Builders Insulation of Tennessee, LLC v. Southern Energy Solutions

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TENNESSEE

WESTERN DIVISION

________________________________________________________________

BUILDERS INSULATION OF )

TENNESSEE, LLC, )

)

Plaintiff, )

)

v. ) No. 17-cv-2668-TLP-tmp

)

SOUTHERN ENERGY SOLUTIONS, )

A Tennessee General Partnership; )

THOMAS WALKER DAVIS, a/k/a Thom )

Davis; and TERI LEIGH DAVIS, )

a/k/a Teri Davis, )

)

Defendants. )

________________________________________________________________

ORDER GRANTING IN PART AND DENYING IN PART

PLAINTIFF’S MOTION FOR SANCTIONS

________________________________________________________________

Before the court by order of reference is plaintiff Builders

Insulation of Tennessee, LLC’s (“Builders”) Motion for Sanctions,

filed on November 8, 2019. (ECF Nos. 176; 102.) On November 21,

2019, defendants Southern Energy Solutions, Thomas Davis, and Teri

Davis (collectively “SES”) filed a response. (ECF No. 178.) For

the following reasons, the Motion for Sanctions is GRANTED in part

and DENIED in part.

I. FINDINGS OF FACT

In September 2015, Builders and Thom Davis entered into

discussions pursuant to which Builders Insulation expressed

interest in hiring Thom Davis as an employee. (ECF No. 103 at 3

¶ 8.) Thom and Teri Davis apparently informed Builders that they

were winding down the operations of Southern Energy Solutions, a

company run by the Davises. (Id. at 3 ¶ 9.) Builders subsequently

hired Thom Davis, and he executed an at will employment contract

with Builders. (Id. at 3 ¶ 10.) According to Builders, “Builders

Insulation and Thom Davis agreed that Thom Davis, as an employee

of Builders Insulation, would bid on projects on behalf of Builders

Insulation and Builders Insulation would provide labor and

materials on those various projects.” (Id. at 3 ¶ 11.) Builders

alleges that Thom and Teri Davis, contrary to their

representations, continued to run SES even after Builders hired

Thom Davis. (Id. at 3 ¶ 13.) Builders further contends that

“instead of bidding on projects and providing labor and materials

for the benefit of Builders Insulation, Thom Davis used Builders

Insulation’s trucks, equipment, inventory and tools on projects

for the benefit of himself, Teri Davis and Southern Energy

Solutions.” (Id.) Builders fired Thom Davis on July 26, 2017.

(ECF No. 80 at 91-92.) Builders filed the instant lawsuit

against SES on September 12, 2017. (ECF No. 1.)

Several acrimonious disputes have arisen during the discovery

process in this case. The most recent dispute, which is the subject

of the instant motion, involves an All-In-One computer in SES’s

possession and certain bank records from SES’s Independent Bank

account. On March 11, 2019, Builders filed a Motion to Compel

regarding SES’s failure to produce account records for SES’s

Independent Bank account for the time period of September 2015 to

August 2017. (ECF No. 89.) District Judge Parker referred the

motion to compel to the undersigned on March 28, 2019. (ECF No.

102.) At a hearing on May 1, 2019, Builders also requested that

SES be required to produce a mirror image of an All-In-One computer

in SES’s possession. SES indicated that, after the motion was

filed, SES requested the records from its bank. The bank

subsequently informed SES that it could provide the records by

early May. Accordingly, the undersigned directed SES to produce

the bank records requested by May 15, 2019. (ECF No. 118 at 2.)

While the undersigned did not require SES to produce a mirror image

of its All-In-One computer, the court directed “counsel for SES

[to] ensure that the All-In-One computer is searched and all

relevant information contained therein produced by May 15, 2019.”

(Id. at 4.)

On May 20, 2019, Builders filed a Notice of Noncompliance

stating that SES failed to comply with the court’s May 1, 2019

order. (ECF No. 123.) According to Builders, SES produced 897 pages

of documents from its search of the All-In-One computer, despite

previously representing to the court that it had no such relevant

documents in its possession. (Id. at 2 n.1.) In addition, the bank

records produced by SES appeared to have a print date of April 19,

2019, meaning that SES was in possession of these documents prior

to hearings before the court regarding the discovery dispute on

April 25 and May 1. (Id. at 2.) Builders also pointed out that the

bank records produced by SES appeared to be copies rather than

originals from the bank itself. (Id.) Lastly, Builders asserted

that SES had produced altered checks. (Id. at 2-3.)

The day after Builders filed the Notice of Noncompliance,

counsel for SES moved to withdraw. (ECF No. 124.) The undersigned

granted the motion to withdraw on June 10, 2019. (ECF No. 142.)

