United States District Court, N.D. Alabama, Southern Division
FRONTIER NATIONAL CORPORATION, Plaintiff/Counterclaim Defendant,
ST. PAUL MERCURY INSURANCE COMPANY, a member of the TRAVELERS COMPANIES, Defendant/Counterclaim Plaintiff.
SHARON LOVELACE BLACKBURN, District Judge.
This case is before the court on defendant/counterclaim plaintiff St. Paul Mercury Insurance Company's (hereinafter, "defendant") Motion to Dismiss for Failure to Comply with Court Order. (Doc. 61.) Upon consideration of the motion, the supporting and opposing memoranda, arguments of counsel, and the relevant law, the court finds that defendant's Motion is due to be denied.
STANDARD OF REVIEW
Defendant seeks to dismiss this action with prejudice for plaintiff's failure to comply with the court's April 14, 2015 Order, (Doc. 59), requiring plaintiff to "fully answer and respond to all outstanding discovery." (Doc. 64 ¶¶ 4, 12.) "[T]he severe sanction of dismissal-with prejudice or the equivalent thereof-should be imposed only in the face of a clear record of delay or contumacious conduct by the plaintiff." McKelvey v. AT & T Techs., Inc., 789 F.2d 1518, 1520 (11th Cir. 1986) (quoting Martin-Trigona v. Morris, 627 F.2d 680, 682 (5th Cir.1980)) (internal quotations omitted). "Moreover, such dismissal is a sanction of last resort, applicable only in extreme circumstances, and generally proper only where less drastic sanctions are unavailable." Id. (citing Searock v. Stripling, 736 F.2d 650, 653 (11th Cir. 1984); E.E.O.C. v. Troy State Univ., 693 F.2d 1353, 1354, 1358 (11th Cir.1982), cert. denied, 463 U.S. 1207, 103 S.Ct. 3538, 77 L.Ed.2d 1388 (1983)).
This action, originally commenced in state court on March 8, 2013, was removed to this court, which has diversity jurisdiction over the case pursuant to 28 U.S.C. § 1332. (Doc. 1.) The original plaintiffs, Frontier Bank and its holding company, Frontier National Corporation ("FNC"), brought claims for breach of contract and bad faith surrounding their insurance policy with defendant, which allegedly entitles them to insurance proceeds based on losses suffered due to the dishonesty of Frontier Bank's former president and CEO, Steven Townson. (Id. at 27-28.) Shortly after removal, the Federal Deposit Insurance Corporation ("FDIC") filed a Notice of Substitution informing the court that it was acting as receiver for and successor in interest to Frontier Bank. (Doc. 4 at 1.) In its Answer, defendant counterclaimed against plaintiffs, seeking a declaration that the policy did not cover the alleged losses. (Doc. 6 at 9-10.)
The FDIC and defendant subsequently filed a joint motion pursuant to Rule 41(a)(2) to dismiss with prejudice all claims asserted by the FDIC and defendant against each other. (Doc. 25.) The court granted the motion "without prejudice to the claims asserted by Frontier National Corporation and all claims and defenses of St. Paul related thereto." (Doc. 26.) Defendant filed a motion to dismiss, asserting that the actions of the FDIC in dismissing its claims extinguished "any theoretical claim of the co-Plaintiff FNC." (Doc. 27 at 2.) The court denied the motion without prejudice, but found that the "complaint does not allege facts sufficient to state a claim against defendant" and that "it would also appear that plaintiff lacks standing to assert the claims" and gave FNC an opportunity to replead. (Doc. 31.)
FNC filed its First Amended Complaint on March 14, 2014, (Doc. 32), and thereafter, defendant sent discovery requests in November of 2014, including Supplemental Discovery Requests, which defendant attached to its Motion as Exhibit A. ( See Doc. 61-1.) On January 9, 2015, the two attorneys representing FNC filed a Motion to Withdraw, (Doc. 43), which the court granted on March 23, 2015, (Doc. 51). Plaintiff's current counsel filed a Notice of Appearance on February 5, 2015, (Doc. 48), and remains, to date, plaintiff's only counsel of record. Pursuant to discussion with counsel, the court entered an Order on April 14, 2015 granting FNC's new counsel until May 15, 2015 "to fully answer and respond to all outstanding discovery, " which included the Supplemental Discovery Requests issued on November 25, 2014. (Doc. 59.)
