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Griffin v. Jones

United States District Court, W.D. Kentucky, Paducah Division

September 18, 2017

CHARLES A. JONES, et al., Defendants.


          Thomas B. Russell, Senior Judge.

         This matter comes before the Court on a Motion for Summary Judgment filed by Defendants Charles A. Jones, CA Jones Management Group ("CJM"), Global Book Resellers, LLC ("Global Book"), and Technology Associates, LLC ("TAI") (collectively, "Defendants"). [R. 190.] Plaintiff David Griffin responded. [R. 197.] In his response, Griffin attached the declarations of Kenny Hoover, Michael White, Dan Foster, Mark Whitaker, and David Griffin and a memorandum attributed to Myles MacDonald. [R. 197, Ex. 1-6.] Defendants replied, in which Defendants requested the Court strike the affidavits [R. 201.] Plaintiff filed a response [R. 210], and Defendants replied. [R. 211.] Fully briefed, the matter is now ripe for adjudication.

         For the reasons stated herein, the Court will not strike the declarations of Hoover, [R. 197-2], White, [R. 197- 3], and Foster, [R. 197- 5]. The Court will reopen discovery for the narrow purpose of permitting Jones to take Hoover, White and Foster's depositions if he so chooses. Because the Court will reopen discovery, the Defendants' Motion for Summary Judgment is DENIED with leave to refile. For the reasons stated herein, the stated portions of the remaining affidavits of David Griffin, [R. 197-1], and Mark Whitaker, [R. 197-4], will not be considered by the Court at this time. Lastly, the information contained in MacDonald's memorandum, [R. 197-6], is immaterial to resolving Defendants' motion for summary judgment, therefore, Defendants' request to strike the memorandum is moot.


         The instant litigation is the latest product of the soured business relationship between Charles A. Jones and David Griffin. In way of background, Jones is a businessman from Murray, Kentucky who has spent his career in the education, technology, and real estate business. [R. 160 at 2, ¶¶ 3-4 (Jones' Affidavit).] He first met Griffin, a wealthy cotton farmer from Helena, Arkansas, at the Peabody Hotel in Memphis, Tennessee in February 2008. [R. 147-1 at 232-33 (Jones' Deposition I); R 152-1 at 8, 22-23 (Griffin's Deposition I).] Griffin mentioned he was looking for new investment opportunities, and Jones had just the thing. [R. 160 at 2, ¶ 8.]

         Jones described two of his companies-Integrated Computer Solutions, Inc. ("ICS") and Cabling Concepts, Inc. ("Cabling Concepts")-as one such investment opportunity. [R. 160 at 2, ¶ 8; R. 197-1 at 3, ¶ 3 (Griffin's Affidavit).] ICS and Cabling Concepts were companies whose business was based on performing contracts under a federal subsidy program known as "eRate." [R. 197-1 at 3, ¶ 3.] Under the eRate program, the federal government footed most of the bill when school districts contracted with third-party vendors to provide information technology infrastructure and services. [R. 197-1 at 3, ¶ 3.] Griffin expressed interest in this venture, [R. 160 at 2, ¶ 8], and subsequently purchased a one-half interest in Cabling Concepts and in ICS from third-parties. [R. 197-1 at 3, ¶ 3; R. 160 at 3, ¶ 9; R 152-1 at 27-31.] Jones retained the remaining half. [R 197-1 at 3, ¶ 3; R 160 at 3, ¶ 9.]

         Soon after Griffin acquired an interest in ICS and Cabling Concepts, Jones approached Griffin with a second investment opportunity-this time in the college textbook industry. [R. 160 at 2, ¶ 8.] Again, Griffin expressed interest, and together he and Jones purchased SE Book Company, LLC ("SE Book"). [R. 160 at 3, ¶ 11; R. 197-1 at 4, ¶ 6; see also R. 160-2 (SE Book Operating Agreement).] SE Book was a "long-standing textbook wholesaler" based in Murray, Kentucky with "established customer relationships and distribution channels." [R. 160 at 3, ¶ 13.] One year later, the gentlemen expanded into the textbook rental market as well. [R. 160 at 4-5, ¶ 16.] To that end, Griffin and Jones formed College Book Rental Company, LLC ("College Book Rental"). [R. 160 at 4-5, ¶ 16; R. 152-1 at 30-31; see also R. 160-4 (College Book Rental Company Operating Agreement).]

