Pickett et al v. IceCold2, LLC et al
Filing
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MEMORANDUM OPINION AND ORDER. It is ORDERED that Plaintiffs' Motion for Sanctions (Dkt. # 30 ) is GRANTED IN PART. The Court strikes any and all counterclaims from Defendants' pleadings. It is further ORDERED that Plaintiffs' request for attorneys' fees and costs is DENIED at this time. Signed by District Judge Amos L. Mazzant, III on 3/7/2019. (rpc, )
United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
DAVID R PICKETT and U.S.
REFRIGERATION TECHNOLOGIES, LLC
v.
ICECOLD2, LLC, ECOCOOL WORLD,
LLC, ECOCOOL WORLD, INC., and
RAKESH DESAI, INDIVIDUALLY
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Civil Action No. 4:17-cv-00666
Judge Mazzant
MEMORANDUM OPINION AND ORDER
Pending before the Court is Plaintiffs’ Motion for Sanctions (Dkt. #30). The Court, having
reviewed the motion, pleadings, and relevant evidence, finds that Plaintiffs’ motion for sanctions
should be granted in part.
BACKGROUND
Plaintiff David Pickett is the inventor of a product known as IceCold (the “Product”). The
Product is designed to cause air conditioning units and refrigeration systems to perform more
efficiently and use less energy. On or about June 6, 2014, Pickett and Plaintiff U.S Refrigeration
Technologies, LLC (“USRT”) entered into a Management Agreement (the “Original Management
Agreement”) with Defendant IC2. On or about June 6, 2016, Plaintiffs entered into an Amended
and Restate [sic] Management Agreement with Defendants IC2 and ECWLLC whereby IC2 and
ECWLLC, collectively, were appointed as the exclusive management company for the distribution
of the Product (the “Amended Agreement”). At that time, Pickett was also the owner and holder
of the intellectual property of the IceCold Product (the “Product IP”) and had licensed the
trademark and distribution rights for the Product to USRT.
Under the Amended Agreement, Defendants, as the sole and exclusive worldwide
management company of the Product, were to promote the sale of the Product through direct sales
and the engagement of distributors. Defendants were required to provide sales reports and other
information relating to the customers and distributors of the Product to Plaintiffs. Further,
Plaintiffs were to be paid a royalty on all sales of the Product through the efforts of Defendants.
Plaintiffs contend that, although the Amended Agreement gave Defendants the right to
distribute the Product and the opportunity to purchase the Product IP, it also expressly provided
that Defendants were not investors, owners, shareholders, members or any type of equity owners
in USRT. Further, Plaintiffs aver that, under the Amended Agreement, Defendants were not to
permit any officer, director, employee or representative of Defendants to attempt to bind USRT or
Pickett to any agreement, contract or other obligation. Defendants, contrariwise, contend that
USRT is bound by, and required to fulfill, Defendants’ contracts with their distributors and subdistributors, including the February 22, 2017, distributor agreement with ECWINC, an entity
affiliated with Defendants.
In addition to managing the distribution of the Product, Defendants agreed to purchase the
Product IP from Pickett for a sum certain paid over time in installments. Specifically, Defendants
agreed to pay $6,560,000 in the following installments: $20,000 on August 31, 2016; $20,000 on
September 30, 2016; $20,000 on February 8, 2017; $25,000 on or before February 15, 2017;
$25,000 on or before February 28, 2017; $700,000 on or before March 31, 2017; $500,000 on or
before July 31, 2017; $750,000 on or before December 31,2017; $500,000 on or before December
2018; and execution of a Note in the amount of $4,000,000 on or before January 1, 2019.
In the event that the Defendants failed to make any of the required payments, the Amended
Agreement provided that Pickett could terminate the Agreement after giving written notice and
seven (7) business days opportunity to cure. Plaintiffs contend that Defendants failed to satisfy
their payment obligations to purchase the Product IP. Specifically, that Defendants made the initial
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five (5) installment payments but failed to make a required $700,000.00 payment that was due on
or before March 31, 2017. Thus, on June 12, 2017, Plaintiffs notified Defendants of the default,
in writing, and gave the required seven (7) business days opportunity to cure the default. Plaintiffs
allege that Defendants failed to cure their default. As a result, on June 28, 2017, Plaintiffs
delivered notice to Defendants terminating the Amended Agreement, including the right to manage
and/or distribute the Product as well as the right to purchase the Product IP.
On August 8, 2017, Plaintiffs filed suit against Defendants in the 296th Judicial District
Court of Collin County, Texas, asserting claims for a declaratory judgment and breach of contract.
On September 20, 2017, Defendants removed the present action to the United States District Court
for the Eastern District of Texas on the basis of diversity jurisdiction.