SES then filed a pro se response to the Notice.1 (ECF No. 136.) In

the pro se response, SES states: “Defendants were unaware that

non-original copies were provided to attorneys Ballin, Ballin and

Fishman.” (Id. at 3.) SES also states: “Defendants turned over

what was thought to be the original documents from the bank[.]”

(Id.) Finally, SES states: “Defendants unknowingly provided

Ballin, Ballin and Fishman altered copies of the deposits[.]” (Id.)

SES subsequently retained its present counsel, and a second

response to the Notice was filed through counsel on August 9, 2019.

(ECF No. 161.) In this response, SES acknowledges that it provided

altered checks to Builders: “Defendants, prior to providing copies

of the records to their prior counsel, redacted certain information

1In response to the instant Motion, SES states that Teri Davis

submitted the pro se response to the Notice of Noncompliance as an

email attachment to the court’s ECF mailbox. (ECF No. 178 at 3.)

SES points out that the defendants did not sign the pro se

response. (Id.)

in the ‘memo’ section of the deposited checks which would identify

the street address or lot number of the job(s) being paid for with

the check.” (Id. at 2.) While SES admits to redacting information

from the checks, it asserts that it did so in good faith, seeking

only to keep confidential information out of the hands of a

business competitor, Builders. (Id. at 3-4.) The response states

as follows:

Defendants redacted the information out of their concern

that the information, particularly as to job site, would

enable the Plaintiff to ascertain square footage of the

job and determine, based on the customer’s payment,

SES’s job pricing to SES’s customers. As SES’s pricing

information is confidential, Defendants were concerned

that such information would give Builders an unfair

competitive advantage.

(Id. at 4.) SES provided unredacted copies of the bank records in

question contemporaneously with filing its response. (Id.)

On October 24, 2019, the undersigned held a hearing on the

Notice of Noncompliance, at which time the undersigned authorized

Builders to submit a motion for sanctions based on its allegations.

Builders filed the instant Motion for Sanctions on November 8,

2019. (ECF No. 176.) Builders also submitted a side-by-side

comparison of the fifty-four altered checks alongside the

originals. (ECF No. 177.) According to Builders, the checks

initially produced by SES consisted of “ten blurry check images

per page in hard copy form,” on which “alterations and redactions

are not apparent to the naked eye.” (ECF No. 176 at 5.) It was not

until the production of documents from the All-In-One computer,

which included copies of five check images from August 2017, that

Builders was able to compare the check images to the corresponding

originals and discover the alterations. (Id. at 5-6.) When provided

with originals of the check images, Builders discovered fifty-four

of the checks had been altered when initially produced. (Id.)

On approximately twenty-four of the checks, SES removed

invoice numbers.2 On approximately twenty-four of the checks,

defendants removed lot numbers from the memo lines.3 Defendants

also removed addresses and other property identifiers from the

memo lines of approximately twenty checks.4 Defendants removed the

words “foam” or “insulation” from the memo lines of approximately

seven checks.5 Defendants also removed pricing information from

the memo lines of approximately ten checks.6

2See Check Nos. 3240, 1095, 1069, 3457, 4914, 1056, 1115, 1127,

17862, 144, 1134, 18157, 148, 1254, 1153, 12536, 1287, 1245,

1465, 5863, 1213, 1339, 2032, & 1010. (ECF No. 177.)

3See Check Nos. 2389, 2498, 2767, 3240, 3565, 3644, 1028, 3750,

1095, 2643, 4786, 3457, 4838, 4914, 5052, 5088, 1134, 5287,

5434, 5595, 5742, 5813, 5863, & 6002. (ECF No. 177.)

4See Check Nos. 2389, 2498, 1767, 1028, 1069, 2643, 170, 1056,

1115, 1127, 144, 1052, 1134, 1014, 5434, 186, 5872, 5884, 2032,

& 5511. (ECF No. 177.)

5See Check Nos. 8487, 8742, 1177, 1014, 1172, 1339, & 1034. (ECF

No. 177.)

6See Check Nos. 3457, 3565, 3644, 3750, 4838, 5052, 5088, 5287,

5863, & 6002. (ECF No. 177.)

