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Evans v. Armenta

United States District Court, E.D. Kentucky, Central Division, Lexington

March 28, 2018

ROBB EVANS, et al., Plaintiffs,
v.
RAMIRO ARMENTA, et al., Defendants. ROBB EVANS, et al., Plaintiffs,
v.
ANNA BURRELL, et al., Defendants.

          MEMORANDUM OPINION & ORDER

          Gregory F. van Tatenhove, United States District Judge

         This matter is before the Court on Plaintiff Receiver's Motion to Terminate Sanctions against defendants Ruel Morton, Anover, Inc., Minhtuyen Nguyen, and Todd & Ashley, Inc.; strike their answers; and enter default against them for their failure to comply with discovery obligations. [Burrell, R. 100. Armenta, R. 154; R. 156.] As these motions are intertwined and these Defendants have been dealt with together in past orders, they will be considered together here. The defendants have not responded and the time to do so has passed. Accordingly, the relief the Plaintiff seeks is GRANTED. [Burrell, R. 100. Armenta, R. 154; R. 156.]

         I

         This action arises out of extensive litigation surrounding Fortune Hi-Tech Marketing, a fraudulent pyramid scheme. [Armenta, R. 154-2 at 2.] In these particular cases, the Receiver was assigned to recover $37 million from various parties and has brought action against former independent representatives who were highly compensated under the fraudulent pyramid scheme. [Armenta, R. 154-2 at 2.]

         Defendants were once represented by various attorneys and each entered an answer to Plaintiff's Amended Complaint after a Motion to Dismiss was denied. [Armenta, R. 75; R. 89. Burrell, R. 47.] Counsel for each Defendant eventually asked to withdraw as they were unable to comply with Court orders because the Defendants would not respond to them. [Armenta, R. 127; R. 128. Burrell, R. 79.] Judge Wier ordered Defendants to find new counsel and they did not comply. [Burrell, R. 83; Armenta, R. 132; R. 128; R. 127.]

         After discovery commenced, Plaintiff filed a motion to compel Defendants to respond to Plaintiff's discovery and for sanctions. [Burrell, R. 93; R. 94. Armenta, R. 147; R. 148.] Defendants did not respond to the Motion to Compel. Judge Wier detailed Plaintiff's attempts to secure responses to their discovery requests. [Burrell, R. 151 at 3.]

         As a result, Magistrate Judge Wier granted Plaintiff's Motion to Compel in part and denied in part. [Armenta, R. 151.] He entered an Order compelling Defendants to “fully and substantively respond, without objection, to the respective Interrogatories and RFPs within 14 days.” [Armenta, R. 151 at 5.] He awarded attorney's fees to the Plaintiff [Armenta, R. 151 at 7] but declined to issue sanctions at the time [Armenta, R. 151 at 8]. However, Defendants were explicitly warned that failure to comply with Judge Wier's Order could result in “progressively harsher sanctions, up to and potentially including striking each Defendant's answer to Plaintiff's First Amended Complaints and the entry of default judgment.” [Armenta, R. 151 at 9.]

         Each Defendant disregarded the Magistrate Judge's Order and did not produce discovery within fourteen 14 days. [Armenta, R. 156-2 at 3; R. 154-2 at 4. Burrell, R. 100-2 at 3.] Plaintiff sent demand letters to each Defendant with the Magistrate Judge's Order [Armenta, R. 151] attached and specifically stated the Plaintiff would move to strike their answers and would move for default and default judgment. [Armenta, R. 156-2 at 3; R. 154-2 at 4. Burrell, R. 100-2 at 3.] Plaintiff has attached the letter as well as the marked envelopes in the record. [See Armenta, R. 156; R. 154. See Burrell, R. 100.]

         II

         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 Fed.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 Fed.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 Fed.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 the Defendants' 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 ...

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