On May 6, 8, 13, and 15, plaintiff's counsel electronically delivered two letters listing information and documents and sent several documents to defendant, which included a spreadsheet listing Townson's compensation during various years from 1999 to 2011, an Amended and Restated Employment Agreement allegedly altered by Townson, the Lindsay Wilkinson affidavit, "numerous meeting minutes of FNC's Board of Directors and its Compensation Committee, " and accounting reports from auditors hired by FNC. ( See Doc. 61 ¶ 5; Docs. 61-2, 61-3.) By plaintiff's own admission, these responses were sent in a "piecemeal fashion" and were not "formal responses" to defendant's interrogatories and requests for production. ( See Docs. 61-3, 64.) After defendant filed the Motion to Dismiss for Failure to Comply with Court Order, (Doc. 61), on May 22, 2015, FNC sent defendant formal responses to the Supplemental Discovery Requests on May 29, 2015, (Doc. 64-1), and filed an Opposition to Defendant's Motion to Dismiss on June 12, 2015, (Doc. 63). Defendant filed its Reply on June 24, 2015. (Doc. 64.)
FNC, the holding company for Frontier Bank, employed Steven Townson as the president and CEO of the bank beginning around August 24, 1998. (Doc. 32 ¶ 5.) Between August 24, 1998 and March 1, 2004, FNC went from paying Townson an annual salary of $125, 000.00 (plus board fees) to paying him $244, 000.00. (Id. ¶¶ 5-11.) In September 2000, Townson's salary was increased to $170, 000.00 annually without approval by FNC's Board or Compensation Committee, ( id. ¶ 8), and in August 2002, "Townson was given a $15, 000 increase in his salary, " (Id. ¶ 9). In 2006, Townson instructed FNC's Corporate Secretary to raise his salary to $245, 000.00 without prior approval. (Id. ¶ 12.) Then, in November 2008 and again in November 2009, Townson received bonuses, debt forgiveness, and money to defray his taxes totaling $358, 500 without the FNC Board's knowledge or consent. (Id. ¶¶ 13-15.) FNC alleges that these overpayments were obtained through fraud. ( See id. ¶ 15.)
In December 2011, FNC notified defendant, who had issued it a "financial institution bond... insuring FNC against, among other things, employee dishonesty, " of "its intent to file a claim under the Bond and that discovery of its losses was ongoing." (Id. ¶¶ 25-26.) In January 2012, FNC terminated Townson for cause, and that summer, Townson filed bankruptcy. (Id. ¶¶ 23-24.) FNC filed a proof of loss on August 10, 2012 regarding the "fraudulently obtained compensation and benefits, " and purporting to "reserve the right to make additional allegations and provide supporting documents." (Id. ¶¶ 27-28.) FNC and Frontier Bank had difficulty contacting defendant's agent assigned to adjust FNC's loss, and the agent appeared unfamiliar with the proof of loss at a meeting with FNC's directors and others in Atlanta. (Id. ¶¶ 31, 34.) From this, plaintiff inferred that defendant was concentrating on investigating plaintiff's and Frontier Bank's weak financial condition and delaying adjusting its claim "in the hopes that [Frontier] Bank would fail and that the FDIC or new owner of the Bank[s] claims would not pursue the claims against [defendant] under the Bond." (Id. ¶¶ 29-30.)
Defendant argues that this case should be dismissed with prejudice because "[n]either FNC's informal' timely production nor its untimely formal' responses to St. Paul's Supplemental Requests constitute full and complete responses to St. Paul's outstanding discovery, and accordingly FNC is in violation of the [court's] Order, " (Doc. 64 ¶ 5), while plaintiff contends that it has "fully complied" with defendant's discovery requests, (Doc. 63 ¶ 15). Having reviewed defendant's Supplemental Discovery Requests and plaintiff's responses thereto, the court agrees that plaintiff failed to adequately respond to defendant's discovery requests in both its "informal" and "formal" discovery responses. For example, in the first interrogatory,  defendant seeks an itemization of the claim FNC is asserting against St. Paul, "including... a specification of the amount of employee compensation you contend was wrongfully received by Steven Townson itemized as to salary, bonuses, debt forgiveness, and any other form of employee compensation you contend was improperly paid to or received by Townson." (Doc. 64-1 ¶ 1.) Plaintiff responds that it previously provided an itemization, but the spreadsheet, to which the court assumes plaintiff is ...