According to Builders, SES used a “sophisticated process” of

redaction “to make it appear as if nothing had been altered on the

checks.” (Id. at 6.) None of the checks contain the word “redacted”

or have information blacked out in such a manner that would make

the redaction apparent. Rather, the checks appear as though they

have not been altered in any way. Builders contends “this involved

cutting, copying, pasting, manipulating the check image itself to

recreate a horizontal memo line, while removing relevant

information altogether to make it appear as if nothing had been

altered.” (Id.) Upon the undersigned’s review of a side-by-side

comparison of the original and altered checks, it appears as though

approximately twenty-five of the checks were altered in such a way

that required defendants to remove text crossing below the memo

line, meaning defendants had to either redraw the memo line or

take great care to make it appear undisturbed.7

SES filed a response to Builders’ Motion for Sanctions on

November 21, 2019. (ECF No. 178.) According to SES, “[p]rior to

providing copies of the records to their prior counsel, Teri Davis

redacted certain information in the ‘memo’ section of the deposited

checks which would identify the street address or lot number of

the job(s) being paid for with the check.” (Id. at 2.) According

7See Check Nos. 4786, 2643, 1095, 1069, 5088, 8742, 1115, 144,

1052, 1134, 1177, 1014, 148, 5434, 1153, 1172, 5742, 5872, 5884,

5863, 1339, 2032, 6002, 1034, & 1010. (ECF No. 177.)

to SES, Teri Davis redacted the information out of concern that

Builders, as a business competitor, would be able to use the

information to gain an unfair competitive advantage. (Id. at 4.)

SES reiterated its “concern that the [redacted] information,

particularly as to job site, would enable [Builders] to ascertain

square footage of the job and attempt to determine, based on the

customer’s payment, SES’s job pricing to SES’s customers.” (Id.)

SES also noted that while the Davises understood that a Protective

Order was in place, they did not understand that the order

precluded Builder’s counsel from sharing information with its

client. (Id.) Moreover, SES voiced concerns about whether Builders

has adhered to the Protective Order, “based on SES’s dealings with

common suppliers it shares with Builders during the course of this

litigation.” (Id. at 4-5.)

II. CONCLUSIONS OF LAW

A. Authority of Magistrate Judge to Impose Rule 37 Sanctions

As a preliminary matter, the court will address its authority

to rule on the instant Motion by order rather than report and

recommendation. Magistrate judges generally have authority to

enter orders regarding non-dispositive pre-trial motions but must

submit report and recommendations for dispositive motions. See 28

U.S.C. § 636; Fed. R. Civ. P. 72. There is little debate as to

whether a magistrate judge can enter an order imposing monetary

sanctions on a party under Rule 37. See New London Tobacco Mkt.,

Inc. v. Ky. Fuel Corp., No. 6:12-CV-91-GFVT-HAI, 2016 U.S. Dist.

LEXIS 96712, at *1 n.1 (E.D. Ky. Mar. 16, 2016) (“Ordinarily, an

award of attorneys' fees under Rule 37 is a non-dispositive matter

that may be finally decided by a magistrate judge pursuant to 28

U.S.C. § 636(b)(1)(A).”) (citing Starcher v. Corr. Med. Sys., Inc.,

144 F.3d 418, 421 (6th Cir. 1998) aff'd sub nom. Cunningham v.

Hamilton Cty., Ohio, 527 U.S. 198 (1999) (considering a magistrate

judge's award of attorneys' fees under Rule 37)); see also Brown

v. Tellermate Holdings Ltd., No. 2:11-CV-1122, 2015 WL 4742686, at

*1 (S.D. Ohio Aug. 11, 2015) (“An award of attorneys' fees for

discovery misconduct is not dispositive of a claim or defense and

is therefore reviewed under Rule 72(a)'s ‘clearly erroneous or

contrary to law’ standard.”) (citing Estates of Ungar & Ungar ex

rel. Strachman v. Palestinian Auth., 325 F. Supp. 2d 15, 25 (D.R.I.

2004) aff'd sub nom. Ungar v. Palestine Liberation Org., 402 F.3d

274 (1st Cir. 2005); Baker v. Peterson, 67 F. App'x 308, 311 (6th

Cir. 2003) (per curiam) (citing Ocelot Oil Corp. v. Sparrow Indus.,

847 F.2d 1458 (10th Cir. 1988), for the proposition that "the

magistrate's imposition of attorney fees as a discovery sanction

is reviewed under the 'clearly erroneous or contrary to law'

standard”)); Zang v. Zang, No. 1:11-CV-884, 2014 WL 5426212, at *4

(S.D. Ohio Oct. 22, 2014) (“With few exceptions, orders concerning

pre-trial discovery matters including the imposition of monetary

sanctions for violations under Rule 37 are considered to be non-

dispositive.”) (citing Nance v. Wayne County, 264 F.R.D. 331 (M.D.

