Huffnagle et al v. Loiacono

Filing 132

REPORT AND RECOMMENDATION re 101 Motion for Sanctions. The MagistrateJudge recommends that Plaintiffs' motion for sanctions be GRANTED. Signed by Magistrate Judge John S. Bryant on 2/3/2015. (xc: Pro se party by regular and certified mail) (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER) (ds)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
JAMES HUFFNAGLE, et al.,

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Plaintiffs
v.
ANTHONY LOIACONCO, et al.,
Defendants
TO:

No. 3:11-1009
Judge Campbell/Bryant
Jury Demand

THE HONORABLE TODD J. CAMPBELL
REPORT AND RECOMMENDATION
Plaintiffs have filed their motion for sanctions for

Defendants’ spoliation of material evidence (Docket Entry No. 101),
to which Defendants have responded in opposition (Docket Entry No.
116). Plaintiffs have filed a reply (Docket Entry No. 127).
For the reasons stated below, the undersigned Magistrate
Judge recommends that this motion be GRANTED.
STATEMENT OF THE CASE
Plaintiffs

have

filed

this

action

alleging

misrepresentation, fraud, conversion, and violation of securities
laws by Defendants relating to the formation and operation of Tea
Party HD, LLC. In summary, Plaintiffs claim that Defendant Loiacono
and

his

company,

Plaintiffs

to

Heads

invest

&

money

Tails,
in

Tea

Inc.,
Party

fraudulently
HD,

LLC,

induced
and

then

fraudulently misspent the money by paying himself and his family
members

exorbitant

sums

from

company

funds.

Plaintiffs

compensatory and punitive damages (Docket Entry No. 1).

seek

Defendants have filed an answer denying liability and
asserting a counterclaim (Docket Entry No. 22). Defendants seek
recovery for “shame and humiliation” that will allegedly result in
lost income to Defendant Loiacono.
ANALYSIS
As grounds for their motion, Plaintiffs assert that
Defendant Loiacono has failed to produce in discovery numerous
emails

and

text

Specifically,

messages

Plaintiffs

relevant

have

to

obtained

issues

in

pertinent

this
emails

case.
from

discovery of third parties. Although these emails were sent to or
from Defendant Loiacono, Defendant Loiacono has not produced these
emails in discovery. In addition, Defendant Loiacono’s son, Phillip
Loiacono, has himself produced a number of emails sent to or from
Defendant

Loiacono

which

the

Defendant

has

not

produced

in

discovery. Defendant Loiacono apparently has produced no copies of
text messages, although his son, Phillip, testified that Defendant
sent him text messages regarding Tea Party HD. In addition,
Plaintiffs allege that Defendant Loiacono “has not produced one
record regarding the [Tea Party HD] website, including any designs
or drafts of designs, payments made to staff for building it,
instructions given to staff creating it, the application for the
website and domain name, or any other details.” (Docket Entry No.
102 at 6).

2

In their response, Defendants make several arguments.
First, while not referencing specifically the emails, text messages
and website records at issue, Defendants argue that they have
produced over 1,000 pages of documents. Next, Defendants insist
that Plaintiffs should not be heard to complain that Defendants
have failed to produce emails with Plaintiffs since Plaintiffs
should already have those available to them. Similarly, Defendants
argue that the Plaintiffs should not complain about their failure
to produce certain of the emails to the extent that Plaintiffs have
been able to obtain such emails through discovery of third parties.
With respect to documentation relating to the creation of
the Tea Party HD website, Defendants state that “Mr. Loiacono has
turned over numerous documents showing hundreds of videos including
but not limited to banner ads, advertiser logo’s on videos produced
both

during

live

streaming

and

video-on-demand,

embedded

advertisements from sponsors who helped fund the Tea Party Express
IV National Tour . . . , and more, as produced in discovery for
work related to the Tea Party HD website.” (Docket Entry No. 116 at
6). Defendants argue that “Plaintiffs’ accusations regarding the
destruction or deliberate withholding of corporate records are both
unfounded and offensive.” (Id.)
Despite Defendants’ arguments, it appears they have
intentionally failed to address the specific complaints upon which
Plaintiffs’ motion is based. First, Defendants make no claim that

