned default judgment might be entered.
Specifically, Judge Netburn recommends: that this Court strike Lawson’s answer, enter
default against Lawson and remand the matter to Judge Netburn to conduct a damages inquest;
that any judgment be held against Lawson, Fortress Foods and Simon Law jointly and severally;
that this Court award attorney’s fees incurred as of April 2018 and caused by Lawson’s
misconduct, which includes the filing of this motion; that the Court remand the matter to Judge
Netburn to conduct a review of Vista’s attorney’s fees; and that any attorney’s fee award be held
against Lawson, Fortress Foods and Simon Law jointly and severally. Judge Netburn further
recommends that any judgment include the fine issued by the Contempt Order, starting on October
15, 2018, until the date the District Court adopts, modifies or rejects the Report, but that the Court
decline to impose further monetary sanctions or imprison Simon Law.
Lawson’s Objections to the R&R
On November 9, 2020, Lawson filed an objection purporting to “object to each and every
portion of Magistrate Judge Netburn’s Report and Recommendation”. ECF No. 198 at 1.
Specifically, Lawson objects to the conclusion that its failure to comply with the Contempt Order
was “willful” because “the documents sought have either been provided, simply do not exist or are
in the possession of Fortress.” ECF No. 198 at 6; 8 (“It was no more possible for Lawson and
Simon Law to produce Fortress records that are not in their possession than it would be for them
to produce the records of Vista, another customer and separate entity involved in multiple
transactions with Lawson.”).
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Lawson also objects that the Report and Recommendation “failed to carefully consider the
range of potential sanctions available under Rule 37 to fit the circumstances in this case.” ECF
No.198 at 22. As Lawson sees it, the Report and Recommendation “addressed [default] not as a
‘last resort,’ but as the only and ultimate consideration.” ECF No. 198 at 21.
Lawson further objects to the Report and Recommendation’s conclusion that he failed to
comply with the Contempt Order for over a year and was warned such non-compliance could result
in default judgment. Lawson contends that its attempts to stay or overturn the Contempt Order
should mitigate the length of time of non-compliance.
Finally, Lawson objects to the Report and Recommendation to the extent it “seeks to assess
attorney’s fees against Defendants for ‘bad faith’ acts designed to multiply the proceedings”. ECF
No. 198 at 25. Lawson contends that it “in good faith, believed that Judge Netburn had erred for
all of the above reasons and further impermissibly and inadvertently usurped the jury function in
abrogation of the Court’s authority”. ECF No. 198 at 26. This is because, according to Lawson,
the determination that Lawson was an alter ego of Fortress “transformed an otherwise routine
contempt hearing into the procedural equivalent of a trial” because it decided “the ultimate issue
of the action”. ECF No. 198 at 26.
Vista’s Response to the Report and Recommendation and Response to Lawson’s
Objections
On November 9, 2020, Vista filed a brief letter requesting that this Court’s “contempt and
sanctions order include defined escalating coercive consequences (increasing daily fine converting
to confinement for Simon Law) if Contemnors also violate [this Court’s] order by not promptly

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paying the civil contempt fines to Vista and providing proof of payment to the Court”. ECF No.
199.
On November 23, 2020, Vista responded to Lawson’s objections. Vista argues that the
objections, which in large part challenged the underlying conclusions of the Contempt Order, are
barred by law of the case and waiver. Vista further argues that were this Court to review the hearing
evidence de novo it would conclude the Report and Recommendation’s findings were proper.
STANDARD OF REVIEW
On dispositive motions, "[w]ithin 14 days after being served with a copy of the
recommended disposition, a party may serve and file specific written objections to the proposed
findings and recommendations." Fed. R. Civ. P. 72(b)(2). The court may adopt those portions of
the Report to which neither party timely objects, as long as there is no clear error on the face of
the record. DiPilato v. 7-Eleven, Inc., 662 F. Supp. 2d 333, 339 (S.D.N.Y. 2009). A district court
must

review de

novo "those

portions

of

the report or

specified

proposed

findings

or recommendations to which objection is made." 28 U.S.C. § 636(b)(1)(C). However, "[t]o the
extent that the objecting party makes only conclusory or general objections, or simply reiterates
the original arguments, the Court will review the Report strictly for clear error." DiPilato, 662 F.
Supp. 2d at 339; see also Ortiz v. Barkley, 558 F. Supp. 2d 444, 451 (S.D.N.Y. 2008) ("Reviewing
courts should review a report and recommendation for clear error where objections are 'merely
perfunctory responses,' argued in an attempt to 'engage the district court in a rehashing of the same
arguments set forth in the original petition.'") (citation omitted). After conducting the appropriate
level of review, the Court may accept, reject, or modify, in whole or in part, the findings
or recommendations made by the Magistrate Judge. 28 U.S.C. § 636(b)(1).