Tenn. 2009); Sutton v. United States SBA, 92 F. App’x 112, 120

(6th Cir. 2003) (motion for discovery sanctions is "not excepted

in subparagraph (A) or elsewhere referenced in §636(b)(1)(B)" and

therefore a magistrate judge can determine a Rule 37 sanctions

motion); Universal Health Group v. Allstate Ins. Co., 703 F.3d 953

(6th Cir. 2013)(series of non-dispositive sanctions imposed by

order by magistrate judge, prior to report and recommendation that

recommended sanction of dismissal for continued violations);

LeMasters v. Christ Hospital, 791 F. Supp. 188 (S.D. Ohio 1991)

(partially modifying but affirming "nondispositive" magistrate

judge order imposing sanction of $500 per day for tardy discovery

production)). It is worth noting that motions for sanctions under

Rule 37 differ from motions for sanctions under Rule 11, which the

Sixth Circuit consider to be dispositive. See Bennett v. General

Caster Serv. of N. Gordon Co., 976 F.2d 995, 997 (6th Cir. 1992).

The question thus becomes whether the request for relief in

the form of a default judgment affects the authority of the

magistrate judge to determine a Rule 37 motion for sanctions.

“There appears to be a split in authority on whether a magistrate

judge should provide a report and recommendation to a district

judge on a Fed. R. Civ. P. 37 motion for sanctions where, as here,

the relief sought is dispositive (e.g., default judgment).” Coach,

Inc. v. Dequindre Plaza, L.L.C., No. 11-cv-14032, 2013 WL 2152038,

at *2 n.1 (E.D. Mich. May 16, 2013) (citing Bell-Flowers v.

Progressive Ins. Co., No. 04-3026, 2005 WL 3434818, at *1, 2 n.1

(W.D. Tenn. Dec. 13, 2005) (Pham, M.J.)). Courts are divided on

the issue of “whether the sanction chosen by the magistrate judge,

rather than the sanction sought by the moving party, governs the

magistrate judge's authority over the motion.” Webasto Thermo &

Comfort N. Am., Inc. v. BesTop, Inc., No. 16-cv-13456, 2018 WL

5098784, at *3 (E.D. Mich. Oct. 19, 2018) (internal quotation marks

omitted). Some courts have addressed such motions via report and

recommendation. See Coach, Inc., 2013 WL 2152038, at *2 n.1

(collecting cases). However, “[t]he majority of courts to consider

the issue have concluded that when a party brings a motion for

discovery sanctions, the sanction chosen by the magistrate judge,

rather than the sanction sought by the moving party, governs the

magistrate judge's authority over the motion.” Bell-Flowers, 2005

WL 3434818, at *1, 2 n.1 (citing Phinney v. Wentworth Douglas

Hosp., 199 F.3d 1, 6 (1st Cir. 1999); Gomez v. Martin Marietta

Corp., 50 F.3d 1511, 1519 (10th Cir. 1995); Steele v. Costco

Wholesale Corp., No. 03-0713, 2005 U.S. Dist. LEXIS 8348, at *4-5

(E.D.N.Y. May 6, 2005) (unpublished); Segal v. L.C. Hohne

Contractors, Inc., 303 F.Supp. 2d 790, 793-94 (S.D. W. Va. 2004)).

Other magistrate judges in the Sixth Circuit have followed

Bell-Flowers. See Summit Assets, LLC v. O'Malley, No. 11-12327,

2012 WL 13008759, at *1 n.1 (E.D. Mich. July 31, 2012) (“While the

Plaintiffs seek dispositive relief under Rule 37 (i.e., a default

judgment), they also request alternative, non-dispositive

discovery sanctions, including costs and attorney fees, and ‘any

other sanctions this Court deems to be fair and just under the

circumstances.’ Because I am denying a default judgment (albeit

without prejudice) and instead ordering non-dispositive relief, I

am entering an order pursuant to 28 U.S.C. § 636(b)(1)(A), rather

than issuing a Report and Recommendation under 28 U.S.C. §

636(b)(1)(B). In a Rule 37 motion, and particularly one that

requests alternative relief, it is the relief granted, not the

relief sought that determines which clause of § 636(b)(1)

applies.”); Sildack v. Corizon Health, Inc., No. 11-12939, 2013 WL

1316707, at *1 n.1 (E.D. Mich. Mar. 29, 2013) (“Although the

motions are titled ‘motions to dismiss,’ the relief I am granting

is non-dispositive. I therefore proceed by Order under 28 U.S.C.

§ 636(b)(1)(A), rather than Report and Recommendation under 28

U.S.C. § 636(b)(1)(B).”); Goode v. Mercy Mem'l Hosp., No. 11-

10037, 2014 WL 7369926, at *1 n.1 (E.D. Mich. Dec. 29, 2014)

(“Although the motion is titled a ‘motion to dismiss,’ this matter

was referred to the undersigned pursuant to 28 U.S.C. §

636(b)(1)(A), a motion for discovery sanctions is not one excepted

from coverage under 28 U.S.C. § 636(b)(1)(A), and the relief

granted here is non-dispositive. Thus, the undersigned proceeds by

Order under 28 U.S.C. § 636(b)(1)(A) rather than Report and

Recommendation under 28 U.S.C. § 636(b)(1)(B).”); Arabbo v. City

of Burton, No. 13-11331, 2015 WL 3403851, at *1 n.1 (E.D. Mich.