On December 26, 2017, Plaintiffs served Defendants with requests for production of
documents, interrogatories, and request for admissions. Plaintiffs alleges that after being served
with this initial discover, Defendants failed to participate meaningfully, if at all, in the present
action as follows:
On December 26, 2017, Plaintiffs served discovery on the Defendants
consisting of Requests for Production of Documents, Interrogatories, and Request
for Admissions (the “Initial Discovery Requests”). Responses and objections to
the Initial Discovery Requests were, therefore, due on January 25, 2018. The
discovery requests are specifically tailored to obtain information related to the
claims, affirmative defenses, and counterclaims asserted in this lawsuit.
On January 24, 2018, Defendants’ former counsel e-mailed seeking an
additional thirty (30) days in which to serve responses to the Initial Discovery
Requests. No written extension was ever granted but, via telephone, the
undersigned agreed that Defendants could have a two (2) week extension and then
discuss whether additional time was necessary. This verbal agreement extended the
due date until February 9, 2018. February 9, 2018 came and went without any
responses or objections being served by Defendants.
Over the course of the next six (6) weeks the undersigned had multiple
telephone communications with Defendants’ former counsel regarding Initial
Discovery Requests but no responses or objections were ever served. Thus, on
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March 19, 2018, the undersigned e-mailed seeking to learn when responses would
be provided and was simply told he would hear back “as soon as possible.”
Hearing nothing for over a week, the undersigned again e-mailed regarding
the Initial Discovery Requests on March 27, 2018. Again, the response was “soon.”
On April 19, 2018, Plaintiffs served their Second Set of Interrogatories,
again seeking information from the Defendants.
Despite promising information soon, after receiving nothing for almost
another month, the undersigned inquired once again regarding the Initial Discovery
Requests. Specifically, on April 20, 2018, the undersigned e-mailed Defendants’
former counsel to inquire about the Initial Discovery Requests, asserting that any
objections had been waived and the admissions would be deemed admitted, and
informing Defendants that if responses and documents were not received by April
24, 2018—four (4) months after the Initial Discovery Requests were served—
Plaintiffs would have no choice but to file a motion to compel with the Court.
On June 28, 2018, Defendants’ former counsel filed Defendants’ Response
to Plaintiffs’ Motion to Compel [Dkt. No. 21] wherein Defendants’ former counsel
stated that “despite repeated attempts, Defendants have refused to respond or
provide the requested information for more than six months” and admitted that
there was no good-faith basis to oppose the Motion to Compel.
On July 18, 2018, the Court granted Plaintiffs’ Motion to Compel Discovery
(the “Order”). [Dkt. No. 24] Specifically, the Court ordered Defendants to fully
respond, without objection, to the Initial Discovery Requests and the Second Set of
Interrogatories within ten (10) days of the Order—July 28, 2018.
Despite the Court’s clear instructions, as of the filing of this Motion for
Sanctions, Defendants have not acknowledged the Order, responded to the Order,
or provided any responses or documents in compliance with the Order. Instead,
Defendants have continued their practice of simply ignoring this lawsuit.
(Dkt. #30, at p. 2–4).
On August 23, 2018, Plaintiffs filed the present Motion for Sanctions (Dkt. #30).
Defendants failed to file a response.
LEGAL STANDARD
Rule 37 “authorizes a district court to strike pleadings of . . . a party that fails to comply
with a discovery order.” U.S. for the Use of M–CO Constr., Inc. v. Shipco Gen., Inc., 814 F.2d
1011, 1013 (5th Cir.1987); FED. R. CIV. P. 37(b)(2)(A) (stating that a pleading may be struck in
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whole or in part). A district court order must provide a sufficient basis for the review of its
decision, but the court “need not provide specific factual findings in every sanction order.”
Topalian v. Ehrman, 3 F.3d 931, 936 (5th Cir. 1993). “[T]he degree and extent to which a specific
explanation must be contained in the record will vary accordingly with the particular circumstances
of the case, including the severity of the violation, the significance of the sanctions, and the effect
of the award.” Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 883 (5th Cir. 1988) (en banc).
Striking a defendant’s pleadings is an appropriate sanction where the “defendant demonstrates
flagrant bad faith and callous disregard of its responsibilities.” McLeod, Alexander, Powel &
Apffel, P.C. v. Quarles, 894 F.2d 1482, 1486 (5th Cir. 1990).
ANALYSIS
Plaintiffs request that, as a sanction for Defendants’ noncompliance with the Court’s Order
(Dkt. #24) compelling Defendants to respond to Plaintiffs’ discovery requests, the Court strike
Defendants’ pleadings and render a default judgment against Defendants for the declaratory relief
sought in Plaintiffs’ original petition. In a previous Memorandum Opinion and Order (Dkt. #39),
the Court granted Plaintiffs summary judgment for the declaratory relief, and therefore an entry of
a default judgment on this point is moot. The Court further does not find it justified to strike
Defendants pleadings in whole; it is, however, appropriate to strike Defendants pleadings to the
extent that they assert any counterclaims. Defendants’ answer (Dkt. #16) to Plaintiffs’ petition
alleges breach of contract and seeks a declaratory judgment. Plaintiffs sought discovery on these
counterclaims, and Defendants failed produce responsive documents, even after being compel by
Order (Dkt. #24) of the Court. In fact, Defendants have neglected to pursue their counterclaims
and have become utterly unresponsive in this action.