         Over the next two or three years, Griffin and Jones carried on these (and other) businesses together. Each arrangement was roughly the same. The two agreed to split ownership on an equal basis. [R. 154-2 at 2, ¶ 2 (Griffin's Declaration); R. 160 at 3, ¶ 12; R. 152-1 at 30-31.] Jones assumed responsibility for the day-to-day management of the businesses, and Griffin agreed to provide the necessary financial support. [R. 154-2 at 2, ¶ 2 (Griffin's Declaration); R. 160 at 3, ¶ 12; R. 152-1 at 30-31.]

         Jones managed these jointly-owned companies through the CA Jones Management Group, LLC ("the Jones Management Group"). [See R. 160 at 2, 5, ¶¶ 6, 17.] With respect to SE Book and College Book Rental, at least, the gentlemen reduced the arrangement to writing. [See R. 160-3 (Management Agreement with College Book Rental Company).] Under the management agreement, the Jones Management Group provided "accounting, banking, human resources, computer and legal services" for the jointly-owned companies. [R. 160 at 5, ¶ 17.] In exchange, the Jones Management Group charged SE Book and College Book Rental a monthly management fee. [See R 197-1 at 5, ¶ 8 (Griffin's Declaration).]

         At first, things went well. For example, College Book Rental showed a gross profit of $6, 327, 108 in 2010, which tripled to $19, 287, 607 in 2011. [R. 160 at 5, ¶ 18; see also R. 160-5 at 6 (College Book Rental's Financials).] By September 2011, the business was valued somewhere between $191, 750, 000 and $319, 584, 000. [R. 160 at 5-6, ¶ 19; see also 160-6 at 6 (Commonwealth Economics'Report).]

         Despite this apparent success, Griffin and Jones had an escalating dispute over the health and management of the jointly-owned businesses. By 2012, the entire enterprise was falling apart. A large swath of lawsuits, including this one, followed. During the course of that litigation, Griffin allegedly made some unpleasant discoveries:

         First, Griffin maintains that Jones omitted the fraudulent and criminal activity that was occurring behind the scenes at ICS and Cabling Concepts when he persuaded Griffin to purchase 50o/o of the stock in both companies. [R. 197 at 2 (Motion for Summary Judgment).] According to Kenny Hoover, a former employee of Jones, ICS was submitting padded invoices to school districts and to the federal government. [R. 197-2 at 2, ¶ 3 (Hoover's Declaration).] In addition, Hoover admitted to transporting valuable items from Jones to Ashley Jordan-the person responsible for awarding contracts under the eRate program in Crockett County, Tennessee-allegedly as bribes. [R. 197-2 at 2-3, ¶ 3.] Had Griffin known about those activities at the time, he never would have "invested in either Cabling Concepts or ICS, " or, for that matter, "any other business" with which "Jones was associated." [R. 197-1 at 3, ¶ 4.]

         Second, Griffin alleges that Jones colluded with the outside accountants (Art Sparks and his accounting firm, Alexander Thompson Arnold ("ATA")) performing regular audits of the textbook companies in order to falsify the financial reports. He claims they accomplished this by dramatically overstating the inventories of books. [R. 197-1 at 4]. This involved a scheme in which Sparks advised Jones as to how many books would need to be physically counted in the audit, and then Jones prepared specific bins with the target number of books to be "randomly" selected and counted by ATA. [R. 197-4 at 3, ¶4 (Whitaker's Declaration).]

         Lastly, Griffin asserts that Jones used his power over the textbook companies to divert money from companies in which Griffin had an interest, as well as money directly invested by Griffin, to companies in which Griffin had no interest, [R. 197-4 at 2-3, ¶3], or to Jones's own pocket, [R.197 at 5]. Jones allegedly accomplished this through charging broad "management fees" through the Jones Management Group that essentially enhanced his personal salary [R. 197-1 at 5-6] and by transferring funds as he pleased that were directly invested by Griffin into SEB, [R. 197 at 5].

         Griffin filed this action in 2012[1] [R. 18 at 2, ¶¶ 2-6 (Amended Complaint).] He brings claims for securities fraud, breach of fiduciary duty, and common-law fraud against Jones and the Jones Management Group. [R. 18 at 22-25, ¶¶ 88-105.] In addition, he brings claims for misappropriation and for unjust enrichment against Jones and the Jones Management Group, as well as Global Book Resellers, LLC and Technology Associates, Inc. [R. 18 at 25-27, ¶¶ 106-117.]

