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

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

March 28, 2017



          Gregory F. Van Tatenhove United States District Judge

         This matter is before the Court pending review of the Recommended Disposition of United States Magistrate Judge Hanly A. Ingram, filed on January 17, 2017. [R. 302.] Judge Ingram's Recommended Disposition is in response to Plaintiffs' Renewed Motion under Rule 55 filed April 29, 2016. [R. 270.] Judge Ingram conducted a comprehensive and thorough review of the record, concluding that the Defendants owed damages totaling nearly $60 million. [See R. 34.] Even so, Judge Ingram reached his conclusion without conducting an evidentiary hearing. Without the benefit of clear guidance in the Sixth Circuit, Judge Ingram concluded that, based on his thorough review of the record, an evidentiary hearing was not required. This is a close call, but for the reasons set out below, the Defendants' objection to the denial of their request for an evidentiary hearing will be SUSTAINED.



         Under Federal Rule of Civil Procedure 72(b)(2), parties have fourteen days after service to register any objections to the R&R or else waive their rights to appeal. In order to receive de novo review by this Court, any objection to the recommended disposition must be specific. Mira v. Marshall, 806 F.2d 636, 637 (6th Cir. 1986). A specific objection “explain[s] and cite[s] specific portions of the report which [counsel] deem[s] problematic.” Robert v. Tesson, 507 F.3d. 981, 994 (6th Cir. 2007) (quoting Smith v. Chater, 121 F.3d 709, 1997 WL 415309, at *2 (6th Cir. 1997) (unpublished opinion)). A general objection that fails to identify specific factual or legal issues from the Recommendation, however, is not permitted, since it duplicates the magistrate's efforts and wastes judicial economy. Howard v. Secretary of Health and Human Services, 932 F.2d 505, 509 (6th Cir. 1991).

         Defendants objected to the Report and Recommendation on January 31, 2017 [R. 305], and Plaintiffs filed a response to Defendants' objections on February 14, 2017. [R. 301.] Defendants specifically object to nearly every conclusion in the Recommended Disposition, but this Court will focus on their objection to the lack of evidentiary hearing, as that determination makes their other objections moot. [See R. 305 at 6.] Defendants' objections are sufficiently definite to trigger this Court's obligation to conduct a de novo review. See 28 U.S.C. § 636(b)(1)(c). The Court has satisfied that duty, reviewing the entire record, including the motions, briefing, the parties' arguments, relevant case law and statutory authority, as well as applicable procedural rules.


         This lawsuit arises out of a contract to mine coal. On September 30, 2014, this Court entered default judgment against Defendants as to Counts I, II, and V of the Amended Complaint. [R. 206.] Count 1 alleges breach of contract by not paying minimum royalties and monthly retainer fees; Count 2 alleges breach of contract according to payments per ton of coal to be mined on Fivemile properties; and Count 5 alleges fraud generally. [See R 40.] Plaintiffs filed a Rule 55 motion on October 16, 2014, but this Court determined that awarding damages should be delayed until liability was determined on Counts III and IV. [See R. 227.] Counts III and IV were dismissed by this Court on February 1, 2016, and the case was referred to the Magistrate Judge to “hold any proceedings necessary to make appropriate findings of law and fact regarding damages as to Counts I, II, and V of the plaintiffs' Amendment Complaint” and “issue a report and recommendation regarding these damages.” [R. 251 at 6.] Plaintiffs filed their Renewed Motion under Rule 55 on April 29, 2016 [R. 270], and Defendants filed a response on June 3, 2016 [R. 277], and a Reply on June 15, 2016. [R. 284.] Defendants requested an evidentiary hearing multiple times. [See R. 214; R. 223; R. 262; R. 277.] Judge Ingram scheduled a telephone conference to discuss a limited issue related to discovery, but it was cancelled. [R. 298; R. 299.]

         Judge Ingram ultimately recommended that no evidentiary hearing was needed. [R. 302 at 7.] He further found:

(1) For Count I, as of the date of this Report, Defendants owe $680, 000 in unpaid retainer fees. That amount continues to increase by $10, 000 on the first day of each month. The Court should assess 8% interest on these fees, compounded annually. No amount for unpaid minimum royalties should be awarded.
(2) For Count II, Defendants owe $16, 990, 900, as determined by the independent arbiter, with 8% prejudgment interest compounded annually beginning May 1, 2012.
(3) As compensatory damages under Count V, Defendants owe $16, 990, 900, without interest, for lost royalties. They also owe $20, 000 for the Strong Brothers lease reimbursements, plus 8% compound interest beginning October 14, 2011, for the first $5, 000 payment; October 4, 2012, for the second; November 22, 2013, for the third; and April 28, 2016, for the fourth $5, 000 payment.
(4) As punitive damages under Count V, Defendants owe $17, 010, 900, without interest.
(5) Under section 14 of the Fourth Amendment, Defendants owe “all attorney fees and expenses” in connection with this lawsuit (D.E. 40-5 at 7). But the total amount cannot yet be assessed. After Judge Van Tatenhove acts on this Recommendation and all motions are resolved, the undersigned recommends that Plaintiffs be allowed to file an affidavit of fees and costs with an opportunity for a response from Defendants. See Fed. R. Civ. P. 54(d)(2)(C). Interest should not be applied to the award of attorneys' fees and expenses. [R. 302 at 34.] Judge Ingram asserted that he had “sufficient facts for the Court to make an informed calculation of damages” and relied mainly on “the Amendment Complaint, the Fourth Amendment (the operative contract between the parties), and the ...

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