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Since Plaintiffs served Defendants with their initial discovery requests, Defendants have
either failed to respond to the requests or provided inadequate responses. On June 14, 2018,
Plaintiffs filed a motion to compel discovery (Dkt. #20). Defendants former counsel did not
oppose the motion to compel and stated that Defendants refused to respond or provide any
information. Therefore, on July 18, 2018, the Court granted Plaintiffs’ motion to compel and
ordered that Defendants fully respond to Plaintiffs’ initial discovery requests and second set of
interrogatories within ten days of the Order (Dkt. #24). To date, Defendants have not responded
to the Order, responded to any of Plaintiffs’ discovery requests, requested any discovery, or
participated in this action. The Court, therefore, finds it appropriate to strike Defendants’
pleadings, in part, as they concern any counterclaims that Defendants have asserted.
Attorneys’ Fees and Costs
Plaintiffs also request attorneys’ fees in the amount of $59,458.00 and costs in the amount
of $716.50. Rule 37 provides that the Court must order “the disobedient party . . . pay reasonable
expenses, including attorney’s fees, caused by the failure, unless the failure was substantially
justified or other circumstance make an award of expenses unjust.” FED. R. CIV. P. 37(b)(2)(C).
Plaintiffs attached an affidavit to support its request for attorneys’ fees and costs. Plaintiffs’
amounts, however, are not limited to the attorneys’ fees and costs incurred as a result of
Defendants’ failure to comply the Court’s Order to compel (Dkt. #24)—but rather include the
expenses incurred in the prosecution of the present action in its entirety. For example, Plaintiffs’
affidavit indicates that the requested attorneys’ fees and costs include:
a. Investigate Plaintiffs’ claims;
b. Review Plaintiffs’ supporting documents;
c. Draft and file Plaintiffs’ Original Petition;
d. Obtain service of same upon Defendants;
e. Research regarding service of Canadian defendants;
f. Receive and review Defendants’ Notice of Removal;
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g. Draft and serve Plaintiffs’ Initial Disclosures;
h. Draft Proposed Scheduling Order;
i. Draft Joint Report of Attorney Conference;
j. Engage in substantial and lengthy negotiations over a potential settlement and
new business arrangement;
k. Draft settlement documents and business agreements that were never executed
by Defendants;
l. Draft and serve First Set of Interrogatories to Defendants;
m. Draft and serve First Request for Production to Defendants;
n. Draft and serve First Request for Admissions to Defendants;
o. Numerous conferences with counsel for Defendants’ regarding Defendants’
responses to discovery;
p. Correspondence with counsel for Defendants regarding Defendants’ answers to
discovery;
q. Draft and file motion to compel and seeking an award of attorney’s fees, pursuant
to Federal Rule of Civil Procedure 37(a)(5)(A) against Defendants;
r. Prepare for hearing on Motion to Compel and attendance at the hearing of the
Motion to Compel;
s. Draft and serve Second Set of Interrogatories to Defendants;
t. Draft and serve Third Set of Interrogatories to Defendants;
u. Draft and serve Second Request for Production to Defendants;
v. Draft and serve Second Request for Admissions to Defendants;
w. Draft Joint Final Pre-Trial Order;
x. Confer with counsel for Defendants regarding Joint Pre-Trial Order and Motion
for Continuance and Withdrawal of Jury Demand;
y. Draft Motion for Continuance and Withdrawal of Jury Demand;
z. Draft Proposed Amended Scheduling Order;
aa. Draft Motion for Discovery Sanctions;
bb. Draft Order Granting Motion for Discovery Sanctions and Striking Defendants’
pleadings;
cc. Draft Affidavit of Chad Johnson in Support of Motion for Discovery Sanctions;
dd. Draft Interlocutory Default Judgment.
(Dkt. #30-7, at p. 2–3). Thus, Plaintiffs are requesting that the Court order Defendants to pay for
expenses incurred before the Court entered the order that Defendants violated. This is beyond the
scope of Rule 37, which is designed, in part, to deter a party from disobeying a court order. It does
not follow that under Rule 37, a party be obliged to pay for conduct that is prior to and not in
breach of a court order.
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CONCLUSION
It is therefore ORDERED that Plaintiffs’ Motion for Sanctions (Dkt. #30) is GRANTED
IN PART. The Court strikes any and all counterclaims from Defendants’ pleadings.
It is further ORDERED that Plaintiffs’ request for attorneys’ fees and costs is DENIED
at this time. The Court does not foreclose on Plaintiffs’ ability to re-urge their request through the
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filing of the proper motion with the Court accompanied by the appropriate supporting
documentation that limits the amounts requested to the expenses Plaintiffs incurred as a result of
Defendants failure to comply the Court’s Order (Dkt. #24).
IT IS SO ORDERED.
SIGNED this 7th day of March, 2019.
___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE
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