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they have produced all emails and text messages that are responsive
to Plaintiffs’ requests, nor do they offer any explanation for
their apparent failure to do so. Similarly, Defendants have failed
to assert that they have produced any contracts or agreements
regarding design or creation of the Tea Party HD website, including
invoices for such work or payments of such invoices. Again, while
Defendants assert that they have produced some documents regarding
the website, they ignore the fact that documents responsive to
Plaintiffs’ specific requests have not been produced.
In view of Defendants’ unexplained failure to produce all
responses, emails, text messages, and records concerning the design
and creation of the website, Plaintiffs “can only surmise that
Loiacono destroyed all his electronic communications.” In the
absence of other explanations from Defendants, Plaintiffs thus
conclude

that

spoliation

of

this

evidence

has

occurred.

Nevertheless, the record does not appear to include any direct
evidence

that

Defendants

have

destroyed

the

subject

records.

Instead, the record merely indicates that Defendants have failed to
produce the requested information without an adequate explanation
for their failure.

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Rule 26(e)1 of the Federal Rules of Civil Procedure
provides that a party who has responded to a request for production
of documents is under an obligation to supplement his prior
response if the party learns that in some material respect the
response

is

incomplete

or

incorrect,

and

if

additional

or

corrective information has not otherwise been made known to other
parties during the discovery process or in writing. The undersigned
Magistrate Judge finds from the motion papers of the parties that
Defendants

have

made

an

incomplete

response

to

request

for

production number 24 as well as items numbered 9, 11, 12 and 13 on
the

deposition

notice

of

Defendant

Loiacono.

Specifically,

Defendants have failed to produce a complete set of emails and text
messages in response to request number 24 as well as documents
related to the creation of the Tea Party HD website, including any
charges or payments therefor. These are records that reasonably
should be within the possession, custody or control of Defendants
and Defendants have offered no explanation for their failure to
produce these documents.
Rule 37(c) of the Federal Rules of Civil Procedure
provides that if a party fails to provide information pursuant to
the obligation to supplement prior responses imposed by Rule 26(e),

1

Plaintiffs cite in both their motion and their supporting
memorandum to the Tennessee Rules of Civil Procedure. However, the
Federal Rules of Civil Procedure, and not the Tennessee rules, apply in
this case.

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that party is not allowed to use such information to supply
evidence at a trial unless the failure was substantially justified
or is harmless. In addition, the court may impose additional
sanctions as provided in Rule 37(c).
From

the

record

before

the

Court,

the

undersigned

Magistrate Judge finds that Plaintiffs’ motion for sanctions should
be GRANTED, and that Defendants should not be allowed at trial to
offer into evidence any document or other record responsive to
Plaintiffs’ requests for production that have not been produced in
discovery. In addition, depending upon the evidence admitted and
arguments made at the trial, the trial judge may wish to consider
a jury instruction permitting an adverse inference based upon
Defendants’ failure to produce the subject information.
RECOMMENDATION
For the reasons stated above, the undersigned Magistrate
Judge recommends that Plaintiffs’ motion for sanctions be GRANTED
and that Defendants at trial not be allowed to offer into evidence
any document or record that they have not previously disclosed or
produced during initial disclosures or discovery in the case. In
addition, the undersigned recommends that, depending upon the
evidence admitted and arguments made at trial, the trial judge may
wish to consider a jury instruction including an adverse inference
based upon Defendants’ failure to produce responsive information
during discovery.

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Under Rule 72(b) of the Federal Rules of Civil Procedure,
any

party

has

14

days

from

receipt

of

this

Report

and

Recommendation in which to file any written objections to this
Recommendation with the District Court. Any party opposing said
objections shall have 14 days from receipt of any objections filed
in this Report in which to file any responses to said objections.
Failure to file specific objections within 14 days of receipt of
this Report and Recommendation can constitute a waiver of further
appeal of this Recommendation. Thomas v. Arn, 474 U.S. 140 106 S.
Ct. 466, 88 L.Ed.2d 435 (1985), Reh’g denied, 474 U.S. 1111 (1986).
ENTER this 3rd day of February, 2015.
/s/ John S. Bryant
JOHN S. BRYANT
United States Magistrate Judge

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