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New London Tobacco Market, Inc. v. Kentucky Fuel Corporation

United States District Court, E.D. Kentucky, Southern Division, London

September 30, 2014




This matter is before the Court pending review of the March 25, 2014 Report and Recommendation of United States Magistrate Judge Hanly A. Ingram. [R. 189.] The Report addresses an array of sanctions motions [R. 131; R. 134; R. 170] which were referred for his consideration. [R. 154; R. 180]. On April 11, Defendants filed objections to this Report. [R. 190.] These objections trigger this Court's obligation to conduct a de novo review on all those topics to which they object. See 28 U.S.C. ยง 636(b)(1)(c). The Court has satisfied that duty, reviewing the entire record, including the parties' arguments, relevant case law and statutory authority, as well as applicable procedural rules. For the reasons set forth below, the Defendants' objections to the Magistrate Judge's Recommended Disposition shall be OVERRULED and the Recommendation shall be ADOPTED. Additionally, the Court considers the remaining relevant portions of the Defendants' Motion for Summary Judgment. [R. 125.] For the reasons explicated herein, it will be DENIED.


The Magistrate Judge conducted an evidentiary hearing on the issues raised in Plaintiffs' multiple sanctions motions and sets out the factual and procedural background in his March 25, 2014 Recommended Disposition. [R. 189]. He divided his findings of fact into five thematic categories: (1) Defendants' Initial Disclosures; (2) Proceedings Concerning Defendants' Counsel of Record; (3) Discovery Into the Sale of Fivemile Leases and Permits & Outstanding Royalties; (4) Discovery Into Defendants' Financial Information from 2005-Present; and (5) the Deposition of James C. Justice, III. [R. 189 at 5-13.] Defendants explain that, because the Magistrate Judge's conclusions appear to rely on only three of these categories, its objections to the Report are similarly limited. [R. 190 at 3-4.] Consequently, Defendants objections are limited to the following topics: (1) Discovery into the Sale of Fivemile Leases and Permits & Outstanding Royalties; (2) the Deposition of James C. Justice, III; and (3) Discovery into Defendants' Financial Information from 2005-Present. [ See R. 190.] Even within these three categories, the "[d]efendants do not challenge the accuracy of any particular Finding of Fact" but only argue that "other facts deserve emphas[is] for purposes of this Court's de novo review."[1] [R. 190 at 4.] Finally, it is also noteworthy that the Defendants do not object to the Magistrate's factual findings relating to either of the remaining two categories addressing initial disclosures and counsel of record.[2] [R. 190 at FN 3.] The Magistrate Judges succinctly summarized his proposed factual findings in the following way:

1. Defendants failed to produce documents related to the reported sale of the Fivemile leases and permits requested by Plaintiffs' Requests for Production Nos. 7-8 within three days of the September 19, 2013 entry of the Protective Order at Docket Entry 124 because nearly 1, 000 documents were not produced until October 25, 2013.

2. Defendants failed to supplement their responses to Plaintiffs' Interrogatories Nos. 8-9 and Request for Production No. 1 concerning minimum annual royalties due in 2013 because no supplementation was ever made.

3. Defendants failed to produce all the financial documents ordered by the Court to be produced on October 15, 2013, despite the fact that District Judge Van Tatenhove overruled Defendants' objections to that order.

4. Mr. Justice failed to appear for his properly noticed deposition that was scheduled in accordance with the Court's Order of July 30, 2013.

[R. 189 at 14-15.]

Neither party objects to the legal framework articulated in the Report. Rather, Defendant's objections challenge the Magistrate Judge's conclusions resulting from his application of law to the facts. For the reasons stated above, it is unnecessary to restate either the facts or the law, both of which have already been thoroughly and thoughtfully described. Nevertheless, the Court will endeavor to briefly restate both the legal framework and pertinent facts throughout this Order for purposes of clarity and thoroughness. For the reasons stated above, the Court incorporates the Magistrate Judge's discussion of the record and applicable legal framework into this order.[3]



Federal Rule 37(b)(2)(A) provides, in relevant part, that "[i]f a party or a party's officer, director, or managing agent... fails to obey an order to provide or permit discovery... the court where the action is pending may issue further just orders." Fed.R.Civ.P. 37(b)(2)(A). The rule then enumerates seven options for how to sanction the party, one of which is "rendering a default judgment against the disobedient party." Fed.R.Civ.P. 37(b)(2)(A)(vi). The rule further provides, with regard to attorney fees and expenses, that:

Instead of or in addition to the orders above, 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). In the Sixth Circuit, entry of default judgment pursuant to Rule 37 is reviewed for an abuse of discretion. Stooksbury v. Ross, 528 F.Appx. 547, 552 (6th Cir. 2013) (citing Bank One of Cleveland, N.A. v. Abbe, 916 F.2d 1067, 1073 (6th Cir. 1990). Furthermore, despite the fact that an entry of default is a "drastic step which should be resorted to only in the most extreme cases, '" Stooksbury, 528 F.Appx. at 552 (quoting United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)), "the district court does not abuse its discretion in entering a default judgment where a party has the ability to comply with a discovery order and does not, '" Stooksbury, 528 F.Appx. at 552 (quoting Abbe, 916 F.2d at 1073 (quoting Reg'l Refuse Sys. v. Inland Reclamation Co., 842 F.2d 150, 154 (6th Cir. 1988))).

The test for determining whether a defendant's conduct in not cooperating with discovery is sufficiently egregious to justify an entry of default judgment involves the consideration of four factors:

1) whether the defaulting party's failure to cooperate with discovery was willful and in bad faith as opposed to an inability to cooperate; 2) whether the adversary was prejudiced; 3) whether the defaulting party was warned that his failure to cooperate could lead to a default judgment; and 4) whether less drastic sanctions were imposed or considered before the default judgment was ordered.

Stooksbury, 528 F.Appx. at 552-53 (citing Abbe, 916 F.2d at 1073 (quoting Regional Refuse, 842 F.2d at 154.)) "Although no one factor is dispositive, dismissal [or default judgment] is proper if the record demonstrates delay or contumacious conduct. United States v. Reyes, 307 F.3d 451, 458 (6th Cir. 2002). Conduct is deemed contumacious when it is in "willful disobedience of a court order." Black's Law Dictionary (9th ed. 2009) (defining "Conduct.") Put another way, "[c]ontumacious conduct refers to behavior that is perverse in resisting authority and stubbornly disobedient." Carpenter v. City of Flint, 723 F.3d 700, 704-05 (6th Cir. 2013) (quoting Schafer v. City of Defiance Police Dep't, 529 F.3d 731, 737 (6th Cir. 2008) (quoting Webster's Third New International Dictionary 497 (1986) (internal citations omitted)); see also Wu v. T.W. Wang, Inc., 420 F.3d 641, 643 (6th Cir. 2005) (For conduct to be considered in bad faith, it "must display either an intent to thwart judicial proceedings or a reckless disregard for the effect of [his] conduct on those proceedings.") (citations omitted). The burden is on defendants to show that its "failure to comply was ...

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