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DISCUSSION
As an initial matter, the Court must consider the nature of the objections to determine what
standard of review to apply. Although Lawson’s objections purport to challenge the instant Report
and Recommendation, they focus in large part—and improperly—on the holdings of the Contempt
Order. For example, the contention that Lawson did not willfully defy the Contempt Order because
the relevant documents are “in the possession of Fortress” is a clear attempt to relitigate the
Contempt Order’s conclusion that Lawson did indeed control Fortress and had an obligation to
maintain the requested records. These objections, which are tantamount to a request for
reconsideration of the Contempt Order, are untimely and not well taken.
The law of the case doctrine “forecloses re-litigation of issues expressly or impliedly
decided by the [ ] court.” United States v. Quintieri, 306 F.3d 1217, 1229 (2d Cir. 2002) (internal
citations omitted). Absent “cogent or compelling reasons”, the law of the case controls. See
Johnson v. Holder, 564 F.3d 95, 99-100 (2d Cir. 2009) (internal quotations omitted). Here, the
Contempt Order concluded that Lawson and Law were responsible for Fortress’s failure to comply
with discovery. No cogent or compelling reason has been presented to depart from this conclusion.
Rather, Lawson has reiterated its continued dissatisfaction and disagreement with the
Contempt Order—which is simply beside the point. “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. Persons who make private determinations
of the law and refuse to obey an order generally risk criminal contempt even if the order is
ultimately ruled incorrect.” Maness v. Meyers, 419 U.S. 449, 458-59 (1975). Here, the Contempt
Order was neither stayed nor successfully appealed. Compliance was not a matter for Lawson’s
discretion.
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Because the weight of Lawson’s objections attempt to re-litigate an issue already decided
on a prior motion by re-asserting arguments already considered, they do not trigger de novo review.
The sole objection that does not seek to improperly relitigate the Contempt Order is that the Report
and Recommendation did not properly consider alternative sanctions. The Court will consider that
issue de novo but will otherwise review for clear error.
On the issue of possible lesser sanctions, Lawson contends that the Report and
Recommendation “failed to carefully consider the range of potential sanctions available under
Rule 37” and “did not discourse upon whether a lesser sanction would be ineffective and unfair to
defendants”. ECF No. 198 at 21; 23. Specifically, “lesser sanctions could have included less
draconian forms of relief such as preclusion of the Defendants from introducing particular
evidence in support of their claims, or from testifying at trial in this matter.” ECF No. 198 at 23.
Reviewing Lawson’s conduct de novo, this Court agrees with Judge Netburn’s conclusion
that default is the appropriate sanction. The Contempt Order with which Lawson has failed to
comply clearly constitutes a lesser sanction that has been attempted in this matter. The Contempt
Order allowed a 14-day period for Lawson to cure by complying with the Fortress subpoena.
Lawson did not do so. Even today, Lawson has failed to pay the fine imposed by the Contempt
Order or to comply with the subpoena. “[D]istrict courts are not required to exhaust possible lesser
sanctions before imposing dismissal or default if such a sanction is appropriate on the overall
record.” S. New Eng. Tel. Co. v. Glob. NAPs Inc., 624 F.3d 123, 148 (2d Cir. 2010). On the record
in this matter, the Court concludes, as Judge Netburn did, that default is warranted.
Finally, Vista requested that the court include a “defined escalating coercive consequences
(increasing daily fine converting to confinement for Simon Law) if Contemnors” do not promptly
pay the civil contempt fines. The Court deems this unnecessary at this juncture.
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The Court reviews the remainder of the Report and Recommendation for clear error.
Finding no clear error, the Court ADOPTS the Report and Recommendation in full.
SO ORDERED.
Dated: November 30, 2020
New York, New York

ANDREW L. CARTER,
United States District Judge

13

JR.