May 26, 2015) (“Although the motion is titled ‘motion to dismiss,’

the relief I am granting is non-dispositive. I therefore proceed

by Order under 28 U.S.C. § 636(b)(1)(A), rather than Report and

Recommendation under 28 U.S.C. § 636(b)(1)(B).”); Thurmond v. City

of Southfield, No. 15-13167, 2017 U.S. Dist. LEXIS 39360, at *2

n.1 (E.D. Mich. May 26, 2017) (“Although the motion is framed as

a ‘motion to dismiss,’ I am not granting dispositive relief. I

therefore proceed by Order under 28 U.S.C. § 636(b)(1)(A), rather

than Report and Recommendation under 28 U.S.C. § 636(b)(1)(B).”);

Catrinar v. Wynnestone Cmtys. Corp., No. 14-11872, 2017 U.S. Dist.

LEXIS 161648, at *1 n.1 (E.D. Mich. Sep. 30, 2017) (“Although

Plaintiff requests a default judgment as an alternative sanction

under Fed. R. Civ. P. 37, the relief I am granting is non-

dispositive. I therefore proceed by Order under 28 U.S.C. §

636(b)(1)(A), rather than Report and Recommendation under 28

U.S.C. § 636(b)(1)(B).”).

The undersigned concludes that, as previously decided in

Bell-Flowers, it is the sanction selected by the magistrate judge

rather than the sanction requested by the moving party that governs

whether a Rule 37 motion qualifies as dispositive or

nondispositive.8 To conclude otherwise would allow the moving party

to improperly dictate the authority of the magistrate judge and

manipulate the standard of review. Segal, 303 F.Supp. 2d at 794.

Because the undersigned elects to impose only monetary sanctions

at this time, the motion falls within the scheme of § 636(b)(1)(A),

which permits the undersigned to proceed by order rather than

report and recommendation.

B. Default Judgment

Builders seeks a default judgment against SES as a result of

defendants “intentionally altering material evidence.” (ECF No.

176-1 at 9-10.) Under Rule 37(b)(2) of the Federal Rules of Civil

Procedure, a district court may sanction parties who fail to obey

discovery orders in a number of ways, including dismissal of the

action or rendering a default judgment against the disobedient

party. Fed. R. Civ. P. 37(b)(2)(A)(v)-(vi). The dismissal of an

action for non-compliance with a discovery order under Rule 37 is

8While a motion for default judgment under Rule 55 is dispositive,

Callier v. Gray, 167 F.3d 977, 981 (6th Cir. 1999), such a motion

is substantially different and substantively distinguishable from

a motion for sanctions under Rule 37. See Segal, 303 F.Supp. 2d at

794 (“Federal Rule of Civil Procedure 37(b)(2) gives this court

power to impose any sanction that is just, with default judgment

being the most severe sanction. Although the plaintiff may ask the

court to impose the most severe of sanctions, it is for the court

to decide which sanctions, if any, is appropriate.”). Unlike a

motion for default judgment under Rule 55, “a motion for ‘default

judgment’ [under Rule 37] based on alleged discovery violations is

nothing more than an optimistically labeled motion for sanctions.”

Id.

a sanction of “last resort,” one which a court may impose only

when “a party's failure to cooperate in discovery is due to

willfulness, bad faith, or fault.’” Peltz v. Moretti, 292 F. App’x

475, 478 (6th Cir. 2008) (quoting Reg'l Refuse Sys. v. Inland

Reclamation Co., 842 F.2d 150, 153-54 (6th Cir. 1988)). The same

is true for entry of a default judgment as a discovery sanction

under Rule 37. Bank One of Cleveland, N.A. v. Abbe, 916 F.2d 1067,

1073 (6th Cir. 1990) (“Just as dismissal of an action for failure

to cooperate in discovery is a sanction of last resort that may be

imposed only if the court concludes that a party's failure to

cooperate in discovery is due to willfulness, bad faith, or fault,

so, too, is entry of default judgment.”) (internal quotation marks

and citations omitted). The court considers four factors when

deciding whether to impose the sanction of dismissal or default

judgment under Rule 37:

The first factor is whether the party's failure to

cooperate in discovery is due to willfulness, bad faith,

or fault; the second factor is whether the adversary was

prejudiced by the party's failure to cooperate in

discovery; the third factor is whether the party was

warned that failure to cooperate could lead to the

sanction; and the fourth factor . . . is whether less

drastic sanctions were first imposed or considered.

