United States District Court, D. Maryland, Southern Division
EDWARD T. LAIOS, et al., Plaintiffs,
MTM BUILDER/DEVELOPER INC., et al., Defendants.
GEORGE J. HAZEL, District Judge.
This is a diversity action brought by Plaintiffs Edward T. Laios ("Laios") and Brightseat Development Associates, LLC ("Brightseat") against Defendants MTM Builder/Developer, Inc. ("MTM") and Dean F. Morehouse ("Morehouse") alleging that Defendant Morehouse abused his authority over Brightseat by giving himself unauthorized payments at the expense of Brightseat and Laios. This Memorandum and accompanying Order address Plaintiffs' Motion for Sanctions (ECF No. 62) relating to Defendants' failure to comply with the Court's Order to answer Plaintiffs' discovery requests. A hearing is unnecessary. See Local Rule 105.6. For the reasons stated below, Plaintiffs' Motion for Sanctions is GRANTED, in part, and DENIED, in part.
Brightseat is a Maryland limited liability company. ECF No. 45 at ¶ 4. Brightseat owns a parcel of real property in Prince George's County, Maryland. Id. Plaintiff Laios and non-party Morehouse Real Estate Investments, LLC each own a 47.5 percent member interest in Brightseat. Id. at, ¶ 14; ECF No. 14 at 13. Gary Laios, who is not a party to this litigation, owns a five percent interest in Brightseat. ECF No. 14 at 13. Defendant MTM is a Virginia corporation and is owned and controlled by Defendant Morehouse. ECF No. 45 at ¶¶ 9-10. MTM is the manager of Brightseat. Id. at ¶ 11.
Plaintiffs allege that MTM secretly paid itself management fees of $5, 000.00 per month from Brightseat funds from September 2011 through at least July 2013. Id. at ¶ 26. Further, Plaintiffs assert that MTM secretly paid itself "development fees" from Brightseat funds totaling $53, 885.51. Id. at ¶ 27. Plaintiffs accuse Morehouse of altering Brightseat's books and records to make it appear as if Brightseat owed Morehouse three quarters of a million dollars. Id. at ¶ 32. Plaintiffs claim that Morehouse also had an $850, 000.000 dead of trust placed on Brightseat's property and then diverted $100, 000.000 of that loan into his personal account. Id. at ¶ 37. Further, Plaintiffs contend that Morehouse used Brightseat funds to pay development fees to a third party incurred by a separate company owned by Morehouse. Id. at ¶ 68. Plaintiffs also assert that Morehouse has consistently refused to allow Laios to inspect Brightseat's books. Id. at ¶ 54. Based on these facts, Plaintiffs have made claims for breach of contract; breach of the fiduciary duties of loyalty, care, obedience, and information; fraud; conversion; fraudulent inducement; and Plaintiff have requested an accounting. ECF No. 45.
Defendants have filed a counterclaim, asserting that Laios is a predatory lender who uses loan agreements as a means of forcing borrowers to forfeit control of their businesses to Laios. ECF No. 14 at 12. Defendants assert that Laios has a duty under the operating agreement to compensate MTM as Brightseat's manager and not to block MTM's right to fees. Id. at 14. Defendants accuse Laios of buying Brightseat's tax lien certificate to force MTM to either forfeit its right to compensation or lose Brightseat to Laios at the tax sale. Id. at 15. Defendants allege breach of contract and request a declaratory judgment that MTM is entitled to compensation and fees. Id. at 16-17.
A Scheduling Order was issued in this case on February 6, 2014. ECF No. 19. On February 18, 2014, Plaintiffs' counsel propounded interrogatories and requests for production of documents on both Morehouse and MTM separately. ECF No. 21. After two months of failing to receive any response, Plaintiffs noted a discovery dispute with the Court on April 22, 2014. Id. On April 24, the Court ordered Defendants to respond to Plaintiffs' first sets of interrogatories and requests for production of documents by May 2. ECF No. 23. These answered were later the subject of a motion to compel more responsive answers. ECF No. 38.
On July 17, 2014, Plaintiff served a second set of requests for production of documents on MTM, and, on July 21, 2014, Plaintiff served a second set of interrogatories on MTM and a second set of requests for production of documents on Morehouse. ECF No. 47 at 1. After receiving no response, on September 2, 2014, Plaintiffs noted another discovery dispute between the parties. Id. On September 4, 2014, the Court ordered Defendants to respond to the second sets of propounded discovery. ECF No. 49.
On October 9, 2014, the Court ruled on the motion to compel more responsive answers to Plaintiffs' first set of interrogatories and requests for production of documents, and in part, ordered Defendants to respond on or before October 15, 2014 to several pending and unobjected to requests. ECF No. 61. Although Defendants did comply with some parts of the Court's Order, Defendants did not respond by October 15, 2014 to the undisputed interrogatories and requests for production of documents. ECF No. 66 at 3. On October 27, 2014, Plaintiffs filed the instant Motion for Sanctions for Violation of the October 9, 2014 Order. ECF No. 62. Defendants responded to the discovery requests on October 31, 2014. ECF No. 66 at 3.
Plaintiffs assert that Defendants should be sanctioned under Fed.R.Civ.P. 37(b)(2)(A), which addresses the failure to obey a discovery order. ECF No. 62. Plaintiffs request that the Court sanction Defendants for their failure to answer several interrogatories by the Court-ordered deadline. Id. "Federal district courts possess great discretion to sanction parties for failure to obey discovery orders." Camper v. Home Quality Mgmt., Inc., 200 F.R.D. 516, 518 (D. Md. 2000) (citing Chambers v. NASCO, Inc., 501 U.S. 32 (1991)). Fed.R.Civ.P. 37(b)(2)(A) provides:
If a party... fails to obey an order to provide or permit discovery, including an order under Rule... 37(a), the court where the action is pending may issue further just orders. They may include the following:
(i) directing that the matters embraced in the order or other designated facts be taken as established for purposes of the action, as the prevailing party claims;
(ii) prohibiting the disobedient party from supporting or opposing designated claims or defenses, or from introducing ...