         Jones responded with a counterclaim against Griffin and a third-party claim against John Farris, Commonwealth Economics, LLC, John Wittman, Joe Pat Cohoon, and CBR Funding, LLC. [R. 44 at 15-30, ¶¶ 1-74 (Counterclaim and Third-Party Claim).] Jones brought claims for racketeering, [R. 44 at 24-28, ¶¶ 41-61], for breach of fiduciary duty, [R. 44 at 28-29, ¶¶ 62-66], for intentional interference with business relations, [R. 44 at 29-30, ¶¶ 67-71], and for abuse of process, [R. 44 at 30, ¶¶ 72-74], against all of those concerned. In a prior opinion, the Court dismissed the claims for racketeering, breach of fiduciary duty, and for abuse of process. [R. 103 (Memorandum Opinion).] Currently before the court is Jones's Motion for Summary Judgment on Griffin's claims.


         Summary judgment is appropriate when the record, viewed in the light most favorable to the nonmoving party, reveals "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine dispute of material fact exists where "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., Ml U.S. 242, 249 (1986). The Court "may not make credibility determinations nor weigh the evidence when determining whether an issue of fact remains for trial." Laster v. City of Kalamazoo, 746 F.3d 714, 726 (6th Cir. 2014) (citing Logan v. Denny's, Inc., 259 F.3d 558, 566 (6th Cir. 2001); Ahlers v. Schebil, 188 F.3d 365, 369 (6th Cir. 1999)). "The ultimate question is 'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Back v. Nestlé USA, Inc., 694 F.3d 571, 575 (6th Cir. 2012) (quoting Anderson, 477 U.S. at 251-52).

         As the parties moving for summary judgment, Jones and his related entities must shoulder the burden of showing the absence of a genuine dispute of material fact as to at least one essential element of Griffin's claims. Fed.R.Civ.P. 56(c); see also Laster, 746 F.3d at 726 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). Assuming that Jones and his related entities satisfy their burden of production, Griffin "must-by deposition, answers to interrogatories, affidavits, and admissions on file-show specific facts that reveal a genuine issue for trial." Laster, 746 F.3d at 726 (citing Celotex Corp., 477 U.S. at 324).


         Defendants move for summary judgment on Griffin's claims and also request that the Court strike the declarations of five witnesses attached as part of Griffin's opposition to the pending Motion for Summary Judgment.[2] [R. 201 (Reply).] Griffin opposes that request in full. [R. 210 (Response to Motion to Strike).] The Court recognizes the importance of these declarations in supporting Griffin's arguments, as well as the likely occurrence that certain arguments of both parties will change with today's holdings. Therefore, this opinion will only analyze the Defendants' request to disregard the declarations.

         I. Defendants' Request to Strike the Declarations of Hoover, White, and Foster.

         Pursuant to Federal Rule of Civil Procedure 37(c)(1), Jones urges the Court to disregard the declarations of Kenny Hoover, Michael White, and Dan Foster. [R. 201 at 5-7.] To start, Jones claims that none of the three gentlemen were timely disclosed under Federal Rule of Civil Procedure 26(a)(1). [R. 201 at 5-7.] It is undisputed that Griffin did not name Hoover, White, or Foster in his initial disclosures or in his responses to interrogatories some three years ago. [See R. 201-1 at 3-6 (Initial Disclosures); R. 201-2 at 4 (Response to Interrogatories).] The reason for the omission, Griffin explains, is that he did not learn of Hoover, White, and Foster's relevance to this litigation until a few months ago. [R. 210 at 2-3.] His failure to list them at that time is, therefore, understandable. See Baker Hughes Inc. v. S&S Chem., LLC, 836 F.3d 554, 568 (6th Cir. 2016).

         Perhaps more to the point, Jones faults Griffin for not timely supplementing his initial disclosures and responses to interrogatories in accordance with Federal Rule of Civil Procedure 26(e)(1). [R. 201 at 5-7.] Although Griffin disagrees with that assessment, he says the failure, if any, was substantially justified or harmless. [R. 210 at 3-6.] To resolve this motion, the Court assumes that Griffin failed to timely supplement his earlier disclosures and responses as required under Rule 26(e)(1). Nevertheless, the Court holds that the belated disclosure of Hoover, White, and Foster was substantially justified or harmless within the meaning of Rule 37(c)(1).

         Federal Rule of Civil Procedure 26 sets forth a general framework to regulate pretrial discovery. Two provisions are of importance to this dispute: Rule 26(a)(1) and (e)(1). Rule 26(a)(1) requires a litigant to disclose "each individual likely to have discoverable information-along with the subjects of that information-that the disclosing party may use to support its claims or defenses, unless the use would be solely for impeachment." Fed.R.Civ.P. 26(a)(1)(A)(i). Rule 26(e)(1), in turn, imposes a duty to timely supplement or correct prior disclosures and discovery responses "if [a litigant] learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing." Fed.R.Civ.P. 26(e)(1)(A).