Freeland v. Amigo, 103 F.3d 1271, 1277 (6th Cir. 1997) (citing

Reg’l Refuse Sys., 842 F.2d at 154-55; Bass v. Jostens, Inc., 71

F.3d 237, 241 (6th Cir. 1995); Bank One of Cleveland, 916 F.2d at

1073); see also Stamtec, Inc. v. Anson, 195 F. App’x 473, 478-79

(6th Cir. 2006) (restating the four-factor test in reviewing

default judgment as a discovery sanction under Rule 37). None of

these factors is dispositive. Barron v. Univ. of Mich., 613 F.

App’x 480, 484 (6th Cir. 2015).

1. First Factor

The first factor is whether a party’s failure to cooperate in

discovery is due to willfulness, bad faith, or fault. Freeland,

103 F.3d at 1277. In seeking default judgment as a discovery

sanction, willfulness or bad faith “requires a clear record of

delay or contumacious conduct.” Carpenter v. City of Flint, 723

F.3d 700, 704 (6th Cir. 2013). “Contumacious conduct means

‘behavior that is perverse in resisting authority and stubbornly

disobedient.’” Phipps v. Accredo Health Group, Inc., No. 2:15-cv-

02101-STA-cgc, 2017 WL 685579, at *4 (W.D. Tenn. Feb. 21, 2017)

(quoting Carpenter, 723 F.3d at 704-05). The purportedly wrongful

conduct “must display either an intent to thwart judicial

proceedings or a reckless disregard for the effect of [the] conduct

on those proceedings.” Carpenter, 723 F.3d at 705 (quoting Tung-

Hsiung Wu v. T.W. Wang, Inc., 420 F.3d 641, 643 (6th Cir. 2013)).

According to Builders, the conduct of SES throughout the discovery

process demonstrates willfulness and bad faith. (ECF No. 176-1 at

10.) Builders points to the fact that SES failed to comply with

the May 1, 2019 order after representing to the court that it had

requested bank records from Independent Bank and intended to

produce them to Builders. (Id.)

According to SES, this case does not reflect a clear record

of contumacious conduct, although SES no longer disputes producing

altered records. (ECF No. 178 at 4-6.) SES contends that its

reasons for doing so, even if misguided, do not rise to the level

of contumacious conduct. (Id.) SES points out that Builders has

had the unredacted records it requested since August 9, 2019. (Id.)

SES states that Builders’ argument is based on conjecture regarding

the “sophistication” of SES’s redaction efforts. (Id.) According

to SES, “[t]he record does reflect that [the Davises] implicitly

acknowledged altering the records in the Pro Se June 4 Response

and their concern over protecting SES’s proprietary information.”

(Id. at 6.)

There is no way the June 4 pro se response can be reasonably

construed as an acknowledgement by the Davises that they altered

the checks. The Davises explicitly state in their response:

“Defendants were unaware that non-original copies were provided to

attorneys Ballin, Ballin and Fishman.” (ECF No. 136 at 3.) The

Davises also state: “Defendants turned over what was thought to be

the original documents from the bank[.]” (Id.) Finally, the Davises

state: “Defendants unknowingly provided Ballin, Ballin and Fishman

altered copies of the deposits[.]” (Id.) There is nothing in the

pro se response to suggest that the Davises “implicitly

acknowledged” altering the records they produced. Rather, the

Davises misrepresented in the pro se response that they were

unaware of producing altered documents.

Builders points to the “sophisticated” means of redaction,

which the Davises state is conjectural. Whether sophisticated or

not, it is clear to the court that the alterations were done

carefully. Approximately twenty-five checks had text removed that

extended below the memo line. Teri Davis removed this information

in such a way that the memo line appears undisturbed. In order to

accomplish this, Teri Davis must have either removed the

information extremely carefully or removed and redrawn the memo

line onto each check so it would appear undisturbed. Either way,

it evidences a deliberate effort to remove information in a manner

that would not appear obvious to the naked eye. Moreover, Teri

Davis submitted a response to Builders’ Notice of Noncompliance

that explicitly stated the Davises did not know they had turned

over altered checks to their counsel at the time. It is entirely

unreasonable to believe that Teri Davis could have unknowingly

engaged in the careful redaction of the checks produced by SES. On

the contrary, the record clearly demonstrates that the Davises

acted with “an intent to thwart judicial proceedings [and] a

reckless disregard for the effect of [their] conduct on those

proceedings.” See Carpenter, 723 F.3d at 705. The Davises provided

Builders with altered checks and then tried to hide it.9 This

clearly qualifies as willful conduct committed in bad faith. This

factor weighs strongly in favor of a default judgment.

2. Second Factor

The second factor is whether the adversary was prejudiced.

Freeland, 103 F.3d at 1277. “A defendant is prejudiced by a

plaintiff's dilatory conduct if the defendant is ‘required to waste

time, money, and effort in pursuit of cooperation which [the non-

compliant party] was legally obligated to provide.’” Carpenter,

723 F.3d at 707 (quoting Harmon v. CSX Transp., 110 F.3d 364, 368

(6th Cir. 2013)). Builders claims it suffered prejudice because

SES possessed “all of the most critical documents” relating to

Builders’ claims. (ECF No. 176-1 at 10-11.) According to Builders,

SES had “exclusive control of the supporting records which would

allow Builders Insulation to not only easily calculate its damages

from [SES’s] conduct, but also potentially identify others with

knowledge of [SES’s] scheme.” (Id. at 11.) According to Builders,

“the property address was the primary way Builders Insulation could

cross-reference checks to SES projects for which Builders

Insulation provided labor and material.” (ECF No. 176-1 at 7.)

Builders contends that SES knew revealing the property address

9It must be noted that the record contains nothing to suggest that

the Davises’ current or former counsel had knowledge of or

participated in this misconduct.

relevant to each check would enable Builders to cross reference

that check with its account statement to SES to find the

corresponding purchase order. (Id.) This prevented Builders from

seeing the amount SES billed and collected related to the

properties that Builders worked on. (Id.) Without this

information, according to Builders, it is impossible to determine

whether the monetary amounts billed and collected for any given

job match, as SES has no copies of any of the invoices sent to its

customers. (Id.) According to Builders, identifying the property

corresponding to each check “is the only way to connect the amounts

paid to SES and the amounts SES paid to Builders[.]” (Id.)

SES, on the other hand, argues that Builders cannot

demonstrate that it sustained any lasting prejudice, as SES

provided non-redacted copies of the bank deposits following

Builders’ Notice of Noncompliance. (ECF No. 178 at 6-7.) As SES

points out, Builders has had unredacted copies of the deposit

checks since August 9, 2019. (Id. at 7.) SES also notes that

Builders has always had the ability to subpoena such documents

directly from the bank. (Id.) However, SES cannot dispute that its

conduct required Builders to spend “time, money, and effort in

pursuit of cooperation which [SES] was legally obligated to

provide.” See Carpenter, 723 F.3d at 707. Ultimately, Builders was

prejudiced by SES, although the prejudice to Builders’ case was

later rectified. This factor weighs in favor of default judgment.

3. Third Factor

The third factor is whether the party was warned that failure

to cooperate could lead to the sanction. Freeland, 103 F.3d at

1277. Builders argues that SES was “clearly on notice” that its

conduct during the discovery process could lead to sanctions. (ECF

No. 176-1 at 11.) As Builders points out, SES faced several motions

for sanctions during these proceedings and also appeared at

hearings regarding the ongoing discovery disputes. (Id.)

SES argues that it has had no prior warning from the court

that failure to comply with the Court’s May 1, 2019 order could

result in a default judgment against SES. (ECF No. 178 at 7.) The

May 1, 2019 order itself did not contain this warning. (ECF No.

118.) SES also points out that while Builders previously sought

sanctions, it did not previously seek a default judgment. (ECF No.

178 at 7.) SES also points out that the court has not imposed any

sanctions on SES in this case. (Id.) Ordinarily, this factor would

weigh strongly against the sanction of default judgment because

the court “has not warned [the Davises] that a failure to cooperate

in discovery could lead to the sanction of default judgment.”

Phipps, 2017 WL 685579, at *5. However, this case involves far

more alarming conduct than a mere “failure to cooperate” by the

Davises. Because the Davises engaged in bad faith and contumacious

conduct, the third prong of this inquiry affords them little

protection here. See Harmon, 110 F.3d at 367 (“Where a plaintiff

has not been given notice that dismissal is contemplated, a

district court should impose a penalty short of dismissal unless

the derelict party has engaged in bad faith or contumacious

conduct.”) (internal quotations marks omitted); see also Universal

Health Group, 703 F.3d at 956 (affirming dismissal of complaint

where bad faith was found, even though “there was no explicit

warning of dismissal”).