         Federal Rule of Civil Procedure 37 dovetails with those requirements: If a litigant "fails to provide information or identify a witness as required by Rule 26(a) or (e), the [litigant] is not allowed to use that information or witness to supply evidence on a motion ... or at a trial, unless the failure was substantially justified or is harmless." Fed.R.Civ.P. 37(c)(1). Exclusion "of late or undisclosed evidence is the usual remedy for noncompliance with Rule 26(a) or (e)." Howe v. City of Akron, 801 F.3d 718, 747 (6th Cir. 2015). But that is not always the case, as the Rule gives the Court "the option to order alternative sanctions 'instead of exclusion of the late or undisclosed evidence 'on motion and after giving an opportunity to be heard.'" Id. (quoting Fed.R.Civ.P. 37(c)(1)); see also 8B Charles Alan Wright et al., Federal Practice and Procedure § 2289.1 (3d ed.), Westlaw (database updated Apr. 2017).

         Nonetheless, Griffin may avoid sanction if "there is a reasonable explanation of why Rule 26 was not complied with or the mistake was harmless." Bessemer & Lake Erie R.R. Co. v. Seaway Marine Transp., 596 F.3d 357, 370 (6th Cir. 2010) (quoting Vance ex rel. Hammons v. United States, 182 F.3d 920, 1999 WL 455435, at *6 (6th Cir. 1999) (unpublished table decision)). To assess whether a litigant's belated disclosure is "substantially justified" or "harmless, " courts in this Circuit look to five factors:

(1) the surprise to the party against whom the evidence would be offered; (2) the ability of that party to cure the surprise; (3) the extent to which allowing the evidence would disrupt the trial; (4) the importance of the evidence; and (5) the nondisclosing party's explanation for its failure to disclose the evidence.

Howe, 801 F.3d at 748 (quoting Russell v. Absolute Collection Servs., Inc., 763 F.3d 385, 396-97 (4th Cir. 2014)); see also Abrams v. Nucor Steel Marion, Inc., ___ F.App'x ___, ___, 2017 WL 2297486, at *6 (6th Cir. 2017). These factors simply lend themselves "to the task at the heart of Rule 37(c)(1): separating 'honest, ' harmless mistakes from the type of 'underhanded gamesmanship' that warrants the harsh remedy of exclusion." Bentley v. Highlands Hosp. Corp., No. CV 15-97-ART-EBA, 2016 WL 5867496, at *10 (E.D. Ky. Oct. 6, 2016) (quoting Howe, 801F.3dat747, 749).

         The balance weighs in Griffin's favor. First, the surprise to Jones is somewhat troublesome. Although Hoover, White, and Foster's names came up in passing during a handful of depositions, [see, e.g., R. 208-1 at 129 (Cohoon's Deposition); R. 208-5 at 140 (Jones' Deposition)], none of them were disclosed as possible witnesses until after the close of discovery. On the flip side, it appears as though Jones is not altogether unfamiliar with Hoover, White, and Foster. He has either employed or transacted business with each over a number of years. [See R. 197-2 at 2, ¶ 2 (Hoover's Declaration); R. 197-3 at 2, ¶ 2 (White's Declaration); R 197-5 at2, ¶¶2-3 (Foster's Declaration).] Still, the issue of surprise weighs against Griffin.

         Second, there is enough time to cure the surprise to Jones. The recent unearthing of these witnesses supplies the good cause needed to reopen discovery for the limited purpose of allowing Jones to depose Hoover, White, and Foster. The opportunity to take their depositions ameliorates much of the surprise. See Smith v. State Farm Mutual Auto. Ins. Co., No. CV 5:15-375-KKC, 2017 WL 107971, at *2 (E.D. Ky. Jan. 11, 2017); Boegh v. United States, No. 5:08-CV-00150-R, 2010 WL 4286150, at *1 (W.D. Ky. Oct. 22, 2010). Therefore, the ability to cure weighs in favor of Griffin.

         Third, no disruption of the trial resulted, or will result, from the belated disclosure. Due to a related bankruptcy proceeding, there is no date set for the trial of this action. Reopening discovery for the limited purpose of deposing Hoover, White, and Foster will not frustrate the expedient resolution of this litigation. See Pacheco v. Johnson, No. 3:1 l-CV-221, 2017 WL ...

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