4. Fourth Factor

The fourth factor is whether less drastic sanctions were first

imposed or considered. Freeland, 103 F.3d at 1277. As default

judgment is a sanction of “last resort,” the court must consider

whether lesser sanctions would maintain the integrity of these

proceedings. See Bank One of Cleveland, 916 F.2d at 1073; see also

Carpenter, 723 F.3d at 709. While the court has not yet imposed

sanctions on SES, Builders has previously requested sanctions

twice in this case. (ECF Nos. 49; 76.) Builders argues that any

sanctions less than entry of a default judgment are unlikely to

impact the Davises’ conduct, as they have continuously delayed,

changed their testimony, and withheld relevant information. (ECF

No. 176-1 at 11.) Builders asserts that such an extreme remedy is

necessary not only to punish the Davises and deter them from

repeating such behavior but also to deter other litigants from

behaving in such a manner. (Id.) Builders emphasizes that the

Davises did not satisfy their discovery obligations until the court

required “counsel for SES [to] ensure that the All-In-One computer

is searched, and all relevant information contained therein

produced[.]” (ECF No. 118.) Builders points out that this

production occurred five months after Builders deposed Thom and

Teri Davis and after multiple hearings regarding the ongoing

discovery disputes. (ECF No. 176-1 at 11-12.)

SES emphasizes that the court has not imposed any sanctions

against SES to date, and argues that less drastic sanctions are

available and sufficient if the court decides to impose sanctions

at all. (ECF No. 178 at 7.) Whether less drastic sanctions will

prove sufficient to deter future violations by the Davises remains

to be seen. Certainly, the conduct at issue here cannot go

unaddressed or be allowed to continue. However, after considering

all four factors under Freeland, the court finds that the sanction

of a default judgment is not warranted at this time. Accordingly,

Builders’ request for a default judgment is DENIED.

C. Attorney’s Fees

Additionally, Builders seeks attorney’s fees as a sanction.

Under Rule 37(b)(2)(C), instead of imposing any of the sanctions

listed in Rule 37(b)(2)(A) for failing to comply with a discovery

order, such as dismissal or entry of a default judgment, “the court

must order the disobedient party . . . 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).

Builders contends that defendants “cannot offer any justification

for their behavior.” (ECF No. 176-1 at 12.) Builders notes that it

has spent significant time and expense throughout the discovery

process, which Builders attributes to SES’s failure to comply with

“basic discovery obligations.” (Id.) Accordingly, Builders

requests its costs and fees associated with preparing and

prosecuting its prior Motion to Compel, its Notice of

Noncompliance, and the instant Motion for Sanctions.10 (Id.)

Builders argues that the only fees incurred as a result of

the redacted checks was the filing of the Notice of Noncompliance.

(ECF No. 178 at 8.) Anything beyond that, SES argues, Builders

took upon itself to incur additional costs in pursuing the

alternate avenues of relief. (Id.) The undersigned is inclined to

follow the mandate of Rule 37(b)(2)(C) by awarding attorney’s fees

to Builders for the failure of SES to comply with the court’s May

1, 2019 order. Accordingly, the undersigned GRANTS Builders

request for attorney’s fees for preparing the instant Motion for

Sanctions and its Notice of Noncompliance, as well as the cost and

10Elsewhere in the Motion for Sanctions, Builders seemingly

requests “all fees incurred in discovery since the inception of

the case[.]” (ECF No. 176-1 at 12.) Builders cites no authority to

support the scope of this request, and the undersigned views such

a request as overreaching.

fees associated with Builders’ preparation and appearance at the

October 24, 2019 hearing.

D. Depositions

Moreover, Builders requests the opportunity to re-open

depositions of the defendants. While the court is not inclined to

award default judgment to Builders in this circumstance, the

undersigned finds the request to re-open depositions reasonable

due to the fact that SES deprived Builders of the opportunity to

question the Davises about the altered and withheld documents

during their initial depositions. Accordingly, the undersigned is

inclined to permit Builders to have the opportunity to re-depose

the Davises only on the recent document production of unaltered

bank records, as well as the 897 records from the All-in-One

computer. The request to re-open depositions as described above is

hereby GRANTED. If Builders elects to re-depose the defendants,

said depositions should be completed within 30 days of the entry

of this order.

III. CONCLUSION

For the reasons above, Builders’ Motion for Sanctions is

GRANTED in part and DENIED in part. Within 30 days from the entry

of this order, Builders’ counsel shall file a declaration setting

forth in detail the fees and expenses reasonably incurred as a

result of filing the Notice of Noncompliance, the Motion for

Sanctions, and counsel’s appearance at the October 24, 2019

hearing.

Defendants are hereby warned that any future abuse of the

litigation process or failure to comply with the court’s orders

may result in default judgment and other sanctions under Rule 37.

IT IS SO ORDERED.

s/ Tu M. Pham

TU M. PHAM

United States Magistrate Judge

January 17, 2020

Date